Contract Defenses - Capacity, Illegality, Duress, and Undue Influence Flashcards
Capacity - Minors
A K made by a minor is voidable by that minor. The technical name for this is DISAFFIRMANCE. The minor cancels the K because it’s voidable. If the other party is an adult, the adult does not have a choice. If a 16 yr old buys a car from a used car salesman, he can’t cancel the contract. But if the 16yo changes his mind, he can DISAFFIRM it.
The 16yo can drive it for a year AND GET EVERY SINGLE PENNY OF HIS MONEY BACK. Even if he crashes it, he can still get all the money back. Stolen? Still gets money back and disaffirms. Minor can disaffirm the K all the way up until age 18.
EXCEPTIONS: Contracts for necessaries or necessities. Things like food, clothing, shelter, medical care. A teenager can’t take back his McDonalds back to disaffirm the contract on that. The minor could still disaffirm the contracts, but they would have to pay the value of the benefits received, albeit not the contract price.
EXCEPTION: A minor can still disaffirm within a month or two “reasonable time” after reaching the age of majority (18). If they don’t disaffirm soon enough, the contract SOLIDIFIES. The minor is then bound.
Capacity - Mental Issues
Lack of mental capacity = contract voidable if a person’s mental capacity is so deficient that they cannot understand the nature of the contract. A person may void the K when lucid or a guardian may do so for him.
Voluntary intoxication: alcohol, LSD, whatever, can make the agreement voidable IF the other party had reason to know of the intoxication. Was the guy obviously drunk? No K. Or was the intox subtle? If so, there is a K.
Involuntary intoxication: say someone drugs you or you have an unexpected reaction to prescription drugs? Treated like mental capacity -> they can void it if the person could not have understood the nature of the K, even if the other party didn’t know they were drugged.
Illegality
Illegality = the subject matter or consideration is illegal. If a state prohibits gambling, then it’s illegal and not enforceable. Drug deals too. Hiring a hitman. Etc.
Exception: If a contract is unlawful because one of the parties doesn’t have a required license and the license was only required as a revenue-raising measure, the court will enforce the contract. So, a JD who is practicing law without a license from the Bar can’t enforce his contract, but a street peddler who is unlicensed just because of a city’s licensing requirement IS able to enforce his contract.
Duress
Physical Duress = threatening to do physical harm to the contracting party or someone else. Renders the contract VOID. Not just voidable.
Economic Duress = taking advantage of the other party’s economic needs. In most cases it’s usually not a defense. You can totally take advantage of desperate people (legally…). Economic duress USUALLY isn’t a defense.
When is economic duress a defense?
1) When the other party threatens to commit a wrongful act that seriously threatens the other party’s property or finances AND
2) the other party has no other means to prevent the threatened loss.
Example: say Harry calls a contractor Kathy and will only pay her 40k instead of 50k. He says well you may want to rethink that because if you don’t agree then I’ll tell all my friends you suck and write a bad review. So she agrees to do the job but then backs out. He pays someone else to do it for 50k and sues her for the 10k difference. She can use economic duress as a defense here.
Taking advantage of the desperate is ok but not blackmail…
Undue Influence
UI arises when someone is susceptible to pressure. Happens with a confidant or a caregiver who pressures the person into an unfair contract.
Say an elderly man employs an aid to help him pay bills, do banking, clean up around the house, etc. She convinces him to sell her the house. So he agrees. If so, now the man can bring suit to have the K declared void for undue influence.
Unconscionability
Allows the court to refuse to enforce unfair contracts or even unfair terms within a contract. Determined by the circumstances at the time the contract was formed. 2 types of unconscionability:
1) Unfair Surprise = one party slipped a term into a K like clauses on pg 17 in small print shifting risk. That’s an inconspicuous risk shifter and you can’t do that.
2) Unequal Bargaining Power = where one party holds all the cards. Contracts of adhesion. Courts don’t like them. What if every car manufacturer had to waive warranty rights and all car dealers did this? We need cars. That’s not gonna fly. Contracts of adhesion are unconscionable.
Most courts will not find unconscionable based on price alone. You’re free to suck at trading.
