29Contracts

Defenses: Capacity, Duress & Undue Influence

Formation defenses that render a contract voidable: lack of capacity (minors, mental incapacity, intoxication), duress (physical and economic), undue influence, misrepresentation (fraudulent and innocent), and unconscionability. These defenses do not prevent formation but allow the disadvantaged party to avoid the contract.

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Learning Objectives

Analyze mental capacity defenses: minors' right to disaffirm, mental incapacity under cognitive and volitional tests
Distinguish physical duress (voidable) from economic duress (harder to establish)
Identify undue influence: unfair persuasion of a party under domination or who has placed trust in the other
Apply unconscionability (procedural + substantive) as a court-imposed defense
Distinguish void contracts from voidable contracts and explain the consequences of each

Key Rules

Minors: Contracts with minors are VOIDABLE at the minor's option. Minor may disaffirm at any time during minority or within a reasonable time after reaching majority. Exception: necessities (food, shelter, clothing, medical) — minor liable for reasonable value.
Duress: A contract obtained through (1) physical threats or (2) improper economic pressure that leaves no reasonable alternative is voidable. Economic duress requires: wrongful threat + no reasonable alternative + threat induced agreement.
Undue influence: Unfair persuasion of a person (1) under the domination of the persuader, or (2) who justifiably assumes the persuader would not act in a way inconsistent with their welfare. Often arises in confidential relationships (attorney-client, trustee-beneficiary, family).
Unconscionability: Contract or clause is unenforceable if unconscionable at the time of formation. Requires BOTH: procedural (unfair surprise, unequal bargaining, no meaningful choice) AND substantive (unreasonably favorable terms). Court may refuse to enforce, strike the clause, or limit application.
Misrepresentation: A contract induced by material misrepresentation is voidable. Fraudulent misrepresentation requires scienter (knowledge of falsity or reckless disregard). Innocent misrepresentation also makes the contract voidable if the misrepresentation was material.

Defenses: Capacity, Duress & Undue Influence

Void vs. Voidable

| Void | Voidable | |------|----------| | No contract ever existed | Contract exists but may be cancelled | | Cannot be ratified | Can be ratified (affirmed) | | No enforcement possible | Enforceable until avoided | | Illegal contracts | Contracts with minors, duress, fraud |

Capacity Defenses

Minors

- Contracts are voidable at the minor's option - Disaffirmance: Minor may cancel at any time during minority or within reasonable time after turning 18 - Ratification: After reaching majority, minor may affirm (explicitly or by conduct — like continuing to use goods) - Necessities exception: Minor liable for reasonable value of necessities (food, shelter, clothing, medical care)

Mental Incapacity

- Cognitive test: Person unable to understand the nature and consequences of the transaction - Volitional test: Person unable to act reasonably in relation to the transaction AND other party has reason to know

Duress

Physical Duress

Contract obtained by physical force or threat of physical harm = VOIDABLE (some say void)

Economic Duress

1. Wrongful or improper threat 2. No reasonable alternative available to the victim 3. The threat actually induced the agreement

Unconscionability

Requires BOTH: - Procedural: How the contract was formed (surprise, no choice, fine print, illiterate party) - Substantive: What the terms are (grossly unfair, one-sided, unreasonable)

Baby Bar Connection

Defenses to formation are tested whenever a fact pattern suggests unfairness in the agreement process. Look for: age of parties, power imbalances, surprise terms, threats, and relationships of trust.

Cases to Know

Halbman v. Lemke (1980) — minor can disaffirm and need only return property in current condition
Williams v. Walker-Thomas Furniture (1965) — unconscionability: cross-collateral clause in consumer contract; procedural + substantive elements

Baby Bar Relevance

Formation defenses appear on the Baby Bar when fact patterns involve power imbalances, unfair terms, or vulnerable parties. Minors' contracts and duress are the most commonly tested of these defenses.

Week 28 Back to Dashboard Week 30

Defenses: Capacity, Duress & Undue Influence

Learning Objectives

Analyze mental capacity defenses: minors' right to disaffirm, mental incapacity under cognitive and volitional tests

Distinguish physical duress (voidable) from economic duress (harder to establish)

Identify undue influence: unfair persuasion of a party under domination or who has placed trust in the other

Apply unconscionability (procedural + substantive) as a court-imposed defense

Distinguish void contracts from voidable contracts and explain the consequences of each

Key Rules

Minors: Contracts with minors are VOIDABLE at the minor's option. Minor may disaffirm at any time during minority or within a reasonable time after reaching majority. Exception: necessities (food, shelter, clothing, medical) — minor liable for reasonable value.

Duress: A contract obtained through (1) physical threats or (2) improper economic pressure that leaves no reasonable alternative is voidable. Economic duress requires: wrongful threat + no reasonable alternative + threat induced agreement.

Undue influence: Unfair persuasion of a person (1) under the domination of the persuader, or (2) who justifiably assumes the persuader would not act in a way inconsistent with their welfare. Often arises in confidential relationships (attorney-client, trustee-beneficiary, family).

Unconscionability: Contract or clause is unenforceable if unconscionable at the time of formation. Requires BOTH: procedural (unfair surprise, unequal bargaining, no meaningful choice) AND substantive (unreasonably favorable terms). Court may refuse to enforce, strike the clause, or limit application.

Misrepresentation: A contract induced by material misrepresentation is voidable. Fraudulent misrepresentation requires scienter (knowledge of falsity or reckless disregard). Innocent misrepresentation also makes the contract voidable if the misrepresentation was material.