Defenses to Contract Formation

Why This Matters

Contract defenses are the safety valves of contract law—they prevent the legal system from enforcing agreements that shouldn't be binding in the first place. You're being tested on your ability to identify when a seemingly valid contract can be challenged and why the law provides these escape hatches. These defenses appear constantly on exams because they force you to analyze the quality of consent, the fairness of terms, and the boundaries of what courts will enforce.

Understanding these defenses means grasping the core principles they protect: voluntary consent, informed decision-making, fundamental fairness, and public welfare. Don't just memorize that "duress makes a contract voidable"—know that duress undermines the voluntariness that makes a promise legally binding. When you can identify which principle a defense protects, you can spot issues in complex fact patterns and craft stronger exam answers.

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Defects in Capacity to Contract

These defenses address whether a party had the legal ability to form a binding agreement in the first place. The law requires that contracting parties possess sufficient mental capacity to understand the nature and consequences of their agreement.

Lack of Capacity

• Minors (typically under 18) can disaffirm most contracts—the exception is contracts for necessities like food, shelter, and medical care, which remain enforceable
• Mental incompetence renders contracts void if a court has adjudicated incapacity, or voidable if the person lacked understanding at the time of contracting
• Intoxication creates a defense only when the impairment prevented understanding the contract's nature and the other party knew or should have known of the condition

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Defects in Voluntary Consent

These defenses attack the quality of a party's agreement—even someone with full capacity can be excused if their "yes" wasn't truly voluntary. A contract requires genuine assent, not just the appearance of agreement.

Duress

• Coercion through unlawful threats makes contracts voidable at the option of the threatened party—the threat must be wrongful or illegitimate
• Physical duress involves threats of bodily harm, while economic duress involves wrongful threats to financial well-being (e.g., "sign or I'll breach our other contract")
• The victim must have no reasonable alternative—if they could have walked away or sought legal help, the duress claim weakens significantly

Undue Influence

• Abuse of a confidential relationship allows the influenced party to void the contract—common relationships include attorney-client, guardian-ward, and caregiver-patient
• Two elements required: a relationship of trust or dominance plus unfair persuasion that overcomes the weaker party's free will
• Distinguishable from duress because it involves manipulation and exploitation of trust rather than overt threats

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Defects in Informed Consent

These defenses apply when a party's decision was based on false or incomplete information. The law requires that parties understand what they're agreeing to—consent based on falsehood isn't meaningful consent.

Misrepresentation

• False statement of material fact that induces reliance—the misrepresentation must concern something important enough to affect the decision to contract
• Three varieties: innocent (honestly believed true), negligent (should have known better), and fraudulent (intentionally false)
• Remedies vary by type—innocent misrepresentation typically allows only rescission, while negligent and fraudulent misrepresentation may also support damages

Fraud

• Five elements required: false representation, of a material fact, made with knowledge of falsity (scienter), with intent to induce reliance, and actual justifiable reliance causing harm
• Fraud in the factum (deception about the document's nature) makes contracts void, while fraud in the inducement (deception about terms or circumstances) makes them voidable
• Remedies include rescission and tort damages—the defrauded party can choose to affirm the contract and sue for damages or rescind and seek restitution

Mistake (Mutual and Unilateral)

• Mutual mistake about a basic assumption affecting the contract's essence makes the contract voidable by the adversely affected party—think of the famous Sherwood v. Walker case (the barren cow that wasn't)
• Unilateral mistake generally provides no defense unless the non-mistaken party knew or should have known of the error, or enforcement would be unconscionable
• The mistake must concern existing facts, not future predictions or judgments about value—a bad business prediction isn't a "mistake" in the legal sense

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Defects in Contract Terms and Purpose

These defenses focus not on how the contract was formed, but on what it contains or what it's designed to accomplish. Courts won't enforce agreements that violate fundamental fairness or societal interests.

Unconscionability

• Procedural unconscionability examines how the contract was formed—look for unequal bargaining power, hidden terms, high-pressure tactics, or lack of meaningful choice
• Substantive unconscionability examines what the terms say—one-sided provisions that "shock the conscience" of the court
• Courts typically require both types to refuse enforcement, though a strong showing of one may compensate for a weaker showing of the other

Illegality

• Contracts for illegal purposes are unenforceable—neither party can sue to enforce an agreement to commit a crime or violate a statute
• The illegal provision may be severable—if the illegal portion can be removed without destroying the contract's essential purpose, courts may enforce the remainder
• In pari delicto (equally at fault) doctrine typically leaves both parties where it finds them—no recovery for either side

Public Policy

• Contracts contrary to public welfare are unenforceable even if not technically illegal—examples include unreasonable non-compete agreements and contracts waiving liability for intentional harm
• Courts balance freedom of contract against societal interests—the restraint must substantially harm the public to trigger this defense
• Closely related to illegality but broader—public policy can invalidate contracts that don't violate any specific statute

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Formal Requirements Defense

This defense doesn't attack the substance of the agreement but rather the form in which it was made.

Statute of Frauds

• Certain contracts must be in writing to be enforceable—remember the mnemonic MY LEGS: Marriage, Year (contracts not performable within one year), Land, Executor promises, Goods over $\$500$ (UCC), and Surety (guaranteeing another's debt)
• The writing must contain essential terms and be signed by the party against whom enforcement is sought—it doesn't need to be a formal contract
• Exceptions prevent unfairness: partial performance (especially for land), specially manufactured goods, judicial admissions, and promissory estoppel may take a contract outside the Statute

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Quick Reference Table

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Self-Check Questions

1. Both duress and undue influence involve overcoming a party's free will. What distinguishes them, and how would you identify which defense applies in a fact pattern involving a family member pressuring an elderly relative?

2. A buyer purchases a painting believing it's an original Monet, but the seller made no representations about authenticity. The painting turns out to be a copy. Which defense might apply, and what would the buyer need to prove?

3. Compare fraud in the factum with fraud in the inducement. Why does the law treat one as making the contract void and the other as merely voidable?

4. An employment contract contains a clause requiring the employee to pay $\$50,000$ if they quit within five years. The employee had no opportunity to negotiate and was told to "sign now or lose the job offer." What defense(s) might apply, and what elements would you need to establish?

5. A contract for consulting services was negotiated entirely over the phone and never reduced to writing. The services were to be performed over 18 months. What defense applies, and what exceptions might the party seeking enforcement argue?