Defenses:

Minority
Dodson v. Shrader: One rescinding a contract because of minority is not always entitled to
recover the full purchase price.
-​ Traditional rule = minor can disaffirm or avoid a contract, even if there has been full
performance, and the minor cannot return to the adult what was received in the
exchange
-​ Dodson court = requires disaffirming minor to pay “reasonable compensation for the use
of, depreciation, and willful or negligent damage to the article purchased, while in his
hands” (at least when a minor is seeking return of the payment)
-​ Minor is liable for the reasonable value of “necessaries”
-​ If a minor enters into a contract which does not involve necessaries, the contract is not
void but “voidable” at the election of the minor
-​ Emancipated minors are generally treated as adults for contracting purposes
Mental Incapacity
Hauer v. Union State Bank: if the contract is made on fair terms and the other party has no
reason to know of the incompetency, the contract ceases to be voidable where the performance
But if the other party knew of the incompetency, then the contract is void
Adult is presumed to be competent until proved otherwise and the burden is on the person
Test for determining competency = whether the person involved has sufficient mental ability to
be able to understand what they were doing and the nature and consequences of the
transaction
-​ if the contract is made on fair terms and the other party has no reason to know of the incompetency, the contract ceases
to be voidable where the performance has been substantially executed or significantly relied upon by the
non-incompetent party
-​ But if the other party knew of the incompetency, then the contract is void
Sparrow v. Demonico: Medical evidence is necessary to establish that a person lacked the
capacity to contract due to a mental condition.
-​ Even without formal adjudication of incompetence, contract law provides that a person
may lack contractual capacity, as recognized by the court in sparrow
-​ Traditional test for incapacity = “cognitive” test where a person lacks capacity to enter
into a contract if the person is unable to understand the nature of the transaction or its
consequences
-​ More modern test for incapacity = “volitional” test looks at whether the person is unable
to act reasonably in the transaction and the other party has reason to know of the
condition
-​ Burden of proof is on the party seeking to avoid the contract
Incapacity from intoxication
-​ Restatement 16 = contract is voidable if a party has reason to know that b/c of
intoxication the other person is unable to either understand the transaction or act in a
reasonable manner
-​ Compulsive alcoholism may be a form of mental illness or voluntary
Physical Duress
Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.: A settlement and release may
be rescinded due to the existence of economic duress.
 -​ Void = made under physical compulsion with “actual physical force” to appear to sign a
contract or otherwise manifest assent
Duress by Threat
-​ Void = Some courts have recognized more broadly that coercion involving a threat of
physical harm may also result in ineffectual assent and a void contract
-​ Physical compulsion is sufficient to render a contract void if there is a “threat of
imminent physical violence” to get a person to sign a document
Economic Duress
-​ Voidable = Party claims to be the victim of economic coercion rather than physical
compulsion or a threat of physical violence
Undue Influence
Odorizzi v. Bloomfield School District: Where a dominant party to a transaction uses excessive
pressure to persuade a party whose weakened mental state makes him especially susceptible
to persuasion, the weaker party may rescind the agreement as obtained by undue influence.
-​ Essence of undue influence as involving the use of excessive pressure by a dominant
party in overcoming the will of a vulnerable person
-​ Restatement says it is involving “unfair persuasion of a party who is under the
combination of the person exercising the persuasion or who by virtue of the
relation between them is justified in assuming that that person will not act in a
manner inconsistent with his welfare”
-​ Voidable
Misrepresentation
Syester v. Banta: A contract may be deemed unenforceable due to fraudulent
misrepresentation.
-​ Fraudulent or material misrepresentation = voidable if a party’s “manifestation of assent
is induced by either a fraudulent or a material misrepresentation by the other party upon
which the recipient is justified in relying”
-​ Misrepresentation based on false opinion or prediction = restatement defines an
opinion as an expression of a belief, without certainty, as to the existence of a
fact
Nondisclosure
Hill v. Jones: Where a seller of real property knows of facts that materially affect the value of the
property and are not readily observable and known to the buyer, the seller has a duty to disclose
these facts to the buyer.
-​ Modern view is that a failure to disclose a known material fact may justify rescission of a
contract
-​ Normally limited situations but the broader basis for relief is: when the nondisclosure
amounts to a failure to act in accordance with standards of good faith and fair dealing
Fraud
-​ Used loosely. 3 different types:
1.​ Actual fraud = fraudulent inducement
2.​ Fraudulent nondisclosure = fraud by silence
3.​ Fraudulent concealment = cover ip in both a literal and figurative sense
 -​ Voidable - misrepresentation of material facts may be the basis of an action to rescind a
contract even if made innocently
Unconscionability
Williams v. Walker-Thomas Furniture Co.: If an element of unconscionability is present at the
time of contract formation, the resulting contract is not enforceable.
-​ Unconscionability = consists of “an absence of meaningful choice on the part of one of
the parties together with contract terms which are unreasonably favorable to the other
party” → void
-​ Procedural unconscionability = may refer to either lack of choice by one party or
some defect in the bargaining process
-​ Substantive unconscionability = fairness of the terms of the resulting bargain
Public Policy
-​ Although the process of contract formation is untainted, a contract may still be
unenforceable because the contract itself either violates or runs directly contrary to some
public policy
-​ Often unenforceable because of “illegality” but that term is a misnomer b/c the
contract might not be illegal
Valley Medical Specialists v. Farber: Public policy requires that restrictive covenants between
physicians be strictly scrutinized for reasonableness.
-​ Courts often state that there is a strong public interest in freedom of contract and there
must be a well-established basis for any public policy that would deny enforcement of a
contract
Mutual Mistake
-​ Voidable
-​ Both parties make a mistake
-​ Can be denied when a contract contained an “as is” or similar clause
Unilateral Mistake
BMW Financial Services NA, LLC v. Deloach: A contract may be rescinded based on mistake of
fact if the party seeking rescission made a mistake regarding a basic assumption in the contract,
the mistake had a material adverse effect on the agreed-upon exchange, the party did not bear
the risk of mistake, and enforcement of the contract would be unconscionable on account of the
mistake.
-​ Party seeking to avoid a contract for a mistake he alone made, must at least meet the
same requirements that he would have to meet had both parties been mistaken
1.​ A mistake
2.​ Of one party
3.​ At the time the contract was made
4.​ The mistake goes to a basic assumption on which the mistaken party made the
contract
5.​ The mistake has a material effect on the agreed exchange of performances that
is adverse to the mistaken party
6.​ The mistaken party does not bear the risk of the mistake under 154, AND
 7.​ The effect of the mistake is such that enforcement of the contract would be
unconscionable OR the other party has reason to know of the mistake or the
other party caused the mistake
Impossibility
Impracticability
Frustration