Defenses — Contracts

Tessa is seventeen. She pays $6,000 cash for a used pickup and drives it every day for four months. She dents a fender in a parking lot. The truck is now worth about $4,200. Two weeks before her eighteenth birthday she hands back the keys and demands all $6,000 back. The dealer says she should absorb the drop in value. Who wins?

Tessa. Under the majority rule she returns what she still has and owes nothing for use or depreciation. And notice what her contract was not. It was never void. It was voidable, and only she could undo it. That distinction is the spine of this topic, and most wrong answers miss it. By the end you will name the defense, run its elements, and state the consequence.

Here is the route. First the framework, void, voidable and unenforceable, because every answer depends on it. Then six families of defense. Incapacity. Duress and undue influence. Mistake and misunderstanding. Fraud, misrepresentation and silence. Illegality and public policy. And unconscionability, where a judge simply refuses to enforce the deal.

Start with the three words that decide most of these questions. A void contract is no contract at all, a nullity from the start, and neither side can enforce it. A voidable contract is real and valid, but one party, the protected party, may either affirm it or cancel it. Until they cancel, it binds everyone. An unenforceable contract is valid, but a court will not enforce it.

Here is the pattern to memorize. Most defenses make a contract voidable at the option of the protected party. Make that your default. Only four things make a contract truly void. Physical-force duress. Fraud in the factum. A contract by someone already adjudicated incompetent. And illegal subject matter. Learn those four as a closed list. Calling every defense void is the most common mistake here.

One housekeeping point. For a sale of goods, UCC Article 2 governs. But § 1-103(b) says the general principles of law and equity supplement the Code, and it names capacity, fraud, misrepresentation, duress and mistake. They apply to goods too.

Incapacity first, and the protection runs one way. A person under 18 lacks capacity, so the contract is voidable by the minor and the adult is fully bound. She may disaffirm any time before turning 18 and for a reasonable time after, by words or by conduct inconsistent with the deal. On disaffirmance she returns whatever she still has. Under the majority rule that is all, which is why Tessa keeps her $6,000.

A growing minority makes her account for depreciation. After majority the former minor can ratify, which ends the power to disaffirm. Express words, conduct such as keeping the goods and continuing to pay, or simply failing to disaffirm in a reasonable time. The trap is timing. A person cannot ratify while still a minor.

Then the exception that matters most. Necessaries. A minor who disaffirms still owes the reasonable value of necessaries actually furnished, food, clothing, shelter, medical care. Notice the measure. Reasonable value, not the contract price, because the liability is in restitution. A sixteen-year-old on his own agrees to $1,200 for an emergency root canal worth $800. He owes $800.

Mental incapacity has two tests, and satisfying either makes the contract voidable. The cognitive test asks whether the person could reasonably understand the nature and consequences of the transaction. The volitional test asks whether they could understand it but could not act reasonably about it, and it carries a second element. The other party had reason to know.

One wrinkle flips voidable to void. Once a court has adjudicated a person incompetent and appointed a guardian, they have no power to contract at all, so their lucidity that afternoon is beside the point. Intoxication, by contrast, is least favored, because it is usually self-inflicted. A drunken signature is voidable only if the other party had reason to know the intoxication left the person unable to understand the deal.

Duress and undue influence attack how consent was obtained. Duress comes in two flavors with very different results. Physical compulsion is the extreme case. Someone closes your hand around a pen while you sign. There is no contract at all. Void, because the victim never made a choice.

Duress by threat is the common one, and it only makes the contract voidable. Three pieces. An improper threat, that actually induces the victim's assent, leaving no reasonable alternative but to give in. A threat is improper when it threatens a crime or a tort, criminal prosecution, bad-faith civil process, or a bad-faith breach of contract.

That last one is economic duress. Pay forty percent more or I stop delivery, said by the only supplier who can meet your deadline. If you cannot cover in time and no lawsuit will make you whole, the coerced modification is voidable. Quick challenge. Your landlord says renew at a higher rent or I let the lease expire. Duress?

No. Threatening to do what you have a legal right to do is not improper, however much leverage it gives. Hard bargaining is not duress. The threat must be wrongful, and a reasonable alternative usually defeats the claim.

Undue influence is subtler. No threats at all, just unfair persuasion of someone especially vulnerable. It appears where the victim is dominated by the persuader, or where the two share a relationship of trust and confidence. Caregiver and patient. Adult child and elderly parent. Lawyer and client.

Look for pressure at an unusual time or place, insistence on closing now, several persuaders, and steering the victim away from a lawyer or family. The classic pattern is a grieving, dependent person signing for the caregiver they rely on. Result, voidable.

Mistake means a belief that does not match the facts at the time of contracting. Not a bad prediction about the future. Mutual mistake has five elements. Both parties mistaken, at the time of contracting, about a basic assumption the contract rests on. A material effect on the agreed exchange. And the party seeking relief did not bear the risk.

Then it is voidable by the party the mistake hurts. A homeowner sells an old painting at a yard sale for $50 and both sides believe it is a worthless print. It is an original worth $400,000. Both were wrong about a basic fact, so the seller may rescind.

Unilateral mistake is harder, because the other side did nothing wrong and may have relied. Same core elements, plus one extra thing. Either enforcement would be unconscionable, or the other party knew, had reason to know, or caused the mistake. That second branch is the exam's favorite.

A subcontractor drops a $40,000 line item and bids $95,000 when every competitor sits near $135,000. The general contractor sees the outlier, suspects the slip, and grabs it. Because he had reason to know, the subcontractor can rescind. Had he not noticed and reasonably relied, the bidder would be stuck.

Now the hinge for both kinds. Who bore the risk? A party who bears it cannot use the defense at all. You bear it when the contract assigns it to you, as in an as-is sale. Or when you are consciously ignorant, knowing your information is thin and proceeding anyway. Or when a court decides it is reasonable to put it on you. Which is why a mistake about market value almost never wins.

Misunderstanding is a different animal. The words are ambiguous and both sides honestly read them differently. Say they attach materially different meanings to a key term, and neither knew nor had reason to know of the other's meaning. Then there is no mutual assent, and no contract at all. If one of them did know, the court enforces the innocent party's meaning.

Scrivener error is different again. The parties agreed perfectly and the writing botched it, a typo dropping a zero. The remedy is reformation, not rescission. The court rewrites the document to match the real agreement, on clear and convincing evidence. It fixes the paper, not the bargain.

Now deception. To make a contract voidable for misrepresentation, the deceived party shows a false assertion of fact, that was fraudulent or material, which induced their assent, on which reliance was justified. That word or carries enormous weight.

A fraudulent misrepresentation is one the maker knew was false, made intending to induce assent. That state of mind is scienter, and a fraudulent misrepresentation need not be material. A deliberate lie about something trivial still lets the victim out. A material one is likely to induce a reasonable person, and materiality is required only when the misstatement is innocent or negligent.

Reliance must also be justified, so relying on an obvious falsehood or pure puffery generally is not. Second quick challenge. A seller rolls his odometer back and never says a word about mileage. No statement, so no misrepresentation?

No. That is active concealment, a lie told with conduct, and the law treats it exactly like an assertion that the fact does not exist. No duty to speak is required. Plain silence is different. The starting point is caveat emptor. You generally have no duty to volunteer bad facts.

But silence becomes misrepresentation in four situations. To correct an earlier half-truth. To correct the other party's mistake about a basic assumption where staying quiet violates good faith, the hidden termites case. To correct their mistake about the writing's contents. Or where a relationship of trust and confidence entitles them to know.

The half-truth is the one the exam loves. Asked about water, a seller says the basement has never flooded. Literally true. He also knows the roof leaks every spring and has painted over the stains. The paint is concealment, the answer is a half-truth, and the buyer can rescind.

Now the remedies, and the split is sharp. Any misrepresentation that is fraudulent or material supports rescission and restitution. Unwind the deal, get the money back. That holds even for an innocent material misstatement. Only a fraudulent one also supports the tort of deceit, a claim for damages.

One more split, and it decides void against voidable. In fraud in the inducement, you know you are signing a contract but a lie about the facts tricked you into it. Voidable. In fraud in the factum, you are deceived about what the document even is. Sign here for a free magazine, and the paper is a promissory note. No assent, so the note is void.

Illegality next. If the subject matter is illegal, a deal to fix prices or sell drugs, the contract is void and neither side enforces it. The default on recovery is harsh. Courts leave the parties where they find them, because both are wrongdoers. That is in pari delicto, in equal fault.

Three escape valves let a party recover anyway. A party not equally at fault. A party in the class the law meant to protect. And a party who withdraws before the illegal purpose is carried out, which the law calls locus poenitentiae. Plus severability, if the illegal part cuts out cleanly.

Public policy reaches deals that are not criminal but courts still refuse to back. A covenant not to compete is enforceable only if reasonable in duration and geographic scope, tied to a legitimate interest, and not unduly harsh. That is state law and it varies widely. There is no federal ban. The 2024 FTC rule that would have created one was struck down and rescinded.

Exculpatory clauses are void as to gross negligence or intentional harm, while waivers of ordinary negligence are often allowed outside areas of great public interest. Licensing turns on the license's purpose, so read the statute.

The Franklin Contractors Licensing Act, § 12, bars unlicensed residential construction, says the requirement exists to protect the public from unsafe work, and forbids any action for compensation. So an unlicensed contractor who does excellent work still loses. Make it a revenue-raising license and the result flips.

Last, unconscionability, the safety net for a deal so unfair that enforcing it would shock the conscience. It runs at common law under Restatement (Second) of Contracts § 208 and, for goods, under UCC § 2-302. Two framing points. It is judged as of the time the contract was made, not by how the deal turned out. And it is a question of law for the judge, never the jury.

Most courts want both, on a sliding scale, where a lot of one offsets a little of the other. Procedural unconscionability is unfairness in the bargaining process. Unequal power, a take-it-or-leave-it adhesion form, hidden fine print, high-pressure selling. Substantive is unfairness in the terms themselves, a wildly excessive price or a remedy stripped from one side only.

A door-to-door seller sells a $300 freezer for $1,400 on credit to a family with little income and limited English. The form is dense, with no chance to read it, and a clause lets him repossess everything they had ever bought. Bad process, brutal terms. Under § 2-302 the court can refuse to enforce, strike the clause, or limit it. Refuse, strike, or limit. Not damages.

A word on authorities, because this episode named no case, and that was deliberate. NextGen questions hand you a formed contract, bury a defense in the facts, and ask what result follows. They will not ask you for case names. What they will hand you, sometimes, is a statute to read, as with the licensing act here.

If you keep only three things, keep these. The void list of four, because every consequence question turns on it. The word or in the misrepresentation test, fraudulent or material, because it decides both avoidance and damages. And the risk question in mistake, because bearing the risk loses the defense outright.

Now the traps the examiners set. One. Calling every defense void. Most are voidable, so only the protected party can undo the deal, and may also choose to keep it. Two. Minors and necessaries. A minor who disaffirms owes reasonable value, not the contract price, and that liability is in restitution.

Three. Fraudulent against material. A fraudulent misrepresentation need not be material, a non-fraudulent one must be, and only fraud supports tort damages. Four. Mistake against prediction. A bad guess about market value is a risk you took. Watch for conscious ignorance, which puts the risk on whoever proceeded anyway.

Five. Silence. Do not assume silence is fraud. It is actionable only in those four duty situations, though active concealment always counts. Six. Unconscionability timing. It is measured when the contract was made and decided by the judge, so a bargain that merely turned out badly is not unconscionable.

Time for the quick check, and this one comes straight from the BARGO question bank. Owen and his partner Ray fell out over who would control their company. During a heated meeting Ray pulled a knife and held it to Owen's throat. He physically closed Owen's hand around a pen to force his signature onto a document transferring Owen's shares to Ray for nothing.

Ray points to the signed transfer and claims the shares are his. What is the status of that transfer?

Option one. Voidable by Owen, because the threat left him no reasonable alternative to signing. Option two. Void, because physical compulsion to sign means there was never any real assent. Option three. Voidable by Owen, because an improper threat of a crime induced his signature. Pause here if you want a moment.

The answer is option two. This is physical compulsion, not a threat. Owen's hand was forced onto the page, so he never made a choice at all. Options one and three are the sympathetic wrong answers. Both describe duress by threat, which produces a voidable contract, not a void one.

And that difference decides the case. A voidable transfer would have passed title until Owen undid it. A void one never passed title at all, so the shares were always his. There are more than thirty more questions on this topic alone, each explained like that.

Five things to take away. One. Voidable is the default, and only four things are void. Physical-force duress, fraud in the factum, a contract by an adjudicated incompetent, and illegal subject matter. Two. Incapacity protects one side only. Minors disaffirm and keep what they paid, but owe reasonable value for necessaries.

Three. Duress needs a wrongful threat and no reasonable alternative, while undue influence needs no threat at all, just unfair persuasion of a vulnerable person. Four. In mistake, ask who bore the risk before anything else, and remember that a unilateral mistake needs the extra showing.

Five. In deception, fraudulent or material gets you rescission, but only fraud gets you damages. And unconscionability is judged at signing, by the judge, on both process and terms. Which brings us back to Tessa, who returns a dented truck and collects all $6,000, because her contract was voidable and she held the switch. Next time, the Statute of Frauds.

Practice this topic with more than 2,900 exam-style questions, free to start, at nextgenbargo.com. This episode is for education and exam preparation only, not legal advice, and we are not affiliated with or endorsed by the NCBE or any bar examining authority.