Contract Defenses: Capacity, Mistake, Fraud, Duress and Unconscionability

Defenses that undo consent

• Capacity. Minors and people who lack mental capacity can usually avoid their contracts.
• Misrepresentation and fraud. A party induced by a false statement of fact may avoid the contract.
• Duress and undue influence. Consent obtained by improper threats, or by abuse of a relationship of trust, does not bind.
• Illegality. Courts will not enforce an agreement to do something unlawful.

Mistake also matters. In Raffles v. Wichelhaus (1864), cotton was to arrive “ex Peerless” from Bombay, but two ships bore that name. The buyers argued there was no meeting of the minds, and the court entered “judgment for the defendants.”

Unconscionability

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

Restatement (Second) of Contracts § 208

UCC § 2-302(1) uses nearly identical words for sales of goods. In Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965), the court explained that “Unconscionability has generally been recognized to include 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.” It sent the case back for the trial court to decide whether the contracts met that test.

Good faith

Finally, under § 205, “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” The UCC imposes the same duty and defines good faith as “honesty in fact and the observance of reasonable commercial standards of fair dealing” (UCC § 1-201(b)(20)).

Researching contract defenses in your state

To research contract defenses for a real matter, start with the primary sources. For example, read the statute, the rule and the documents in your own file. Then look for recent appellate decisions from your state, because they control how local courts read the law. After that, compare what you found with the federal rules that may also apply. Our state procedures guide and the Research Center can help you find and check each source.

Sources and further reading

Official sources used on this page:

• law.cornell.edu
• static.case.law
• law.cornell.edu

Related reading on Lawtopolis:

• Contract Formation: Offer, Acceptance and Consideration
• Breach of Contract and Remedies: Damages, Substantial Performance and Specific Performance
• Contract Law and Consent: How Contracts Form and When They Bind