Defenses

1. Even if an agreement is supported by valuable consideration or recognized substitute,

contract rights may still be unenforceable because there is a defect in capacity, because
there is a defense to formation of the contract, or because a defense to enforcement of
certain terms exists
2. Defenses Based on Lack of Capacity
a. Contracts of Infants (Minors): Infants (in most jurisdictions, anyone under the
age of 18) generally lack capacity to enter into a contract binding on themselves.
But contractual promises of an adult made to an infant are binding on the adult
i. Georgia Distinction: In Georgia, the recognized age of majority is 18
years old. However, a minor may be emancipated by court order. Georgia
also recognizes certain statutory exceptions that do not allow an infant to
avoid contracts that he enters into, such as student loans and business and
professional contracts
ii. Disaffirmance: An infant may choose to disaffirm a contract any time
before (or shortly after) reaching the age of majority
1. The contract must be disaffirmed as a whole, it cannot be affirmed
in part and disaffirmed in part
2. If an infant chooses to disaffirm, they must return anything that
they received under the contract that still remains at the time of
disaffirmance. However, there is no obligation to return any part
of the consideration that has been squandered, wasted, or
negligently destroyed
3. Exceptions: States have created a few statutory exceptions for
student loans, insurance contracts, and agreements not to reveal an
employer’s proprietary information
4. Necessaries are items necessary for subsistence, health, or
education including food, shelter, clothing, and medical care. A
minor may disaffirm a contract for necessaries but will be liable in
restitution for the value of benefits received
iii. Affirmance upon Attaining Majority: A minor may affirm - choose to
be bound by the contract in whole upon reaching majority. A minor
affirms either expressly or by conduct such as failing to disaffirm the
contract within a reasonable time after reaching majority
b. Mental Incapacity: One whose mental incapacity is so deficient that they are
incapable of understanding the nature and significance of a contract may
disaffirm when lucid or by later appointed legal representative
i. They may affirm during a lucid interval or upon complete recovery, even
without formal restoration by judicial action. The contract is voidable
 ii. Like minors, mentally incompetent persons are liable in quasi contract
for necessaries
iii. Note: Mentally incompetent person has no ability to contract once a
guardian has been appointed. Any attempted contracts by an incapacitated
person who is under a guardianship are void
c. Intoxicated Persons: One who is so intoxicated that they don’t understand the
nature and significance of their promise may be held to have made only a
voidable promise if the other party had reason to know of the intoxication
i. The intoxicated person may affirm the contract upon recovery
ii. There may be quasi-contractual recovery for necessaries furnished during
the period of incapacity
d. Duress and Undue Influence: Contracts induced by duress and undue influence
are voidable and may be rescinded as long as they are not affirmed
i. The common type of duress occurs when a party’s assent is procured by
an improper threat. Generally, taking advantage of another person’s
economic needs is not duress
ii. Economic Duress: Without holding something someone wants or needs
will constitute economic duress if:
1. The party threatens to commit a wrongful act that would seriously
threaten the other contracting party’s property or finances
2. There are no adequate means available to prevent the threatened
loss
iii. Undue influence concerns often arise when the dominant party is in a
confidential or caregiver relationship with the influenced party
1. Elements of Undue Influence:
a. Undue susceptibility to pressure by one party
b. Expressive pressure by the other party
3. Absence of Mutual Assent
a. Misunderstanding - Ambiguous Contract Language: If the contract includes a
term with at least 2 possible meanings, the result depends on the parties’
awareness of the ambiguity
i. Neither party aware: No contract unless both parties intended the same
meaning
ii. Both parties aware: No contract unless both parties intended the same
meaning
iii. One party aware: Binding contract based on what the ignorant party
reasonably believed to be the meaning of ambiguous words
iv. Note: Ambiguity is one area where subjective intent is taken into account
b. Mutual Mistake as to Existing Facts:
i. If both parties entering into a contract are mistaken about existing facts
(not future happenings) relating to the agreement, the contract may be
voidable by the adversely affected party if (all must be true):
1. The mistake concerns a basic assumption on which the contract is
made
2. The mistake has a material effect on the agreed upon exchange
3. The party seeking avoidance did not assume the risk of the mistake
ii. Not a Defense If Party Bore the Risk: Mutual mistake is not a defense if
the party asserting mistake as a defense bore the risk that the
assumption was mistaken
1. This commonly occurs when one party is in a position to better
know the risks than the other party or where the parties knew that
their assumption was doubtful (when the parties were consciously
aware of their ignorance)
iii. Mistake in Value Generally Not a Defense: If the parties to a contract
make assumptions as to the value of the subject matter, mistakes in those
assumptions will generally not be remedied, even though the value of the
subject matter is generally a basic assumption and the mistake creates a
material imbalance because both parties usually assume the risk that their
assumption as to value is wrong
c. Unilateral Mistake: If only one of the parties is mistaken about facts relating to
the agreement, the mistake will not prevent formation of a contract
i. But if the nonmistaken party knew or had reason to know of the
mistake made by the other party, the contract is voidable by the
mistaken party
ii. As with mutual mistake, the mistake must have been a material effect on
the agreed upon exchange and the mistaken party must not have borne
the risk of the mistake
iii. Exam Tip: Unilateral mistakes arise most commonly when one party
makes a mechanical error in computation. Whenever you see facts in
which a subcontractor’s bid was wrong or acreage in a land sale contract
was miscalculated consider whether the contract may be avoided due to
unilateral mistake
d. Mistake by the Intermediary (Transmission): When there is a mistake in the
transmission of an offer or acceptance by an intermediary, the prevailing view is
that the message as transmitted is operative unless the other party knew or
should have known of the mistake
 e. Misrepresentation
i. Fraudulent Misrepresentation (Fraud in the Inducement): If a party
induces to enter into a contract by using fraudulent misrepresentation (by
asserting information they know is untrue), the contract is voidable by the
innocent party is they justifiably relied on the fraudulent
misrepresentation. The fraud is in the inducement
ii. Material Misrepresentation: Whether or not a misrepresentation is
fraudulent, the contract is voidable by the innocent party if the innocent
party justifiably relied on the misrepresentation and the misrepresentation
was material
1. A misrepresentation is material if:
a. It would induce a reasonable person to agree
b. The maker knows that for some special reason it is likely to
induce the particular person to agree, even if a reasonable
person would not
iii. Exam Tip: Keep in mind that a fraudulent misrepresentation need not be
spoken or written, it can be inferred from conduct. Concealing a fact,
frustrating investigation of a fact, or falsely denying knowledge of a fact is
the same as asserting the fact does not exist. However, nondisclosure of a
fact is not misrepresentation unless it is material or fraudulent (i.e., false
denial of knowledge of a material fact)
iv. Justified Reliance: A party is entitled to relief if the reliance was
unreasonable under the circumstances
1. Just because a misrepresentation could have been revealed by the
exercise of reasonable care does not mean that reliance was
unjustified. Failure to read a contract or use care in reading it does
not necessarily preclude a party from avoiding a contract for
misrepresentation
v. Innocent Party May Rescind Agreement and Recover Damages: The
innocent party doesn't have to wait until they are sued on the contract, but
may take affirmative action in equity to rescind the agreement
1. In addition they may pursue all remedies available for breach of
contract
4. Absence of Consideration: If the promises exchanged at the formation stage lack the
elements of bargain or legal detriment, no contract exists. In this situation, one of the
promises is always illusory

5. Public Policy Defenses - Illegality: If the consideration or subject matter of a contract is

illegal (for example, a contract to commit murder) the contract is void
 a. Exceptions:
i. P is unaware of the illegality while D knows the illegality
ii. One party is not as culpable as the other
iii. The illegality is the failure to obtain a license when the license is for
revenue raising purposes rather than for protection of the public
b. If only the purpose behind the contract is illegal, the contract is voidable by a
party who was:
i. Unaware of the purpose
ii. Aware but did not facilitate the purpose and the purpose does not involve
serious moral turpitude
6. Unconscionability: The concept of unconscionability allows a court to modify or refuse
to enforce an entire contract or a provision in it to avoid unfair terms, usually due to some
unfairness in the bargaining process
a. Unfair price alone is not a ground for unconscionability
b. Common Instances of Procedural Unconscionability:
i. Inconspicuous Risk-Shifting Provisions: Standardized printed form
contracts often contain a material provision that seeks to shift a risk
normally borne by one party to the other
1. Typically these clauses are found in the fine print (boilerplate) in
printed form contracts
2. Courts have invalidated these provisions because they are
inconspicuous or incomprehensible to the average person, even
if brought to their actual attention
ii. Contracts of Adhesion: Courts will deem a clause unconscionable and
unenforceable if the signer is unable to procure necessary goods, such
as an automobile, from any seller without agreeing to a similar provision
iii. Exculpatory Clauses: An exculpatory clause releasing a contracting party
from liability for their own intentional wrongful acts is usually found to
be unconscionable because such a clause is against public policy in most
states
1. Exculpatory clauses for negligent acts may be found to be
unconscionable if the clauses are inconspicuous
2. But they are commonly upheld if they are contracts for activities
that are known to be hazardous (for example, a contract releasing
a ski hill operator for liability for negligence often will be upheld)
iv. Limitations on Remedies: A contractual clause limiting liability for
damages to property generally will not be found unconscionable unless it
is inconspicuous (not easily seen or noticed). But when a contract that
limits a party to a certain remedy and that remedy fails its essential
purpose, the limitation may be found unconscionable and the courts will
ignore it
c. Timing: Unconscionability is determined by the circumstances as they existed at
the time the contract was formed
d. Effect if Court Finds Unconscionable Clause: If a court finds as matter of law
that a contract or any clause of the contract was unconscionable when made, the
court may:
i. Refuse to enforce the contract
ii. Enforce the remainder of the contract without the unconscionable clause
iii. Limit the application of any clause so as to avoid an unconscionable result
e. Exam Tip: Unconscionability is rarely a good defense on the MBE. That a
contract turned out badly for one party is insufficient in itself to give rise to
unconscionability. Look for great differences in bargaining power before finding
a contract or clause is unconscionable