Professor Corbin said it best: "That which
is bargained for by the promisor and given in exchange for the promise
by the promisee is not made insufficient as a consideration by the fact
that its value in the market is not equal to that which is promised." (Corbin
on Contracts § 127) Yet, there are exceptions to the basic rule
that "the court will not inquire into the adequacy of consideration." The
most notable exceptions involve the capacity of the parties or situations
of unconscionability.
Capacity
Certain classes of persons are deemed by the
law to have a limited ability to contract. Typically these classes of persons
include "infants" (minors) and the mentally infirm.
Minors
With respect to minors, the general rule is that the contract of a minor, other than for necessaries, is voidable at
the minor's option. The rationale behind this rule is that minors are immature
and should be protected from their own bad judgment as well as those who
would take advantage of them.
Mental Capacity
Under Rest.2d §15, a contract is voidable
if the party "by reason of mental illness or defect is unable to act in
a reasonable manner in relation to the transaction and the other party
has reason to know of this condition."
Unconscionable Contracts Under the UCC
The doctrine of unconscionability permits
a court to refuse to enforce a contract if it feels it is unfair. Unconscionability
has generally been recognized to include absence of meaningful choice on
the part of one of the parties together with contract terms which are unreasonably
favorable to the other party. UCC
2-302 authorizes three forms of relief: (1) the court may refuse to
enforce the entire contract, (2) or any part of it, or (3) the court may
limit the application of a particular clause to prevent an unconscionable
result. Although California has not adopted UCC 2-302,
it has it enacted a nearly identical statute dealing with unconscionability
which is found at Cal.Civ.Code
§ 1670.5.
Two Categories of Unconscionability
Unconscionability may take the form of being
either substantive or procedural. Substantive unconscionability may result
when contract terms are excessively oppressive or harsh. Procedural unconscionability
relates to the manner in which the term in issue was made a part of the
contract, i.e., did the term in question find its way into the contract
in a manner that was fair and square?
Duress
"The word duress implies feebleness on one
side, overpowering strength on the other." (U.S.
v. Bethlehem Steel Corp., 315 U.S. 289 (1952) The Restatement
Second of Contracts addresses the problem of duress in sections 175 and
176. "If a party's manifestation of assent is induced by an improper threat
by the other party that leaves the victim no reasonable alternative, the
contract is voidable by the victim." (Rest.2d sec. 175(1).) A contract
is voidable on the ground of duress when it is established that the party
making the claim was forced to agree to it by means of a wrongful threat
precluding the exercise of his free will. However, a mere threat to break
a contract does not constitute duress. A threat to breach a contract constitutes
duress if the threatened breach would, if carried out, result in irreparable
injury because of the absence of an adequate legal or equitable remedy,
or other reasonable alternative.
Adhesion Contracts
An "adhesion contract" is a standardized contract, imposed and drafted by the party of superior bargaining strength to cover transactions with many people rather than with an individual, which relegates to the subscribing party only the opportunity to adhere to the contract or reject it. (These are sometimes referred to as "take it or leave it" contracts.) The result is often that the stronger party is able to dictate the terms of the contract to the weaker party.
As a result, standardized form contracts which
purport to excuse a party from the consequences of his or her own
negligence are often held void on grounds of public policy. The two main
reasons for the creation and application of the rule have been (1) to discourage
negligence by making wrongdoers pay damages, and (2) to protect those in
need of goods or services from being overreached by others who have power
to drive hard bargains. Bisso
v. Inland Waterways Corp., 349 U.S. 85, 91, 75 S.Ct 629, 99 L.Ed. 911.
In a rare foray into the area of substantive
contract law, the U.S. Supreme Court in the case of Carnival
Cruise Lines, Inc. v. Shute, 499 U.S. 585, 111 S.Ct. 1522, L.Ed.2d
622 (1991) held that a forum selection clause limiting the place where
a lawsuit could be filed to the state of Florida, would be given effect
even though the clause was not bargained for.
Duty to Read
The general rule is that one is bound by a contract which he or she voluntarily and knowingly signs. In the absence of fraud, one who signs a written agreement is bound by its terms whether or not he or she read it and understood it, or whether or not he or she could read it. Exceptions: 1) Document is not legible, e.g., fine print. 2) Provision not called to the attention of one party, e.g., clauses on the reverse side. 3) Fraud or mistake.
Illegality
Courts will not enforce illegal bargains.
Nor will they allow restitution for illegal contracts. There are 3 categories
of illegal contracts: 1) Those contrary to express statutes; 2) those contrary
to the policy of express statutes; 3) those otherwise contrary to good
morals. (Cal.Civ.Code
§ 1667.) The maxim in pari delicto (equally blameworthy)
means that the defendant will prevail when the parties are of equal guilt.
When the parties are not equally culpable, the defense of in pari delicto is not appropriate.
Closely related to the unwillingness of
the courts to enforce illegal bargains is the doctrine of "unclean
hands."
A contract which is legal on its face and does not call for unlawful conduct in its performance is not voidable simply because it resulted from an antitrust conspiracy. The unlawful use of market power to inflate the contract price, and the resulting anti-competitive effects, must be assessed in determining whether granting the judgment sought would be to make the courts a party to the carrying out of one of the very restraints forbidden by the antitrust laws. (X.L.O.
Concrete Corp. v. Rivergate Corp. (83 N.Y.2d 513, 634 N.E.2d 158 (1994)
When Relief Will be Granted for Mistake
A mistake of fact, shared by both parties, which goes to the basis of the bargain, entitles either party to rescind the contract. (See, Sherwood v. Walker, 33 N.W. 919 (Mich. 1887).) If both parties are mistaken and neither is at fault or both are equally to blame, mistake may prevent the formation
of a contract. Unilateral mistake does not render a contract voidable except
where the mistake is due to the fault of the other party or the other party
knows or has reason to know there is a mistake. (Rest.2d § 153)
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