When someone is threatened into signing a contract, duress, or coercion, will render the agreement null and void. The court finally determined that the agreement to raise the price was unenforceable since it was reached under duress. Blackmail is another prominent manifestation of coercion. If someone threatens to reveal a secret about you if you don't agree to their demand, then they have blackmailed you into giving in to their request.
In addition, a contract cannot be enforced if when you signed it, you were not legally capable of making such a decision (e.g., because of mental incapacity). Nor can it be used against you if it has been more than six months since you last received medical treatment for an illness or injury caused by the contract's negligence. Finally, a contract cannot be enforced if it is "against public policy" for various reasons; for example, if it requires one party to engage in illegal activity or if it imposes an obligation not permitted by law or public policy.
Enforcement of contracts is usually left up to the courts, but there are exceptions. For example, in some states a person can avoid enforcement of a contract if they can show that they have been substantially prejudiced by the other party to the contract. In other words, if the other party breaches the contract first, then they lose the right to complain about any problems with its enforceability.
Undue Influence or Duress Duress is described as a forceful conduct that leaves a party with no choice but to sign the agreement. A contract may be declared unenforceable in this situation if one party threatens to sue until the other party signs.
The concept of undue influence has been present in the law since the time of the ancient Romans. They called it "coercion". If someone uses force or threats to get you to do something you would not otherwise do, then you have been subjected to undue influence and your rights have been violated.
In England, Scotland and Ireland, a contract signed under duress cannot be used as evidence in any judicial proceeding. This means that even if you were to write a check using your credit card numbers, the bank could deny honoring the transaction because of its belief that you did not give your consent freely and voluntarily.
In the United States, the use of duress as a defense to a contract claim is dependent on the state that you live in. Some states may have laws specifically addressing this issue, while others may leave it up to the court to decide whether the contract was entered into voluntarily by both parties. For example, in California, it is common for employers to threaten to report an employee to immigration officials if she does not agree to work without legal status.
Aside from the danger of physical or economic coercion, there are additional circumstances that constitute duress and render a signed contract void. These include: implying that the wounded party was a victim of fraud throughout the bargaining process. The wounded party did not know what was being traded away because no meaningful discussion took place. The wounded party did not understand the document they were asked to sign.
While devoted to contract freedom, courts have typically declined to enforce contractual penalty or forfeiture clauses unless the challenged clause constitutes a real pre-estimation of the harm that the non-breaching party will incur, known as "liquidated damages." Penalties are unenforceable because they do not serve the same purpose as liquidated damages. Rather, they provide the breaching party with an incentive to breach the contract.
For example, if a company breaches a contract and does not pay its bill, it would be entitled to a refund of all payments made by the customer under the breached portion of the contract. However, if the company was granted immunity from having to refund any money in such circumstances, then there would be no reason for them to pay the bill in the first place. Liquidated damages allow for an estimate to be made of how much damage might occur if the contract is broken; a penalty provides no such estimate. Instead, it is added into the contract as extra punishment for breaking it. This means that if you're not willing to risk losing money, don't sign contracts that contain penalties.
Penalties can also include charges for being late, which is normal in contracts, but these charges must be reasonable. For example, a charge of $10,000 for being one day late with delivery of goods is excessive and thus violates public policy.
Contracts that are rescindable because of injury or harm to one of the contract parties or another third party. Contracts that are unenforceable due to a lack of power, ability, or both parties' permission. Contracts that are void due to some condition such as fraud or material omission on the part of one of the parties.
Circumstances that may cause a contract to be rescinded include: failure of a condition precedent, such as payment of money or delivery of goods; material change in circumstances; and discharge of one of the parties from his or her obligation under the contract without justification.
A contract can be rescinded by any party to it. A party has the right to rescind a contract if he or she does so before he or she suffers a loss due to the other party's breach. If a loss has already occurred, then it cannot be recovered under the theory of rescission. Rather, it can only be recovered under the terms of the contract or otherwise compensated for.
Rescission must be done promptly after discovery of the injury, and if not done promptly, all the benefits and burdens of the contract continue indefinitely until cancelled. Thus, a party who delays in seeking a remedy has accepted the other party's continued performance under the contract.