2. Defenses

Question 1

defenses

Answer 1

误解/错误

欺诈/强迫

非法/不道德

疯子/未成年

1) Misunderstanding
2) Incapacity
3) Mistake
4) Fraud/Misrepresentation/Nondisclosure
5) Duress
6) Illegality
7) Unconscionability

Question 2

defenses to formation vs. to enforcement

Answer 2

defenses to formation: no contract was formed — all others

defenses to enforcement: illegality & unconscionability & public policy

Question 3

void vs. voidable vs. unenforceable

Answer 3

• void = no contract
• voidable = no contract if one party chooses so
• unenforceable = cannot be enforcement by court

Question 4

mistake

Answer 4

• about present fact at the time of making the contract [not about the future]
• Allows the adversely affected party to rescind
• conscious ignorance or mistaken party’s negligence does not take away the defense

1. mutual mistake: basic/material + no assumption of the risk
2. unilateral mistake: basic/material + no assumption of the risk + the other side knew/had reason to know/caused the mistake OR unconscionable + absence of serious prejudice to the other party

Question 5

Reformation for mistake

Answer 5

i) There was a prior agreement (either oral or written) between the parties;
ii) There was an agreement by the parties to put that prior agreement into writing; and
iii) As a result of a mistake, there is a difference between the prior agreement and the writing.

the court may, at the request of a party, reform the writing to express the agreement

except to the extent that rights of third parties who have relied on the document,

Question 6

misunderstanding

Answer 6

1. a material term that is open to two or more reasonable interpretations
2. Each side attaches a different meaning to the term; and

(1) Neither party knows, or should know, of the confusion. — no contract was formed
(2) both knows a material term is ambiguous — no contract was formed
(3) one party knows — a contract formed based on the understanding of the unknowing party.

the test is subjective.
unaffected by conscious ignorance or negligence.

Question 7

Incapacity

Answer 7

1. minors - no knowledge requirement
2. mentally ill
   
   1. cannot understand - no knowledge requirement
   2. cannot act in a reasonable manner - if the other side knows or has reason to know this
3. intoxication - if the other side knows or has reason to know this

Question 8

contracts with minors

Answer 8

1. voidable by the minor — except: contracts for necessities, education loan, insurance —- must pay fair value
2. after the minor reaches 18 — if not disaffirmed, the contract is deemed ratified.

Question 9

mental illness

Answer 9

1. adjudicated (including under guardianship) — void
2. not adjudicated — voidable if: [except made when lucid]
   
   1. cannot understand OR
   2. cannot act in a reasonable manner + knowledge

Question 10

intoxication

Answer 10

• voidable if
  
  • unable to understand
  • the other party had reason to know
  • the intoxicated party must promptly disaffirm

Question 11

misrepresentation

Answer 11

1. misrepresentation of a present fact [not an opinion — but cannot be incompatible with known facts, or have no factual support]
2. material or intentional
3. justifiable to rely

[fault/negligence of another party discovering the facts is not sufficient to prevent the party from avoiding the contract.]

Question 12

fraud in inducement vs. execution

Answer 12

1. inducement: trick others to sign a contract by lying about the goods — voidable by the adversely affected party if she justifiably relied on the misrepresentation
2. execution: by lying that the contract is an “autograph” — void — unless reasonable diligence would have revealed the true terms of the contract

Question 13

non-disclosure

Answer 13

non disclosure = misrepresentation if:

1. fiduciary
2. active concealment
3. the undisclosing party knows that disclosure is needed to correct the other party’s mistaken belief or a previous mistaken assertion
4. residence

Question 14

Cure of a misrepresentation

Answer 14

• following a misrepresentation
• before the deceived party has avoided the contract
• the contract will no longer be voidable

Question 15

undue influence/unfair persuasion:

Answer 15

1. intense sales pressure
2. unequal relationship, where one party relies on the expertise of the other — e.g. trustee-beneficiary, lawyer-client, doctor-patient, financial advisor–client — the key is whether a party has been able to exercise free and competent judgment
   
   1. third party undue influence: can void the contract unless the other party relied on the contract in good faith and did not know or have reason to know about…

Question 16

duress

Answer 16

1. improper threat: criminal [improper] vs. civil [unless in bad faith]
2. deprivation of a meaningful choice — subjective test: Did the threat induce the person’s assent?

• physical threat — void
• other — voidable
• third party duress — voidable, unless the other party relied in good faith and did not know

Question 17

illegality

Answer 17

illegal contracts [hire a murderer] are not enforceable, but contracts in furtherance of an illegal act are enforceable [murderer hire a driver].

• divisible – the legal part is still enforceable
• exceptions:
  
  1. one party did not know the illegality, but the other party knew — the party that did not know may recover from the other party
  2. substantially performed — unless (1) the performing party acted for the purpose of furthering the illegal use or (2) the use involves grave social harm [hunt deer vs. murder].

Question 18

illegality: license

Answer 18

• if the license requirement has a regulatory purpose — the regulatory purpose outweighs the need to enforce promises
• if its only purpose is to raise revenue — balance test

Question 19

illegality: availability of restitution

Answer 19

1. Not in pari delicto [not equally at fault]: the less guilty party may be able to recover restitutionary damages
2. Withdrawal: if one party withdraws after performance but did not engage in serious misconduct [the illegal purpose was not achieved], then that party is entitled to restitution.

Question 20

unconscioubility

Answer 20

standard: when it is so unfair to one party that no reasonable person in the position of the parties would have agreed to it at the time it was made.

1. procedural: a hidden term [boilerplate contract provisions], absence of meaningful choice – due to deception, compulsion, or significantly unequal bargaining [contracts of adhesion (a take-it-or-leave-it contract)]
2. substantive: a rip-off term

[both or either, depending on jurisdictions]

Question 21

public policy

Answer 21

公序良俗 e.g. a contract in restraint of marriage, a contract for the commission of a tort, or a contract that unreasonably restrains trade.

When a contract violates a policy that was i_ntended for the benefit of the contracting party_ seeking relief, the contract may still be enforceable.