2. Defenses Flashcards
defenses
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
defenses to formation vs. to enforcement
defenses to formation: no contract was formed — all others
defenses to enforcement: illegality & unconscionability & public policy
void vs. voidable vs. unenforceable
- void = no contract
- voidable = no contract if one party chooses so
- unenforceable = cannot be enforcement by court
mistake
- 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
- mutual mistake: basic/material + no assumption of the risk
- 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
Reformation for mistake
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,
misunderstanding
- a material term that is open to two or more reasonable interpretations
- 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.
Incapacity
- minors - no knowledge requirement
- mentally ill
- cannot understand - no knowledge requirement
- cannot act in a reasonable manner - if the other side knows or has reason to know this
- intoxication - if the other side knows or has reason to know this
contracts with minors
- voidable by the minor — except: contracts for necessities, education loan, insurance —- must pay fair value
- after the minor reaches 18 — if not disaffirmed, the contract is deemed ratified.
mental illness
- adjudicated (including under guardianship) — void
- not adjudicated — voidable if: [except made when lucid]
- cannot understand OR
- cannot act in a reasonable manner + knowledge
intoxication
- voidable if
- unable to understand
- the other party had reason to know
- the intoxicated party must promptly disaffirm
misrepresentation
- misrepresentation of a present fact [not an opinion — but cannot be incompatible with known facts, or have no factual support]
- material or intentional
- justifiable to rely
[fault/negligence of another party discovering the facts is not sufficient to prevent the party from avoiding the contract.]
fraud in inducement vs. execution
- 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
- execution: by lying that the contract is an “autograph” — void — unless reasonable diligence would have revealed the true terms of the contract
non-disclosure
non disclosure = misrepresentation if:
- fiduciary
- active concealment
- the undisclosing party knows that disclosure is needed to correct the other party’s mistaken belief or a previous mistaken assertion
- residence
Cure of a misrepresentation
- following a misrepresentation
- before the deceived party has avoided the contract
- the contract will no longer be voidable
undue influence/unfair persuasion:
- intense sales pressure
-
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
- 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…
duress
- improper threat: criminal [improper] vs. civil [unless in bad faith]
- 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
illegality
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:
- one party did not know the illegality, but the other party knew — the party that did not know may recover from the other party
- 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].
illegality: license
- 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
illegality: availability of restitution
- Not in pari delicto [not equally at fault]: the less guilty party may be able to recover restitutionary damages
- 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.
unconscioubility
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.
- 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)]
- substantive: a rip-off term
[both or either, depending on jurisdictions]
public policy
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.
