BAR FLASHCARDS - C4 Defenses
REQUIREMENT THAT NO DEFENSES EXIST
Even if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because there is a defect in capacity (making the obligations voidable by one of the parties), because there is a defense to forma- tion of the contract, or because a defense to enforcement of certain terms exists.
Defenses
(1) lack of capacity
(2) ambiguity/misunderstanding
(3) Mistake
(4) Unconscionability
(5) duress
Lack of Capacity
(1) minors
(2) intoxicated
(3) mentally incompetent
General Rule: an incapacitated defendant has the right to disaffirm the K (she does not have to disaffirm, but she can if she wants to avoid the K); minor can enforce the agreement against you (i.e. choose not to disaffirm if they want to)
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.
It doesnt matter if adult thought minor was 18.
Disaffirmance
Minor does not have to dissafirm, they can still enforce the K!!!!
An infant (minor) may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority. The contract must be disaffirmed as a whole; it can’t be affirmed in part and disaffirmed in part. If an infant chooses to disaf- firm, 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 negli- gently destroyed.
Implied Affirmation After Gaining Capacity
look for a minor retaining the benefit under the K after reaching 18
- minor only gets a reasonable time to disaffirm, therefore if still using car, can make them pay for it after turning 18
Affirmance upon Attaining Majority
An minor may affirm, that is, choose to be bound by the contract in whole, upon reaching majority. A minor affirms either expressly or by conduct, such as by failing to disaffirm the contract within a reasonable time after reaching majority.
Retaining benefits after gaining capacity=
Implied affirmation
Exceptions to Incapacity Defense
An incapacitated party is liable for necessaries (i.e. food, shelter, clothing, or medical care) but only for their reasonable value, not the K price. This is nopt a contract obligation, just an obligation to pay reasonable value in restitution.
Necessaries
“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.
Mental Incapacity
One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid or by a later appointed legal representative. They may likewise affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action. In other words, the contract is voidable. Like minors, mentally incom- petent persons are liable in quasi-contract for necessaries. Note that a 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.
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 intoxi- cation. The intoxicated person may affirm the contract upon recovery. Once again, there may be quasi-contractual recovery for necessaries furnished during the period of incapacity.
Defense: Absence of Mutual Assent
- Misunderstanding—Ambiguous Contract Language
- ## Mutual Mistake as to Existing Facts
ambiguity/misunderstanding: Misunderstanding—Ambiguous Contract Language
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity:
a. Neither party aware—no contract unless both parties intended the same meaning;
b. Both parties aware—no contract unless both parties intended the same meaning; or
c. One party aware—binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Ambiguity is one area where subjective intent is taken into account.
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity:
a. Neither party aware—no contract unless both parties intended the same meaning;
b. Both parties aware—no contract unless both parties intended the same meaning; or
c. One party aware—binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Ambiguity is one area where ___ is taken into account.
Ambiguity is one area where subjective intent is taken into account.
ambiguity/misunderstanding: B and S K for the delivery of cotton on the ship “peerless” B means the ship sailing in Oct S means the ship sailing in Dec. is there a K?
No, therefore no remedy for either party
there was no meeting of the minds
If tell you in fact pattern that one of the parties knew or should have known about the two ships named peerless then enforce against that party.
Mutual Mistake as to Existing Facts
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:
(i) The mistake concerns a basic assumption on which the contract is made (for example, the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia);
(ii) The mistake has a material effect on the agreed-upon exchange (for example, the cubic zirconia is worth only a hundredth of what a diamond is worth); AND
(iii) The party seeking avoidance did not assume the risk of the mistake.
Mutual mistake: 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:
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:
(i) The mistake concerns (the SUBJECT MATTER) a basic assumption on which the contract is made (for example, the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia); AND
(ii) The mistake has a material effect on the agreed-upon exchange (for example, the cubic zirconia is worth only a hundredth of what a diamond is worth); AND
(iii) The party seeking avoidance did not assume the risk of the mistake.
Mistake (mutual)
Mutual Mistake about a material fact: bargaining over a cow that they thought was barren
- mutual mistake over existence of subject matter; no K, grant relief, do not have to pay for something that is no longer in existence
- if something doesn’t exist or its a fake or something then not enforceable
- if just paid more than what it was worth, still enforceable, mistake as to value not material therefore still enforceable
No K if mutual mistake is about…
Mutual mistake about the existence of the subject matter. Fundamental mistake that has a material effect on the bargain.
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.
This commonly occurs when one party is in a position to better know the risks than the other party (for example, contractor vs. homeowner) or where the parties knew that their assumption was doubtful (that is, when the parties were consciously aware of their ignorance).
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 gener- ally 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.
Mistake in value, enforceable K?
Yes, not material.
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.
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.
As with mutual mistake, the mistake must have a material effect on the agreed-upon exchange, and the mistaken party must not have borne the risk of the mistake.
Look for ASSUMPTION OF RISK.
Mistake unilateral - when is it a defense?
not going to grant a defense; unless the other party knew or should have known that injured party was mistaken/misunderstanding.
NO relief UNLESS obvious mistake or actually knew.
mechanical error in computation - unilateral mistake?
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.
GRANT RELIEF for unilateral mistake.
Mistake by the Intermediary (Transmission)
When there is a mistake in the transmission of an offer or accep- tance 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.
Misrepresentation
- Fraudulent Misrepresentation (Fraud in the Inducement)
- Material Misrepresentation
Fraudulent Misrepresentation (Fraud in the Inducement)
If a party induces another to enter into a contract by using fraudu- lent misrepresentation (that is, by asserting information they know is untrue), the contract is voidable by the innocent party if they justifi- ably relied on the fraudulent misrepresentation. This is fraud in the inducement.
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.
A misrepresentation is material if: (1) it would induce a reasonable person to agree, or (2) the maker knows that for some special reason it is likely to induce the particular person to agree, even if a reason- able person would not.
A misrepresentation is material if: (2)
A misrepresentation is material if: (1) it would induce a reasonable person to agree, or (2) the maker knows that for some special reason it is likely to induce the particular person to agree, even if a reason- able person would not.
a fraudulent misrepresentation need not be ___; it can be ___
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 misrepresen- tation unless it is material or fraudulent (for example, false denial of knowledge of a material fact).
nondisclosure of a fact - misrepresentation???
nondisclosure of a fact is not misrepresen- tation unless it is material or fraudulent (for example, false denial of knowledge of a material fact).
Justified Reliance
A party is not entitled to relief if the reliance was unreasonable under the circumstances. However, 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.
Innocent Party May Rescind Agreement and Recover Damages
Note that the innocent party doesn’t have to wait until they’re sued on the contract but may take affirmative action in equity to rescind the agreement. In addition, they may pursue all remedies available for breach of contract (see 8, infra).
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.
PUBLIC POLICY DEFENSES—ILLEGALITY
If the consideration or subject matter of a contract is illegal (for example, a contract to commit a murder), the contract is void. Exceptions: (1) the plaintiff is unaware of the illegality while the defendant knows of the illegality; (2) the parties are not in pari delicto (that is, one party is not as culpable as the other); or (3) the illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than for protection of the public.
If only the purpose behind the contract is illegal, the contract is voidable by a party who was (1) unaware of the purpose; or (2) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.
Unconscionability
This doctrine, originally applicable only to sales of goods, but (1) now a part of K’s law generally (2) empowers a court to refuse to enforce all or part of an agreement.
Basic test:
(1) unfair surprise and oppressive terms that are (2) tested as of the time the agreement was made by (3) the court
(time of agreement is a bar favorite, long term K that now looks one-sided –> NOT unconscionable)
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 (that is, procedural unconscionability). Unfair price alone is not a ground for unconscionability.
Basic test for UNCONSCIONABILITY
- unfair surprise and
- oppressive terms that are
- tested as of the time the agreement was made (formation)
- by the court
Unconscionability is tested when?
At time the agmt was made (formation)
a. Inconspicuous Risk-Shifting Provisions
Standardized printed form contracts often contain a material provi- sion that seeks to shift a risk normally borne by one party to the other. Typically, these clauses are found in the fine print (“boilerplate”) in printed form contracts. Courts have invalidated these provisions because they are inconspicuous or incomprehensible to the average person, even if brought to their actual attention.
b. Contracts of Adhesion—“Take It or Leave It”
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.
c. Exculpatory Clauses
An exculpatory clause releasing a contracting party from liability for their own intentional wrongful acts is usually found to be unconscio- nable because such a clause is against public policy in most states. Exculpatory clauses for negligent acts may be found to be uncon- scionable if the clauses are inconspicuous (as discussed above), but they commonly are upheld if they are in 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).
d. Limitations on Remedies
A contractual clause limiting liability for damages to property gener- ally will not be found unconscionable unless it is inconspicuous. But, a contract that limits a party to a certain remedy and that remedy fails of its essential purpose (for example, the contract limits remedies to repair and the item cannot be repaired), the limitation may be found unconscionable and courts will ignore it.
Unconscionability - Timing
Unconscionability is determined by the circumstances as they existed at the time the contract was formed.
Effect If Court Finds Unconscionable Clause
If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may:
(1) refuse to enforce the contract;
(2) enforce the remainder of the contract without the unconscionable clause; or
(3) limit the application of any clause so as to avoid an unconscionable result.
Duress (economic)
(1) “bad guy” - makes an improper threat
(2) vulnerable guy - no reasonable alternative but to agree
Duress and Undue Influence
Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed.
The common type of duress occurs when a party’s assent is procured by an improper threat (for example, “sign the contract or I’ll break your legs”).
Generally, taking advantage of another person’s economic needs is not duress, but withholding 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; and (2) there are no adequate means available to prevent the threatened loss.
Elements of undue influence are: (1) undue susceptibility to pressure by one party, and (2) excessive pressure by the other party. Undue influ- ence concerns often arise when the dominant party is in a confiden- tial or caregiver relationship with the influenced party.
