Contract Defenses Flashcards
What are the eight contract defenses? (DUI DUI MS)
- Deception
- Undue Influence
- Illegality
- Duress
- Unconscionability
- Incapacity
- Mistake
- Statute of Frauds
What are the three types of deception?
- Misrepresentation
- Non-Disclosure
- Concealment
What are the elements of misrepresentation
- A false statement of fact, intention, or opinion
- Addressing a fact, intention, or opinion material to the contract
- Made with requisite state of mind
- Actually and justifiably relied on by the other party
- That caused damage to the other party
What are the three sufficient mindsets for element 3 of misrepresentation
The speaker
- knew that the statement of fact/intention/opinion was false (intentional misrepresentation/fraudulent representation)
- Reasonably should have known the statement of fact/intention/opinion was false (negligent misrepresentation)
- Reasonably should not have and did not know that the statement of fact/intention/opinion was false (innocent misrepresentation)
Which mindset(s) qualifies for punitive damages?
Only intentional misrepresentations qualify for punitive damages
What element becomes unnecessary if misrepresentation is intentional (ie fraudulent representation)?
If misrepresentation is intentional, (ie fraudulent representation), then element 2. materiality, is not necessary
What elements become unnecessary if misrepresentation is negligent or innocent?
None. All elements are required
What must a plaintiff claiming misrepresentationshow to be eligible for relief for actual damages instead of/in addition to remedy by rescinding contract?
Plaintiff must show that the misrepresentation was either intentional or negligent and that the plaintiff suffered actual damages.
What is the plaintiff entitled to if he shows that the misrepresentation was innocent and satisfies all other elements, including showing that he suffered actual damages?
If the misrepresentation was innocent, then the plaintiff is only entitled to remedy by rescinding the contract, and will not be entitled to any damages.
Are all misrepresentations of facts, intentions and opinions, actionable?
No. All misrepresentations of facts and intentions are actionable, however, for a misrepresentation of opinion to be actionable, it must imply specific underlying facts.
A seller of a used car says that in her opinion, the car is a “good buy.” The car doesn’t start. Is her false statement of opinion actionable?
Yes, because her statement implies important underlying facts, (like the car works)
How do you know if the second element of misrepresentation is met?
If a fact is material to the contract, then any reasonable person in the same circumstances would consider it important in deciding whether to make the contract.
Material facts are what ultimately would cause a reasonable person to accept or reject an offer.
Do considerations of expertise/good faith/mindset apply to the first two elements of misrepresentation?
No, these subjective considerations are irrelevant in deciding whether a statement/intention/opinion is false and whether it is material to the agreement. These subjective considerations are, however, relevant to the third and fourth elements of misrepresentation.
What is “actual reliance” on a representation?
Actual reliance occurs when a party acts because of the representation
What is “justifiable reliance” on a representation?
Justifiable reliance is reliance that is not completely irrational, preposterous, or absurd. (An extremely low standard).
What is the focus of analysis for “material fact?”
The factors that would lead a reasonable person to decide the transaction would be worth making
What is the focus of analysis for “justifiable reliance?”
The types of assertions and sources of information that a hypothetical reasonable person would consider sufficiently reliable to count on
What is the focus of analysis for “actual reliance”
Was the false statement a cause of the actor going through with the deal/sale/etc. (But for the false statement, would the actor have made the same decision?)
What is the test for material fact? Objective or subjective?
Would a reasonable person consider the fact important in deciding whether to enter a contract? Objective
What is the test for justifiable reliance? Objective or subjective?
Was the victims’ reliance wholly irrational, preposterous, or absurd? Mostly objective, but somewhat subjective, (consider expertise/good faith/mindset)
What is the test for actual reliance? Objective or subjective?
Did the representation cause the victim to make the contract? (subjective)
What assumptions for analysis for material fact?
Assume the facts are true
What assumptions for analysis for justifiable reliance?
assume the facts are false and ask, would a reasonable person still believe the statements? If yes, then there is justifiable reliance.
Assumptions for analysis of actual reliance
assume misrepresented facts are false, ask would the actor have made a different decision?
If a buyer manifests doubt in the veracity of the seller’s representations, but still agrees to the contract, relying on the seller’s assurances that the statements are true, as well as the contract’s warranty of those statements, is the buyer’s reliance still justified, (or was it absurd because he was suspicious that the statements were false)?
Yes, the buyer’s reliance is justified, because the buyer is not only relying on the statements of fact, of which he is suspicious and which turn out to be false, but also on the warranty which warrant the buyer of damages in the event that the statements are false. CBS Inc. v. Ziff-Davis
How to issue spot non-disclosure/mistake vs. misrepresentation
non-disclosure/mistake will not include any false statement of fact/intention/opinion
What are the elements of non-disclosure?
- failure to disclose a fact
- a duty to disclose that fact
- the non-disclosed fact was material
- the other party actually and justifiably relied on the state of things in the absence of disclosure of the fact (disclosure would have made a difference in whether the contract was formed)
- damage
What must a seller disclose?
Generally, there is no duty to disclose, but for these exceptions:
- a confidential or fiduciary duty creates a duty to disclose
- any previous statements which will constitute misrepresentation if not supplemented by disclosure of other facts create a duty to disclose
- all facts basic to the deal must be disclosed
- any partial disclosure creates a duty for full disclosure
What are the elements of concealment?
- active efforts to prevent another party from learning a fact
- the concealed fact was material
- the other party actually and justifiably relied on the facts as they appeared
- damage
What are the three elements of mutual mistake?
- a mistake by both parties about the facts surrounding a transaction at the time the transaction was made
- concerning a basic assumption on which the contract was made
- which had a material effect on the parties’ contractual exchange
Was there a mistake in Wood v. Boynton? Why or why not?
There was no mistake of any kind in this case. One party sold a rock of unknown kind to a buyer for $1. The eventual realization of the type of rock cannot constitute a mistake because its specific type was not basic to the original bargain, which was simply $1 in exchange for 1 rock.
Was there a mistake in Sherwood v. Walker? Why or why not?
Yes. The original deal was one barren cow in exchange for its value in meat. This contract does not create a duty in the seller to deliver a fertile cow, because whether the cow was barren or fertile was a fact basic to the deal. Because both parties were, according to the contract, under the impression that the cow to be bought was barren, this constitutes a mutual mistake.
What is the remedy for a mutual mistake
Probably recension
Why was the plaintiff unable to rescind the contract in Lenawee Country Board of Health v. Messerly, even after the court found that there had been a mutual mistake?
Because of the “as-is” clause in the contract of sale, which vested in the plaintiff the assumption of the risk of loss due to mistake
What are the elements of a unilateral mistake?
- A mistake by only one party about facts surrounding a transaction at the time the transaction was made
- concerning a basic assumption on which the contract was made
- which has material effects on the parties’ contractual exchange
- which either:
- the non-mistaken party knew of, should have known of, or caused the mistake, or
- the mistake makes the contract a grossly unfair
(unconscionable) bargain
What is the difference between material facts and basic facts?
A material fact is a fact that a reasonable person would consider important in evaluating a transaction, (i.e., whether a cow is barren, whether there is X amount of gravel in a plot of land), where a basic fact goes to the essence of the contract (whether the buyer is buying a cow or a duck, whether a buyer is buying a topaz or a diamond)
What claim requires a disputed material fact, and what claim requires a disputed basic fact?
Deception (misrepresentation, non-disclosure, and concealment) requires a disputed material fact. Mistake requires a disputed basic fact.
What are the elements of Duress
- a wrongful act by a party which
2. prevents the other party from exercising his free will (i.e., there is no reasonable alternative left to the victim)
When issue spotting for duress, what should you look for?
A wrongful act
Must a wrongful act be illegal?
No. Illegal acts will always count as wrongful acts. However, so will, improper threats. (For example, threats to make public information about a person unless that person enters a contract IF the threat results in a contract that is disadvantageous to the victim).
What makes an improper threat?
- when what is threatened is a crime or tort
- when what is threatened is criminal prosecution
- when what is threatened is the use of the civil system against the victim AND the threat is made in bad faith
- when the threat results in an exchange that is not on fair terms AND
- when the threat would harm the recipient and
would not significantly benefit the party making
the threat - when a history of unfair dealings makes the
threat significantly more effective - what is threatened is used for illegitimate ends
- when the threat would harm the recipient and
What are the two forms of duress?
- traditional duress
2. economic duress
What is traditional duress?
Traditional duress requires a threat or use of violence or captivity, or any other wrongful act or threat, which no reasonable alternative
What is economic duress
When a party takes advantage of the other party’s lake of time and other obligations to coerce the other party into more favorable terms
What happens when pre-existing duty rules overlap with economic duress?
- A contracts with B
- B threatens to renege on performance, unless A does X
- If A does NOT do X, and B still refuses to perform, A can sue for breach
- If A promises to do X, and B performs, then A can always renege on the promise, and if B sues for A’s breach, A has an affirmative defense of pre-existing duty.
- If A actually performs X based on B’s threat to renege on his pre-existing duty, and B performs, then A only has a claim for duress if B’s threat actually left A with no reasonable alternative (like refusing to do further business with B, hiring someone else to do B’s job, and then suing B for breach/failure to perform).
What is the differenece between duress and undue influence?
Undue influence does not require a wrongful act, where duress does.
When does persuasion cross the line to coercion?
According to the Odorizzi court, when:
- discussing or completing transaction at an unusual or inappropriate times
- demands to close deal immediately
- excessive emphasis on the negative consequences of delay
- multiple dominant persons pressuring single dominant party
- lack of disinterested advisors for the vulnerable party
- asserting that there isn’t time to consult legal advice
What are the two ways to cause undue influence?
- Undue susceptibility
2. undue pressure
What are the four types of illegality?
- Contracts prohibited by statute
- Contracts in violation of licensing statute
- Illegal non-compete covenants
- Tangential illegality
What makes a non-compete covenant illegal?
A legal non-compete covenant only restricts the holder of the burden of the clause as much as is necessary, in a way which is actually required to protect the beneficiary
What are the three remedies for an illegal non-compete clause?
- refuse to enforce the non compete clause
- blue pencil rule: only enforce if the offending portions of the clause can be deleted
- revise to make reasonable
Tangential illegality
slim chance this is on the exam
Are contracts formed with incapacitated perons void or voidable?
Contracts formed with incapacitated persons MAY be voidable.
What are the categories of incapacitation?
- persons affected by guardianship
- infants
- mentally ill persons
- intoxicated persons
When are contracts formed with intoxicated persons voidable?
Only when
- the other party knows of the intoxication and
- the intoxicated person is unable to understand or act reasonable in regards to the nature of the transaction
What are the two elements of unconscionability?
- Procedural
2. Substantive
Do you need both elements of unconscionability?
Yes, they are elements, however, the more you have of one, the less you need of the other (sliding scale).
What is procedural unconscionability?
Procedural unconscionability occurs the the process by which a contract is formed is unconscionable due to:
- absence of meaningful choice
- lack of opportunity to understand terms
- use of fine print and legalese
- deceptive sales practices
- take-it-or-leave it terms
- gross inequality of bargaining power (consider wealth, expertise, education, access to legal counsel strengthen this element)
- this is NOT sufficient in itself
What is substantive unconscionability?
- contract terms that “shock the conscience of the court”
- marketplace, parties respective risks,
competition
- marketplace, parties respective risks,
- realocates risk in an objectively unreasonable manner
Is there a statute of frauds issue?
- Is the contract subject to a statute of frauds?
- Does the contract comply with the writing requirement of the applicable statute of frauds?
- Is the contract enforceable notwithstanding tis failure to comply with the writing requirement of an applicable statute of frauds?
When is compliance with the statute of frauds required?
- contracts for the sale of land
- suretyship
- contracts that, by their terms, cannot be performed within a years of their making
- contracts for the sale of goods for $500 or more
- contracts made in consideration of marriage (archaic)
- contracts by executors to answer for a duty owed by their decedents
What is a suretyship contract?
A surety is a person who promises to pay or perform on behalf of another party to a contract
- SoF ONLY applies if:
- the lender knows of the agreement between the.
lendee and the surety; or - the surety’s promise is conditioned on a default
by the lendee
- the lender knows of the agreement between the.
- SoF does NOT apply if:
- the surety owed a duty to either of the parties to
insure the loan; or - the surety’s reason for making the promise is
mainly to serve his own economic advantage,
rather than to benefit the lendee
- the surety owed a duty to either of the parties to
What are the requirements of the statute of frauds?
- essential terms of the agreement must be in writing
2. writing must be signed by the party against whom enforcement is being sought
When might an agreement which is subject to the statute of frauds, but which does not satisfy the statute of frauds requirements, still be enforceable
Same elements of promissory estoppel:
- promise
- that induces relieance
- reliance on the promise
- injustice can only be avoided by enforcing the promise
Two parties contract for the exchange of a barren cow weighing 500lbs for $1/lb. What facts are basic, what facts are material?
Whether the barren cow is in fact a barren cow is material. If the barren cow turns out not to be barren, or turns out to be a duck, this is a mistake of a basic fact. The barren cows weight, 500lbs, is a material fact. If the cow actually weighs 600lbs, this would constitute a mistake, and likely a misrepresentation, of material fact. I. General, material facts describe basic facts.
