Contract Defenses

Question 1

Misrepresentation

Answer 1

1. False Statement
2. About matter material to K
3. Made with requisite state of mind (intentional, negligent, or innocent)
4. Actually& justifiably relied on by other party; and
5. Caused damage to other party.

(Same as intentional misrepresentation elements except 2nd element is NOT required)

Question 2

Closing

Answer 2

Closing occurs after the contract is formed.

a. When we get to the closing, there has already been a contract in place for a while

b. At the closing, seller and buyer exchange the property for the money

c. In the contract, they promise to perform their promise to buy or sell the property at closing

Question 3

Warranties

Answer 3

Promises that those statements are true

a. Remedy for breach of warranty is damages

b. Rescission of the K is not an available remedy

c. If buyer would like to rescind the K, the buyer must bring a suit for misrepresentation

d.Reliance on a statement is not a requirement for a suit for breach of K due to a breach of warranty

Question 4

Non-Disclosure

Answer 4

1) Failure to disclose a fact;

2) a duty to disclose that fact;

3) the non-disclosed fact was material;

4) the other party actually and justifiably relied on the state of things in the absence of the fact; and

5) damage.

Question 5

Concealment

Answer 5

The hiding of a fact

1) Active efforts to prevent another party from learning a fact;

2) the concealed fact was material;

3) the other party actually and justifiably relied on the misrepresentation; and

4) damage.

Question 6

Mutual Mistake

Answer 6

a. Mistake by both parties about the facts surrounding a transaction at the time the K was made

b. Concerning a basic assumption on which the K was made, and

c. Has material effect on the party’s contractual exchange

Question 7

Unilateral Mistake

Answer 7

1) A mistake by one party about the facts surrounding a transaction at the time a contract is made;

2) concerning a critical fact on which the contract was made;

3) which has a material effect on the parties’ contractual exchange; and

4) either: (a) the non-mistaken party knew of, or should have known of, or caused the mistake

or

(b) the mistake makes the contract a grossly unfair (unconscionable) bargain.

Question 8

Traditional Duress

Answer 8

traditional (which can include false imprisonment or a threat)

1. A wrongful act by one party (threat or use of violence or captivity)
2. That prevents the other party from exercising their free will

Question 9

Economic Durress

Answer 9

economic (economic threats)

1. A wrongful act by one party (a bad-faith breach of K)
2. That prevents the other party from exercising their free will

a.There is no feasible alternative to the modification (change to the K) and

b. There is no practical legal remedy for the bad-faith breach because there isnt enough time to use the legal system to address the breach

Question 10

Undue Influence

Answer 10

1) unfair persuasion, which includes domination or reliance on the advice of the aggressor of a person who

2) is undue susceptibility in the servient person/victim, dominated, or reasonably trusts

Question 11

Incapacity

Answer 11

Three types of incapacity:

1) Minority

2) Mental illness

3) Intoxication – unless a reasonable person would’ve made the deal

Question 12

Unconscionability

Answer 12

Allows courts to police extraordinarily one-sided contracts. They can:

1) refuse to enforce the entire contract

2) enforce the contract without the unconscionable clause or

3) limit the application of the clause in a way that avoids an unconscionable result.

Question 13

Statute of Frauds

Answer 13

ONLY APPLIES TO ORAL K’s

1) Land sale contracts;

2) suretyship contracts;

3) contracts that cannot be performed within one year;

4) contracts for the sale of goods for $500 or more (UCC);

5) Contracts made in consideration of marriage; and

6) contracts by executors to answer for a duty owed by their decedents.

Question 14

Intentional Misrepresentation

Answer 14

The speaker has engaged in negligent misrepresentation if

1) False statement of fact, intention, or opinion

2) made with requisite state of mind

3) which induced a contract (actual reliance/causation)

4) actual harm resulted.

Question 15

Negligent Misrepresentation

Answer 15

The speaker has engaged in negligent misrepresentation if

1) the speaker unreasonably believes the statement to be true

2) but the statement is in fact false.

Question 16

Innocent Misrepresentation

Answer 16

The speaker has engaged in innocent misrepresentation if

1) the speaker reasonably believes the statement to be true

2) but the statement is in fact false.

Question 17

Remedies for Intentional Misrepresentation

Answer 17

Punitive damages are available in addition to rescission and damages

Question 18

Remedies for Negligent Misrepresentation

Answer 18

Damages, this is available in addition to rescission; The party who suffered from misrepresentation may recover any expenses it incurred to enter into the K

Question 19

Remedies for Innocent Misrepresentation

Answer 19

Rescission, the K is rescinded, and the parties are put back into their original positions; Money and property are returned to the original owners

Question 20

Intentional Misrepresentation

Answer 20

1. False Statement
2. Made with requisite state of mind
3. Actually& justifiably relied on by other party; and
4. Caused damage to other party.

Question 21

Requisite State of Mind

Answer 21

First, we need a false statement

Then, we need to determine whether it was intentional, negligent, or innocent. Refer to cards that described these terms.

Question 22

Illegality

Answer 22

AKA “Contracts against public policy.” – Finding a contract against public policy means that it is void.

1) Contracts prohibited by statute;

2) contracts in violation of licensing statutes;

3) Covenants not to compete (post-employment); and

4) tangential illegality.

Question 23

Unintentional Misrepresentation

Answer 23

1) False statement of fact, intention, or opinion

2) which addresses fact material to the contract

3) made with requisite state of mind

4) which was justifiably and actually relied on by a party 5) which damaged the party.

Question 24

Deception Cluster

Answer 24

1) Misrepresentation
2) Non-Disclosure
3) Concealment

Question 25

Defenses

Answer 25

Legally cognizable ground to doubt that the parties gave their voluntary and fully informed consent.

Question 26

Better Loss Avoider

Answer 26

It is efficient to place losses on the parties who are in the best position to avoid the problems causing loss.

Question 27

Actual Reliance [Subjective Standard]

Answer 27

Reliance is actual if the party acted because of a representation.

Actual Reliance Test: Did the representation cause the victim to make the contract?

Question 28

Justifiable Reliance [Subjective Standard] WHOLLY IPA

Answer 28

Reliance is justifiable if it is not completely irrational, preposterous, or absurd. AKA if a party has a basis for believing another’s representation.

Justifiable Reliance Test: Was the victim’s reliance wholly irrational preposterous, or absurd?

Question 29

Representation v. Warranty

Answer 29

1) Timing – when is the statement made? For warranty, it’s made in the contract. Representation is before the contract.

2) Reliance is needed for representation but not warranty.

3) Representation is a statement of fact. A warranty is an insurance policy.

Question 30

Basic Fact

Answer 30

Goes to the heart of the deal and is a much bigger than a material fact; there are lots of material facts but only a few basic facts.

Question 31

Material Fact

Answer 31

A reasonable person would find the fact relevant to the decision to enter into a K.

Question 32

Blue pencil rule - Unconscionability

Answer 32

Courts have the power to enforce contracts or not. However, if there is just a part that is causing a problem, they can strike words out of the contract. Eliminating language but not writing anything new.

Question 33

Duress

Answer 33

Used to rescind the K. If the defense is successful, there is no K between the parties

1) One party must commit a wrongful act; and

2) the wrongful act must preclude the other party from exercising his free will.

Question 34

Contract Defenses

Answer 34

1. Misrepresentation
2. Warranties
3. Non-Disclosure
4. Concealment
5. Mutual / Unilateral Mistake
6. Traditional / Economic Duress
7. Undue Influence
8. Illegality
9. Incapacity
10. Unconscionability
11. Statute of Frauds