CONTRACT DEFENSES

Question 1

Contract defenses-

Answer 1

A.Enables parties to get out of contracts
i. Could be on the theory that the parties did not truly assent
ii. Could be on the theory that the terms were fundamentally
unfair or undesirable from a public policy perspective.
B. Buyer’s remorse or seller’s remorse.

Question 2

Deception

Answer 2

Misrepresentation. Non-Disclosure, Concealment
-VOIDABLE CONTRACTS

Question 3

Misrepresentation:

Answer 3

Misstating a Fact

Question 4

ELEMENTS OF MISREPRESENTATION

Answer 4

1. A false statement of fact, intention or opinion;
   a. [All misrepresentations of fact are actionable]
   b. [Only opinions that imply specific underlying
   facts are actionable.]
2. Addresses a fact, intention or opinion material to the contract;
   a. [Materiality: a fact which a reasonable person in the same circumstance would regard as important in deciding whether or not to make a contract.]
3. Made with the requisite state of mind a. [Intentional, negligent or innocent] b. Intentional:
   i. The maker knew or believed the representation was not true.
   ii. Entitles a victim to punitive damages, compensatory damages, and contract rescission.
   c. Negligent:
   i. The maker unreasonably believed the
   representation to be true.
   ii. Entitles a victim to compensatory
   damages and contract rescission.
   d. Innocent:
   i. The maker reasonably believed the representation to be true.
   1. Form of strict liability: Contract maker cannot enforce a contract if they made a false statement even if, under the circumstances, a reasonable person would have believed it to be true.
   ii. Does not entitle a victim to damages; only contract rescission.
4. Actual and justifiable reliance; and
   a. [Reliance is “actual” if the party acted because of
   a representation.]
   b. [Reliance is “justifiable” if a party had a basis for
   believing the maker’s representation, even if a reasonable person would not have done so.]
   i. It is not completely irrational, preposterous or absurd.
5. Damage
   a. [Loss or injury]

Question 5

Non-Disclosure:

Answer 5

Not stating a fact

Question 6

NON DISCLOSURE- There is no duty to disclose material facts to another party unless:

Answer 6

a. The fact is central to the contract [the fact is what the deal is about]
b. Party is in a fiduciary or confidential relationship c. Party learns facts that make a prior
representation untrue
d. Party has already made a partial, but misleading
disclosure.
i. “You shoulda told me!”
1. When it is exactly what the deal is about.

Question 7

ELEMENTS OF NON DISCLOSURE

Answer 7

1. Failure to disclose a fact;
   a. [A party accused of non-disclosure must have failed to tell the other party something.]
2. A duty to disclose the fact;
3. The non-disclosed fact was material;
4. Actual and justifiable reliance
5. Damage

Question 8

ELEMENTS OF CONCEALMENT

Answer 8

1. Active efforts to prevent another party from learning a fact;
2. The concealed fact was material;
3. Actual and justifiable reliance;
4. Damage

Question 9

Concealment:

Answer 9

Hiding a fact

Question 10

Mistake

Answer 10

Mutual Mistake, Unilateral Mistake

VOIDABLE CONTRACTS

Question 11

Mutual mistake

Answer 11

An error about a fact existing at the time of contract formation that was the shared assumption of the parties involved

Question 12

ELEMENTS OF MUTUAL MISTAKE

Answer 12

1. An erroneous belief about a material fact that was
   shared by both parties;
2. The erroneous fact was a basic assumption on which
   the contract was made [basic=central to the whole
   deal; more important than material]
3. The erroneous fact had a material effect on the agreed-
   upon exchange between the parties.

Question 13

Remedies FOR MUTUAL MISTAKE

A party can seek rescission if they have not assumed the risk of that mistake

a. Serves as a ground on which courts can refuse to order rescission even though the mutual mistake elements are satisfied.

Three situations where a party may be found to have assumed a risk:

Answer 13

1. A contract allocates risk to one party;
2. One party knows she has limited knowledge, but nonetheless treats that limited knowledge as sufficient {conscious ignorance); or
3. A court considers it just to allocate risk to one party.

Question 14

Basic Fact»»Mistake:

Answer 14

a. A fact that goes to the essence of the contract.
i. “Is this a fact that is central to the whole
deal?”

b. Party claiming mistake:
i. Will emphasize the specific details of what they were expecting, then argue that, because of the mistake, she is getting something radically different than what she thought she was getting.

c. Party challenging mistake defense:
i. Will emphasize the general aspects of the
deal and then argue that the other party is
receiving that for which they bargained.

Question 15

Material Fact&raquo_space;»>Misrepresentation

Answer 15

a. A fact that a reasonable person would consider
important in evaluating the transaction.
i. “Is this a fact a prudent person would
want to know?”

Question 16

Unilateral Mistake

i. An erroneous belief about a material fact by one party;
ii. The erroneous fact was a basic assumption upon which the contract was made [no deal otherwise];
iii. The erroneous fact had a material effect on the agreed-upon exchange between the parties; and

1. Either:

Answer 16

a. The non-mistaken party knew of, should have
known, or caused the mistake; or
b. The mistake makes the contract unconscionable.
i. Allows contract rescission if unconscionable.

Question 17

ELEMENTS OF DURESS-

VOIDABLE CONTRACTS

Answer 17

i. One party must commit a wrongful act; and
ii. The wrongful act must preclude the other party from
exercising his free will.

Question 18

TYPES OF DURESS-Traditional Duress:

Answer 18

1. Threat or use of violence or captivity, or any other wrongful act or threat.
2. The threat suppresses the victim’s will.
   a. Examples: The GodfatherSign the contract or
   I’ll shoot you.
   b. False Imprisonment
   c. Threat of exposing personal information

Question 19

TYPES OF DURESS-Economic Duress:

Answer 19

1. Threat of breach [if breaches good faith duty/pre-
   existing duty]

a. Pre-Existing Duty Rule:
i. A promise to do what one already is
legally obligated to do is not adequate
consideration.
ii. Inappropriate demands for extra
compensation for work. [I refuse to work
today unless you pay me more money.

2. No practical legal remedy exists
3. No other feasible alternative exists.
   a. Determine if the threat is completely unjustified;
   and
   b. If the party who cannot wait to let the legal
   system address the harm caused by the threatened breach.

Question 20

Illegality

Answer 20

Prohibited by Statute, Covenants Not to Compete, Tangential Illegality

If a contract is found to be illegal or against public policy, the
contract is void.

Question 21

FIRST ILLEGALITY PROBLEM-Contracts prohibited by statute

Answer 21

Contract is expressly prohibited by statute. [Example:
buying/selling drugs, contracting others to commit crimes.]

Question 22

SECOND ILLEGALITY PROBLEM-Contracts in violation of licensing statutes: Unenforceable if in violation of public policy.

Answer 22

1. Not against public policy:
   a. If the sole purpose of a licensing statute is to
   generate income [Example: a license to sell fruit.]
2. Against public policy:
   a. If the sole purpose of a licensing statute is to protect the public [Example: A license to practice law/medicine]

Question 23

THIRD ILLEGALITY PROBLEM-Covenants not to compete

Answer 23

A promise by one party not to work for a competing business or not to open up a competing business.

Two contexts for CNTC:

Buyer/seller contracts:
1. To protect the goodwill of the business a buyer is paying for against the risk of seller’s former customers following him to the new business, thereby diluting the
value of the purchased business. ii.

Employer/employee contracts:
1. To protect employer’s investments that they make into their employees, confidentiality of customer contacts, and trade secrets.

Question 24

FOURTH ILLEGALITY PROBLEM-Tangential Illegality

Answer 24

A contract may or may not be against public policy if the
illegality is only related to the contract [not basic.]

Question 25

Incapacity

Answer 25

Anyone who manifests assent has the legal capacity to enter into a contract unless he is:
1. Under guardianship; or
2. An infant; or
3. Mentally ill or defective; or
4. Intoxicated
a. Contracts become voidable.

Question 26

Unconscionability-Policy: Fairness

Answer 26

i. A court may choose not to enforce a contract that is deemed unconscionable at the time it was made; or

ii. They may enforce the remainder of the contract, omitting the unconscionable term; or

iii. They may limit the unconscionable term to avoid an unconscionable result.