Contracts 5 - Defenses, Remedies, 3rd Parties

Question 1

Incapacity - Infancy/Minor

Answer 1

Minors may enter into a K but the K is voidable at the option of the minor.

Question 2

Minors who are emancipated or married

Answer 2

Majority - still voidable. Minority - not voidable.

Question 3

Minor Voided K

Answer 3

Majority - minor must return goods but not liable for any damage or depreciation. Minority - minor liable for depreciation and damages or compensation for services.

Question 4

Minor K’s - Ratification

Answer 4

Once they turn 18 they can expressly or impliedly ratify K entered into during minority and thus bind themselves.

Question 5

Minor K’s - Necessities

Answer 5

A minor’s K for necessities is voidable but merchant can recover reasonable value of goods or services under quasi contract.

Question 6

Misrepresentation by a Minor

Answer 6

In a minority of jrdx, if a minor misrepresents his age he may be equitably estopped from proving his age in court.

Question 7

Incapacity - Mental Incompetence

Answer 7

If a party is adjudicated incompetent and a guardian is appointed, this adjudication will be sufficient to establish mental incompetence for K cases.

Question 8

Cognitive Defects

Answer 8

A person is deemed mentally incompetent if he’s unable to understand in a reasonable manner, the nature and consequences of the transaction.

Question 9

Volitional Defects

Answer 9

A person is mentally incompetent if (1) they are unable to act in a reasonable manner in relation to the transaction; and (2) the other party has reason to know of this condition.

Question 10

Effect of Adjudication of Incompetency

Answer 10

K is all together void.

Question 11

No Adjudication but Incompetency

Answer 11

K is voidable at the option of the incompetent party.

Question 12

Incompetency Ratification of K

Answer 12

A party who becomes competent can expressly or impliedly ratify a K and bind themselves.

Question 13

Mentally Incompetent - Restitution

Answer 13

If K is voided and person has received some benefit, he is required to make the other party whole by paying reasonable value of the goods or services received. Unless other party took unfair advantage by being aware of incompetency, then they’re only entitled to benefits still in possession of the incompetent party.

Question 14

Fraudulent Misrepresentation

Answer 14

(1) D makes an assertion that was inconsistent with existing facts. Professional opinions count.
(2) Knowing it to be false or having no idea whether it was true or false.
(3) The assertion is likely to induce a reasonable person to enter into a K or party had reason to know it was likely to induce this particular person into entering the K.
(4) The party reasonable relied on the misrepresentation.

Question 15

Negligent and Innocent Misrepresentation

Answer 15

(1) Misrepresentation
(2) That was material
(3) Reasonably relied on the misrep
(4) D would have known the assertion was false had he exercised reasonable care or D simply made an assertion not in accord with existing fact if innocent misrep

Question 16

Fraudulent Non-disclosure

Answer 16

(1) The non-disclosure was material to the K
(2) Reasonable reliance on the non-disc
(3) A duty of disclosure and failure to fulfill that duty

Question 17

Circumstances where there’s a duty of disclosure

Answer 17

(1) Where parties enjoy a relationship of trust and confidence.
(2) Where a party has made an assertion that was true at the time but has since been rendered untrue by intervening events
(3) If the obligation of good faith would require the party to disclose the information

Question 18

Duress

Answer 18

(1) Threat
(2) That was wrongful in nature
(3) No reasonable choice but to succumb to the threat.

Question 19

Examples of Economic Duress

Answer 19

(1) When there are no adequate and reasonably priced substitutes for teh services or goods that are threatened to be withheld.
(2) When the threatened breach would cause the aggrieved party to break his own contracts.
(3) When the alternative of acquiescing to the threat and then suing for damages is inadequate to address the harm caused

Question 20

Legal Consequences for Duress

Answer 20

(1) K’s made under physical compulsion are void, all other K’s are voidable.
(2) The aggrieved party is entitled to restitution of any benefits conferred as long as he returns any received.

Question 21

Undue Influence

Answer 21

(1) Unfair persuasion used.

(2) Party was vulnerable to such persuasion

Question 22

Unfair Persuasion Factors

Answer 22

(1) Discussion of the trx at an unusual or inappropriate time.
(2) Consummation of the trx at an unusual place.
(3) Insistent demands that the trx or business be finished immediately.
(4) Extreme emphasis on the untoward consequences of delaying the trx.
(5) The use of multiple persuaders against the target of persuasion.
(6) Absence of 3rd party advisers
(7) Statements that there is no time to consult advisers or attorneys

Question 23

Examples of Vulnerable Parties

Answer 23

(1) Where the mental infirmity is due ot age or illness.
(2) Where the vulnerability is due to some recent trauma or event.
(3) Where there’s a relationship of trust or confidence.

Question 24

Legal Consequences of Undue Influence

Answer 24

(1) The K is voidable at option of aggrieved party.

(2) The aggrieved party is entitled to restitution of benefits conferred if he returns any received.

Question 25

Unconscionability

Answer 25

(1) Procedural unconscionability
(2) Substantive unconscionability
Must have both

Question 26

Procedural Unconscionability

Answer 26

Where the bargaining process created an absence of meaningful choice for the aggrieved party. i.e. near miss cases and absence of bargaining power

Question 27

Substantive Unconscionability

Answer 27

Where the K terms are unreasonably favorable to one party of the K:

(1) Grossly excessive price
(2) Grossly disproportional consequences for a minor breach.
(3) Provisions binding on one party but not the other.
(4) Provisions that are grossly unfair.

Question 28

Legal Consequences of Unconscionability

Answer 28

Court may:

(1) Refuse to enforce the K.
(2) Excise the offending clause and enforce rest of K.
(3) Limit the application of the offending clause so as to avoid any unconscionable result.

Question 29

Public Policy Reasons for Not Enforcing a K

Answer 29

(1) Where the subject of the K is specifically prohibited by law.
(2) Where K is formed for purpose of committing a crime.
(3) Where K performance would constitute a tort.
(4) Where K performance would violate certain values and freedoms designated by the state.

Question 30

3 Types of Monetary Damages Common Law

Answer 30

(1) Expectation Damages
(2) Reliance Damages
(3) Restitution Damages
Can only choose 1.

Question 31

Expectation Damages

Answer 31

Damages to the amount that will restore you to position you would have been in had K been fully performed. (Default option)

Question 32

Limits on Right to Recover Expectation Damages

Answer 32

(1) Where the cost of performance greatly exceeds the market value of the performance.
(2) Where expectation damages cannot be calculated with reasonable certainty.
(3) Where damages are unforeseeable to the breaching party.
(4) Where damages can be mitigated.

Question 33

Reliance Damages

Answer 33

Restores the aggrieved party to the position he was in prior to the K.

Question 34

Calculation of Reliance Damages

Answer 34

Any expenditures made in preparation for performance or actually performing - any loss the breaching party can prove the aggrieved party would have suffered any way.

Question 35

Restitution Damages

Answer 35

(1) The value of the benefits conferred upon the other party in the transaction.

Question 36

Liquidated Damages Provisions

Answer 36

Provides for damages of parties own choosing in the event of a breach. Not enforceable if it’s designed as a penalty to punish a breach.

Question 37

UCC Monetary Damages Seller

Answer 37

(1) If seller has delivered and buyer accepted then contract price.
(2) If buyer hasnt accepted and seller has re-sold, difference between K and resale price.
(3) If buyer hasn’t accepted and buyer has not resold damages are diff between K price and market price.

Question 38

Damages for Lost Volume Sellers

Answer 38

Seller can recover profit they would have made if they can show:

(1) He could have made sale to both breaching buyer and resale buyer
(2) It would have been profitable to make both sales
(3) He probably would have made the additional sale absent of the buyer’s breach

Question 39

Incidental Damages

Answer 39

Costs associated with getting stuck with the goods, and costs of the resale.

Question 40

Buyer’s Remedies

Answer 40

(1) If buyer has purchased replacement goods, damages are diff between K and cover price
(2) If not, damages are diff between K and market price.
Can get incidental and consequential damages too.

Question 41

Difference in Value Damages for Accepted Goods

Answer 41

If buyer accepts non conforming goods buyer can get valued of goods K’d for minus value of goods received.

Question 42

Specific Performance

Answer 42

(1) Only when a monetary award is inadequate, i.e. unique objects or real property.

Question 43

Specific Performance - Equity Considerations

Answer 43

(1) Whether the aggrieved party has clean hands.
(2) Whether the terms of the K are fair.
(3) Whether the terms of the K in question are sufficiently definite
(4) Whether performance by teh aggrieved party can be reasonably assured
(5) Whether specific performance would be in the public interest.

Question 44

Where Specific Performance is Unavailable

Answer 44

(1) K’s for personal services

(2) K’s requiring ongoing cooperation between parties

Question 45

Specific Performance Under UCC

Answer 45

Is allowed for a buyer who has adequately searched but was unable to find reasonable substitutes.

Question 46

Negative Injunction

Answer 46

Order prohibiting the breaching party from taking a particular action.

Question 47

Non-Compete Clause Validity

Answer 47

(1) Is there a significant business justification for enforcing?
(2) Is the scope of the non-compete clause reasonable in duration and geography?
(3) Is there an express provision?

Question 48

Provisions Limiting or Excluding Damages

Answer 48

Ok unless they’re unsconscionable or fail their essential purpose.

Question 49

Creditor Beneficiary

Answer 49

When a promisee seeks a performance from a promisor that will satisfy an obligation owed to a third party.

Question 50

Donee Beneficiary

Answer 50

When a promisee seeks a performance from a promisor, in order to make a gift of that performance to a third party.

Question 51

Incidental Beneficiary

Answer 51

Third parties who will benefit from a promisor’s performance as a practical matter, but are not creditor or donee beneficiaries. Have no right to seek enforcement of a K.

Question 52

Intended Beneficiary Rights against Promisor

Answer 52

Has a right to secure enforcement of the agreement from a breaching promisor by suing promisor.

Question 53

Intended Beneficiary Rights against Promisee

Answer 53

No rights against promisee unless there was a prior obligation.

Question 54

Vesting of Right to Sue

Answer 54

Parties to K can rescind a third party benefit without consent unless 3rd party’s rights have vested.

Question 55

Situations where 3rd Party’s Rights Vest

Answer 55

(1) When the beneficiary brings suit on the matter.
(2) When the beneficiary changes his position in justifiable reliance on the K.
(3) When beneficiary manifests assent to the K at the request of one of the parties.
(4) If the rights of the beneficiary have vested under the express terms of the K.

Question 56

Assignment of Rights

Answer 56

Is a transfer of a right to receive a performance under a contract.

Question 57

Requirement for Effective Assignment

Answer 57

(1) Manifest an intention

(2) To make a present transfer of an existing right.

Question 58

Exceptions to Rights being Assignable

Answer 58

(1) Assignment would materially alter the risks to or obligations of the other party.
(2) Obligor has a personal interest in rendering the performance to the specific obligee.
(3) when it would violate applicable law or public policy.
(4) When the assignment is prohibited by the K.

Question 59

Right of Assignee against the Obligor

Answer 59

Assignee gets whatever rights to the K assignor had and subject to whatever defenses there were.

Question 60

Rights of Assignee against Assignor

Answer 60

Assignor warrants:

(1) That he will do nothing to defeat or impar the value of the assignment and has no knowledge of any fact that will do so.
(2) The right as assigned actually exists and is subject to no limitations or defenses good as against the assignor.

Question 61

Delegation

Answer 61

Occurs when a 3rd party agrees to satisfy a performance obligation owed by one of the parties to a K.

Question 62

Rights of Obligee against the Delegator

Answer 62

Absent novation, a delegation does not relieve the delegator from his obligations under the K. Can still be sued.

Question 63

Liability of Delegatee to Delegator

Answer 63

If delegation was for consideration, the delegator has a breach of K action against a delegatee who doesn’t perform.

Question 64

Liability of Delegatee to Obligee

Answer 64

If the delegation was for consideration, the obligee can bring action against the delegatee as an intended third party beneficiary of the delegation.

Question 65

Duties that Are not Delegable

Answer 65

(1) When the performance in question is personal

(2) When K prohibits delegation