Contracts - Defenses to Formation

Question 1

List the two types of contractual mistakes that can occur.

Answer 1

1. Mutual (bilateral) mistake (defense);

2. Unilateral mistake (not always a defense).

Question 2

Describe a formation mistake.

Answer 2

When mistake is a clerical/computation error so large that other party should have known.

Question 3

Define “undue influence.”

Answer 3

Occurrence in which one party induces another party to enter into a contract by overcoming his or her free will through an abuse of a position of confidence.

Question 4

List the elements that constitute a fraud.

Answer 4

1. Intentional Deceit (or negligent misrepresentation);
2. Deceit of a Material Fact;
3. Reliance of the party deceived.

Question 5

When do bilateral mistakes create a binding contract?

Answer 5

When mistake is due to

1. Value, or
2. Quality.

Question 6

List the types of assent defenses that can be used to invalidate the formation of a contract.

Answer 6

1. Mistake;
2. Misrepresentation;
3. Fraud;
4. Duress;
5. Undue influence.

Question 7

Describe the differences between fraud and misrepresentation.

Answer 7

1. Fraud always have malicious intent, Misinterpretation may not have malicious intent to deceive if it happens negligently through a misstatement and/or omission of a material fact(s);
2. Fraud is a civil wrong which entitles a party to claim damages in addition to the right to rescind the contract. Parties to a contract claiming misrepresentation only have the right to rescind the contract and there can be no suit for damages.

Question 8

Define duress.

Answer 8

A forcing of a party to enter into a contract under the fear or threat of violence to that party or member of his or her family, or use of economic pressure to overcome the party’s free will.

Question 9

What is the effect of illegal subject matter on a contract?

Answer 9

It makes the contract void.

Question 10

List the remedies for lack of mutual assent.

Answer 10

1. Rescission;
2. Damages;
3. Modification.

Question 11

What types of contracts are enforced against minors?

Answer 11

1. Contracts for necessaries or necessities;

2. Contracts that they ratify after reaching the age of majority.

Question 12

What is the effect of an illegal covenant in a contract?

Answer 12

• The court can declare the covenant void;

* The court can interpret the covenant in order to have it fall within the law.

Question 13

When can a covenant not to compete be enforced?

Answer 13

When it is:
•Part of a contract;
•Necessary to protect one party, such as the buyer of a business;
•Reasonable in geographic scope and time.

Question 14

Under what circumstances can a unilateral mistake become a defense?

Answer 14

When other party knew or should have known of a mistake.

Question 15

List the elements for misrepresentation or fraud.

Answer 15

1. Misrepresentation of statement of fact;
2. Intent to deceive;
3. Reliance on the misrepresentation.