Contracts: Defenses to Formation

Question 1

5 Defenses to Formation

Answer 1

Mistake
Fraud or misrepresentation
Duress
Undue Influence
Illegality

Question 2

Capacity (voidable) required to form a contract

Answer 2

1. Be of legal age (over 18)
   - minors have a right to disaffirm (for reasonable time after 18), show intent, and return consideration (whatever’s left).
   - Received back any consideration given
   - Exception: necessity i.e. food
   - Ratification: notifies of intent to honor or continues to perform
2. Be of mental capacity (not intoxicated)
   - made before court determined incompetence (voidable) after is void

Question 3

Types of Mistake

Answer 3

Unilateral Mistake
- binding on mistaken party unless
  - other party knows/should have
  - material and obvious
  - error in math, inadvertent, and not gross negligence
Bilateral Mistake
- both parties are mistaken
- mistake involves identity, existence, or quantity or subject matter, unenforceable

Question 4

Innocent Misrepresentation

Answer 4

• deception involving facts or promises of performance
• not sales-puffing
• material
• one party relied
  (difference from fraud is intent)
  (remedy: rescission)

Question 5

Fraud

Answer 5

• deception involving material fact
• one party relied
• Intent to defraud
  (remedy: damages or rescission)
  (fraud in the formation = punitive damages)

Question 6

Undue Influence

Answer 6

• special relationship where one party can influence another
• takes advantage of trust
  (contracts are voidable)

Question 7

Duress

Answer 7

• during formation, one party is deprived of free will

- Forms: physical force, duress, economic pressure

Question 8

Illegality

Answer 8

• contracts in violation of statutes
• contracts contrary to public policy
• exculpatory clauses (disclaim liability)
• contracts resistant to trade