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Contracts 1 > Contracts II Unit 8 and On > Flashcards

Contracts II Unit 8 and On Flashcards

1
Q

Mental incompetence is determined when?

A

at the time of contracting

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2
Q

The law presumes that ______ are competent to contract

A

adults; must rebut this presumption by proving severe mental incapacity (cannot form rational contractual intent)

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3
Q

the cognitive test rule [Sect. 15(1)(a)]

A

IF at the time of contracting, the party was unable to understand the nature AND the consequences of the transaction THEN the contract may be avoided

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4
Q

the motivational test [Sect. 15(1)(b)]

A

IF the party is unable to act in a reasonable manner in relation to the transaction AND IF the other party has reason to know of this condition THEN a party may avoid a contract

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5
Q

what is the goal of the “motivational/volitional” test?

A

to protect the reliance interest of the other party who had no reason to know of the condition

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6
Q

a “voidable” contract is

A

one where a party has discretion over whether to have the agreement rescinded or seek judicial rescission

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7
Q

rule for minor/major voidability:

A

the rule is that the infant makes a contract voidable at the election of the minor

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8
Q

Restatement 2d Section 14: Infancy

A

Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday

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9
Q

as a matter of public policy, what does it mean for a contract to be “void”?

A

if “void,” a contract may NOT be enforced by either party; determined by a judge as a matter of law

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10
Q

Rule for “disaffirming” (after reaching the age of majority)

A

IF a minor has reached the age of majority AND IF they raise the incapacity defense within a reasonable time THEN they may disaffirm the contract under the defense of incapacity

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11
Q

Rule for “reaffirming”

A

IF a minor has reached the age of majority AND IF the party reaffirms orally OR IF a court could determine the contract was ratified by their conduct THEN a minor will be deemed to have reaffirmed the contract they entered into as a minor EXCEPT WHERE they disaffirm within a reasonable time after reaching the age of majority

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12
Q

What does the restoration of consideration look like for each party after disaffirmation?

A

For the minor: they must return the goods still in their possession AND they receive the full $ back
For the adult (seller): they must return the full amount of the $ previously received AND receive what goods if any that are left in the minors possession

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13
Q

what is a “necessary”

A

a necessary includes whatever goods or services (in addition to food, water, shelter, and medical care) that are needed for the minor’s livelihood and well-being in accordance with reasonable standards of living, OR appropriate to the minor’s own circumstances and standard of living (EXCLUDING luxuries)

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14
Q

what is a “necessity”

A

traditionally includes food, clothing, shelter, and medical services (a minor must be unable to attain these things elsewhere)

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15
Q

How do we prove incapacity?

A

the party must demonstrate that 1. the condition existed at the time of contracting and 2. that the condition was in nature and extent severe enough to preclude an adequate degree of assent

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16
Q

Rule for relief following disaffirmation

A

IF a contract was made and IF it was between parties of full contractual capacity AND IF the contract is avoided THEN each party must restore whatever was received from the other under the avoided contract

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17
Q

In assessing mental capacity, a court may examine:

A

the credibility of conflicting medical opinions and diagnoses, observations of the party’s conduct, degree of comprehension, and the nature of the contract

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18
Q

Actionable Mental Incapacity

A

psychiatrically diagnosed mental illness or incompetence

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19
Q

contracts with minors and mentally incompetent persons are ________

A

VOIDABLE not void

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20
Q

a contract with a mentally incompetent person may “hang in the balance until…”

A
  1. the contract is disaffirmed OR
  2. the incapacity abates and the formerly incompetent party (or their guardian) affirms it
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21
Q

Incapacity and Intoxication Rule

A

Relief may be granted where the contracting party did not: 1. understand the nature and consequences OR 2. act reasonably in relation to the transaction AND the other party had reason to know they were impaired

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22
Q

Rule for Duress

A

IF a party is the victim AND IF their manifestation of assent is induced AND IF the threat is made by the other party improperly AND IF the threat leaves the victim with no reasonable alternative THEN the contract is voidable

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23
Q

What are the three elements of Duress?

A
  1. Inducement
  2. Improper threat
  3. No reasonable alternative
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24
Q

Inducement:

A

whether a person’s will has been overcome by a subjective standard; BUT FOR the
improper threat the victim would not have entered the contract

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25
Q

A threat is improper if:

A
  1. what is threatened is a crime or a tort
  2. criminal prosecution/ or threat of civil process
  3. threat is made in bad faith
  4. threat is a breach of duty of good faith and fair dealing under the contract
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26
Q

“No reasonable alternative” would be found by a court IF

A

the alternative to litigation would cause immediate and irreparable loss to one’s economic or business interests

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27
Q

Physical duress

A

IF a party is physically compelled by duress to enter the agreement THEN the contract is VOID

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28
Q

Economic duress

A

IF one contracting party took advantage of another’s economic circumstances AND IF it was an improper threat THEN a contract is VOIDABLE for economic duress

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29
Q

Inducement

A
  1. judged by a SUBjective standard
  2. The undue influence must substantially contribute to the victim’s decision to enter the contract
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30
Q

Unfair persuasion

A

when persuasion crosses the line into coercion, it is “unfair”; Typically, a court will look at the surrounding circumstances to determine if the dominant party tried to play upon the other person’s “mental, moral, or emotional weakness”

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31
Q

caveat emptor

A

“let the buyer beware”

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32
Q

Undue susceptibility (two things)

A

Undue susceptibility to domination by another party may be present either because there is (1) some weakness in the mind or (2) the parties are in a
relationship of trust

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33
Q

Four “Unfairness” factors considered by the court:

A
  1. econ consequences to the victim
  2. divergence from victims prior intent in the dealing
  3. relationship of the value conveyed to the value of any services or consideration received OR
  4. was the change appropriate in light of the LENGTH and NATURE of the relationship?
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34
Q

Elements of “over persuasion” from Odorizzi (7)

A

(1) discussion of the transaction at an
unusual or inappropriate time, (2) consummation of the transaction in an
unusual place, (3) insistent demand that the business be finished at once, (4)
extreme emphasis on untoward consequences of delay, (5) the use of
multiple persuaders by the dominant side against a single servient party, (6)
absence of third-party advisers to the servient party, (7) statements that
there is no time to consult financial advisers or attorneys

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35
Q

What kind of liability is a breach of contract?

A

Strict Liability - liable without fault

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36
Q

a decree of rescission:

A

an equitable remedy; can VOID a contract

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37
Q

What two kinds of remedies have we discussed?

A

Legal remedy or equitable/money remedy

38
Q

Exactitude

A

the antithesis of approximate learning

39
Q

benefit rule:

A

upon rescission, recovery of the full purchase price is subject to a deduction for the minor’s use of the merchandise

40
Q

use rule:

A

full value minus the use of the consideration received or for depreciation

41
Q

ratification doctrine

A

because you did not disavow an action, you are responsible for your conduct

42
Q

Article II 1-103(b)

A

Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions

43
Q

necessary doctrine:

A

an exception to the minor incapacity doctrine - when the item/good/service was a necessary for the minor

44
Q

emancipation/emancipated:

A

a situation in which a minor lives independently of of parents and is not supported by them; or marriage or military enlistment

45
Q

In what ways can the court “police” behavior in contract formation?

A

Through the doctrines of misrepresentation, duress, undue influence, and unconscionability

46
Q

“misrepresentation” (Re2d Sect. 159)

A

an assertion not in accord with the facts; a factually incorrect representation made by one of the parties at the time of contracting

47
Q

Misrepresentation as conduct:

A

at or before contract formation, could be conduct objectively interpreted as conveying false statement of a fact

48
Q

What are the three categories of misrepresentations?

A

Fraudulent, active concealment, nondisclosure

49
Q

In GA, Title 39 is the _____ statute

A

minor

50
Q

When may a recipient rescind based on fraudulent misrepresentation?

A

IF one party intentionally makes a false statement of a fact AND IF the misrepresentation induces another manifestation of assent THEN the deceived party may be able to rescind the agreement based on FM

51
Q

Fraud in Factum: are. 2d sect. 163

(rare; usually pertains to loan docs)

A

VOID agreement; when the fraud prevents the injured victim from understanding the nature of the document she had signed, the fraud prevents formation of a contract

52
Q

Misrepresentation of Fact:

A

Generally: opinions are not normally ACTIONABLE UNLESS an expert expresses a favorable opinion, AND IF his or her opinion is in reality unfavorable, THEN relief is available

53
Q

Tort of deceit OCGA 51-6-2

A

a misrepresentation must usually be intentionally false and intended to deceive (“scienter”); COA seeking $ damages for injury

54
Q

Equitable remedies are distinguishable from legal remedies in that equitable remedies:

A

specific action or specific forbearance; legal is monetary

55
Q

Material Misrepresentation Rule (Sect. 162.2)

A

A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases ONLY:

(a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
(b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
(c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
(d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.

56
Q

Rule for avoidance based on Nondisclosure

A
  1. the ND must materially affect the value of the transaction AND
  2. not be readily observable or known to the uninformed party
57
Q

Three most common remedies for Misrepresentation and Nondisclosure

A
  1. rescission (restore)
  2. reformation (rewrite)
  3. RARELY sue for damages
58
Q

A misrepresentation is a material IF

A

a reasonable person would likely be induced by the misrepresentation to enter into the contract OR the maker knows the recipient is more likely than not to be induced where a reasonable person may not

59
Q

Rule for Duty to Disclose:

A

IF the circumstances create a duty to speak AND IF a party conceals or is silent about a material fact AND IF this fact is one that the party is bound in good faith to disclose THEN the party may be liable for fraud/misrepresentation

60
Q

The elements of “misrepresentation”

A

(1) made a statement of fact (not opinion); (2) the statement was material; (3) the statement was false; (4) the defendant knew it was false (5) the DEF intended to induce reliance on the statement; (6) the plaintiff actually relied on the statement; (7) his or her reliance was reasonable; and (8) the plaintiff suffered some actual pecuniary loss as a result of its reliance

61
Q

misrepresentation defined

A

a false statement of fact that exists at the time the contract is made; OR conduct that is objectively OR subjectively* interpreted as conveying a false statement

62
Q

Objective (material) misrepresentation

A

A reasonable person would likely be induced by the misrepresentation to enter the contract

63
Q

Subjective (material) misrepresentation

A

The maker knows that this specific recipient would likely be induced by the representation to enter the contract even though a reasonable person might not be so induced

64
Q

What is inducement?

A

that the misrepresentation
must have occurred at or before contract formation

65
Q

When nondisclosure is equivalent to an assertion:

A

Re2d Sect. 161

66
Q

Concealment Restatement: when action is equivalent to an assertion

A

Re 2d Sect. 160

67
Q

Elements of Inducement:

A

1) If the misrepresentation
“substantially contributes” to a party’s decision to enter the contract, AND
2) the party must have relied on the misrepresentation as
being true in their decision to enter the contract
3) then the party was induced by the misrepresentation

68
Q

Fraud in the “factum”

A

when someone tricks a victim into signing a meaningful agreement by making it appear that he or she is signing a completely different document, such as an innocuous letter or a receipt

69
Q

3 situations in which a seller has a “duty to disclose”:

A
  1. where the disclosure is necessary to correct an earlier statement
  2. when he KNOWS that the disclosure will correct a mistake of the other party concerning one of their basic assumptions about the deal
  3. when the parties have a confidential or fiduciary relationship with one another
70
Q

What is the effect of the “no reliance” clause?

A

parties may include written terms specifying the extent to which they have relied on one another’s representations

71
Q

Multi-Factor Soft Balancing Test for excessive pressure/unfair persuasion

A

1) discussion of the transaction at an unusual or inappropriate time
2) consumption of the transaction in an unusual place
3) insistent demand that the business be finished at once
4) extreme emphasis on untoward consequences of delay
5) the use of multiple persuaders by the dominant side against a single subservient party
6) absence of 3rd party advisers to the subservient party
7) statements that there is no time to consult financial advisors or attorneys

72
Q

Issue of Justifiable Reliance

A

whether the recipient
knew or should have known about the falsity of the statement. If the
recipient should have known the representation was false but was
consciously ignorant, then their reliance was not justified

73
Q

The U.C.C. § 2-316 prevents enforcement of a disclaimer that contradicts an express warranty subject to the effect of the ______ __________ ____.

A

parol evidence rule

74
Q

Foster v. Cross - “material fact”

A

is one to which a reasonable man might be expected to
attach importance in making his choice of action

75
Q

burden of proof in a civil case

A

preponderance of evidence

76
Q

Comment E of Section 79 - Economic Duress

A

gross inadequacy of consideration in a context of usury, overreaching, and misrepresentation (EX: grocery shopper overpriced $200 scrip)

77
Q

Usury defined:

A

the illegal practice or action of lending money at unreasonably high rates of interest

78
Q

Economic duress (improper threat) Sect. 176

A

VOIDABLE; type of unfair bargaining tactic that uses financial pressure to induce an agreement (improper breach/modification)

79
Q

Physical duress

A

VOID; when the party has their free will taken from them; is limited to situations where one of the parties physically controls the other party’s actions, such as by taking the victim’s hand and moving it on the piece of paper while the victim signs,281 or, in some jurisdictions, a threat of imminent physical harm.

80
Q

Re2d Sect. 177 Undue Influence Defined

A

(1) Undue influence is UNFAIR persuasion of a party who is under the domination of the person exercising the persuasion OR who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

81
Q

Re2d Sect. 177 Undue Influence RULE

A

(2) IF a party’s manifestation of assent is induced by undue influence by the other party, OR
(3) IF a party’s manifestation of assent is induced by one who is not a party to the transaction, THEN the contract is voidable by the victim UNLESS the other party to the transaction in good faith AND without reason to know of the undue influence EITHER gives value OR relies materially on the transaction.

82
Q

Re. 2d Sect. 162

A

when a misrepresentation is fraudulent or material (inducement + knowledge)

83
Q

Re 2d 164: When Misrepresentation Makes a Contract Voidable

A

1) if a party’s manifestation of assent is induced by
2) Fraudulent or material misrepresentation
3) that the other party justifiably relied upon THEN
the contract is voidable by the recipient

84
Q

Where can one locate unconscionability in the UCC

A

U.C.C. § 2-302; permits courts to determine that a contract or a clause in a contract is unconscionable

85
Q

procedural unconscionability defined:

A

when one of the parties lacked a meaningful choice when entering into the contract

86
Q

substantive unconscionability defined:

A

when the contracts terms are oppressively one-sided + great price disparity

87
Q

Re2d Sect. 208

A

If a contract or term is unconscionable at the time of contracting THEN a court may refuse to enforce the contract OR enforce w/out unconscionable term OR limit application of the unconscionable term to avoid an UC result

88
Q

According to Article II of the UCC comment 1 of Sect. 2.302, the purpose of the unconscionability doctrine is:

A

to prevent oppression and unfair surprise BUT not to disturb the allocation of risks bc of superior bargaining power

89
Q

What is an “adhesive” contract and what does it do in some jurisdictions?

A

a take-it-or-leave-it contract; in Cali, adhesive nature of a contract alone is enough to satisfy the first prong of UnCon

90
Q

Rule for Causality and unconscionability:

A

a court will not usually inquire into the adequacy of the contractual exchange UNLESS the unequal exchange was CAUSED by behavior that qualifies as procedurally unconscionable, the parties WILL be held to their manifested agreement UNLESS the terms are grossly oppressive that it is evidenced in the opportunistic use of a position of dominance

91
Q

An honest opinion that is erroneous is __________________.

A

NOT misrepresentation

92
Q

Typical circumstances in which a nondisclosure issue might occur (4)

A
  1. disclosure required by statute
  2. intentional concealment
  3. relationships of trust and confidence
  4. duty to disclose in order to prevent or correct a mistake

Contracts 1 (2 decks)

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