Defenses

Question 1

Defenses (6) Under CL& UCC

Answer 1

• Infancy/ minors
• Mental incompetency
• Misrepresentation
• Duress
• Undue Influence
• Unconscionability
• Public Policy/ Illegality Defense

Question 2

Defense:Infancy/ minors

Answer 2

(incapacity) – under 18
Modern Rule: Minors may enter K but voidable at option of minor

Power of Avoidance: If minor exercises right to disaffirm K:
i) Minor obligated to return any goods received but not liable for damage, wear/tear, or depreciation in value

ii) If a service K or lease and therefore not returnable, minor under no further obligation to compensate other party, good to go
c) Ratification: At 18, minor can expressly or impliedly ratify K entered during minority and bind self to obligations (silence alone is insufficient to ratify)
d) Necessaries (food, clothing, shelter, meds) still voidable, but merchant has quasi K right to recover reasonable value of goods or services (NOT the contracted for price)

Question 3

Defense: Mental Incompetency

Answer 3

(incapacity) – Mentally incompetent at time of contracting

Power of Avoidance: mentally incompetent person is obligated to not only return any goods received but IS also liable for any damages or reasonable value for use of any goods or services (unless other party was aware of incompetence then mentally incompetent parties are treated just like minors)

b) Ratification: May expressly or impliedly ratify once competent
c) Necessaries – Applies just like minors, quasi K if disaffirmed

Question 4

Defense: Misrepresentation (4 types)

1. Fraudulent Misrepresentation 4 Elements

Answer 4

i) A misrepresentation – An assertion inconsistent with existing facts (i.e. fraudulent conduct such as concealment, oral/written misrep, not broken promises)

ii) State of mind (need both)
(1) Scienter = made assertion either knowing it to be false OR knowing he had no idea whether it was true or false +
(2) Intent to mislead = made assertion for purpose of misleading or knowing there was a substantial likelihood to mislead

iii) Materiality of Misrepresentation
(1) Objective Materiality = would induce reasonable person to enter K
(2) Subjective Materiality = reason to know would induce this person to enter into K

iv) Reasonable Reliance
(1) Unreasonable if aggrieved party knew otherwise, knew person making statement was unreliable, no one could believe it

Question 5

Defense: Duress (3 Elements)

Answer 5

a) A threat: Manifestation of intent to inflict harm made in words/conduct

b) Wrongful in nature: satisfied if what is being threatened is a:
i) Crime or tort
ii) Criminal prosecution or bad faith civil process
iii) Bath faith breach of K (aka economic duress)

c) No reasonable choice but to succumb to the threat: 3 usual situations involving economic duress:
i) Threat to withhold when no adequate cheap substitutes available
ii) Would cause aggrieved party to break his own K’s
iii) Alternative of submitting to threat and then suing for damages is inadequate to address harm

Legal consequences

i) Avoidance – Ks under physical compulsion are void. Others are voidable
ii) Restitution – Aggrieved party also entitled to restitution of any benefits conferred and received

Question 6

Defense: Undue Influence (2 elements)

Answer 6

a) Unfair persuasion + Other party was vulnerable to such persuasion

Legal consequences

i) Voidable at option of aggrieved party; and
ii) Aggrieved party is entitled to restitution of any benefits conferred and return of any benefits received

Question 7

Defense: Public Policy/ Illegality Defense

Answer 7

a) Subject of K itself is specifically prohibited by law (ex: prostitution);
b) K formed for purpose of committing a crime or tort;

c) K performance would violate certain values/freedoms designated by the state
i) Consequence of defense – void if illegal, otherwise voidable at option of defending party

Question 8

Defense: Misrepresentation (4 types)

2. Non-Fraudulent Misrepresentation

Answer 8

2 types, Negligent and Innocent Misrepresentation (4 elements, all same but last one)

i) A misrepresentation
ii) Materiality
iii) Reasonable reliance
iv) Don’t quite need scienter/intent to mislead, but rather:
(1) Negligent misrep – Reasonable care would have revealed misrep
(2) Innocent misrep – Good faith assertion that was not true

Question 9

Defense: Misrepresentation (3 types)

3. Fraudulent Nondisclosure

Answer 9

D’s silence when duty to disclose (3 elements)

i) Nondisclosure was material to the K;
ii) Reasonable reliance on nondisclosure;
iii) Duty of disclosure and failure to fulfill

Question 10

Defense: Misrepresentation

Remedies for Misrepresentation

Answer 10

(i) Available for all 3 types:
(1) Shield (avoidance) – Can be used as defense of K claim
(2) Sword (rescission and reliance damages) – Tort for rescission of K and for damages resulting from reliance on misrep

ii) For fraud + non-fraud misrep but not fraud nondisclosure:
(1) May live with K and sue for benefit of the bargain – Ex: Damages for not getting as good gas mileage

iii) For fraud misrep only - punitive damages

Question 11

Defense: Unconscionability (2 elements)

Answer 11

a) Procedural Unconscionability: Bargain process creates absence of meaningful choice for aggrieved party (ex: language barriers, adhesion K’s)
b) Substantive Unconscionability: K terms unreasonably favorable to one party to K (ex: grossly excessive price, provisions binding on 1 party only)

c) Legal Consequences – Upon a finding of unconscionability, court may:
i) Refuse to enforce K;
ii) Excise the offending clause and enforce remainder;
iii) Limit application of offending clause to avoid unconscionable result