Defenses Flashcards
What are the seven defenses to contract formation?
- Misunderstanding
- Incapacity
- Mistake
- Fraud/Misrepresentation/nondisclosure
- Duress
- Illegality
- Unconscionability
When is misunderstanding an appropriate defense?
Misunderstanding (Mutual Mistake) = when each party attaches a different meaning to the same words
What are the elements of misunderstanding?
- The parties use a material term that is open to two ore more reasonable interpretations
- Each side attaches a different meaning to the term
- Neither party knows or should know of the confusion
Who lacks capacity to make a contract?
- Minors (under age of 18)
- Mentally ill persons: (a) person cannot understand the nature of the consequences; (b) person cannot act in a reasonable manner in relation to the transaction AND c) the other party knows this
- Very intoxicated persons (if the other person knows of the intoxication)
Can contracts formed with persons deemed incapable be deemed void?
YES, the incapacitated person can dissafirm
How do courts handle contracts for necessities with incapacitated persons?
The party without capacity must pay fair value, not necessarily the contract price
Necessity = something you need to survive (food, clothing, shelter)
How can an incapacitated person ratify the contract?
Keeping the benefits of the contract after capacity is obtained.
What are the elements to mistake?
1) Mistake of fact, existing at time deal was made
2) Mistake relates to a basic assumption of the contract and has a material impact on the deal
3) Impacted party did not bear the risk of mistake
What are the elements to unilateral mistake?
Allows the adversely affected party to rescind if
1) all elements of mutual mistake PLUS
The mistake would make the K unconscionable OR the other side knew (or had reason to know) of the mistake
What is the difference between mistake and misrepresentation
Mistake = belief that is not in accord with a present fact
Misrepresentation = statement at the time of contracting that is untrue, can be intentional or unintentional
What are the elements to misrepresentation?
1) A misrepresentation of a present fact (not opinion);
2) That is mistaken OR fraudulent (intentional); and
3) That is made under circumstances in which it is justifiable to rely on the misrepresentation
What is required to claim a defense of nondisclosure?
Nondisclosure: Other party just remains quiet.
Normally, you do not need to tell the other side about all material facts related to the deal. EXCEPT: 1) special fiduciary relationship exists or 2) active concealment
How is duress defined?
Duress = an improper threat that deprives a party from making a meaningful choice to contract
What is economic duress?
When one party makes threats to induce a party to contract (or modify a contract)
How is undue influence defined?
undue influence = when a party puts very intense sales pressure on another party, who often seems weak-minded or susceptible to high-pressure sales tactics.
