Defenses Flashcards
Three Kinds of Defenses
Lack of capacity (voidable by one party)
Defective formation of the contract
Defense to enforcement of certain terms
Lack of Capacity: Contracts with Minors
Infants (typically under 18) generally lack capacity to enter into a contract BUT contractual promises are binding on an adult.
A minor may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority.
- The contract must be disaffirmed as a whole.
- If disaffirmed, they must return anything that they received under the contract that still remains at the time of disaffirmance.
When can a minor NOT disaffirm a contract?
Affirming the contract after reaching the age of majority
In contracts for student loans, insurance contracts, and agreements not to reveal an employer’s proprietary information.
NOTE: In a contract for necessities (i.e., food, shelter, clothing, and medical care), a minor may disaffirm that contract but will be liable in restitution for the value of benefits received.
How can a minor affirm a contract after reaching the age of majority?
Either expressly or by conduct, such as by failing to disaffirm the contract within a reasonable time after reaching majority.
Define Mental Incapacity
One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract
When Can a Mentally Incapacitated Person Affirm a Contract?
During a Lucid Interval (period of clarity) or upon complete recovery (even without formal restoration by judicial action.)
Otherwise, the contract is voidable by the incapacitated party. Like minors, mentally incompetent persons are liable in quasi-contract for necessaries.
When Can a Mentally Incapacitated NOT enter into a contract?
Once a guardian has been appointed (automatically void)
Ability of Intoxicated Persons to Contract
If they don’t understand the nature and significance of their promise, the promise is voidable IF the other party had reason to know of the intoxication.
The intoxicated person may affirm the contract upon recovery.
May be quasi-contractual recovery for necessaries furnished during the period of incapacity.
Effect of Duress and Undue Influence on Contract
Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed.
Define Duress
Duress occurs when a party’s assent is procured by an improper threat (for example, “sign the contract or I’ll break your legs”).
Generally, taking advantage of another person’s economic needs is not duress BUT withholding something someone wants or needs will constitute economic duress if:
(1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
(2) there are no adequate means available to prevent the threatened loss.
Define Undue Influence
(1) Undue susceptibility to pressure by one party, and
(2) Excessive pressure by the other party.
Often arises when the dominant party is in a confidential or caregiver relationship with the influenced party.
Ambiguous Contract Language: Who knew?
Neither party aware: no contract unless both parties intended the same meaning
Both parties aware: no contract unless both parties intended the same meaning
One party aware: binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words
NOTE: Look at subjective intent
Both parties entering into a contract are mistaken about EXISTING facts relating to the agreement
The contract may be voidable by the adversely affected party if:
(i) The mistake concerns a basic assumption on which the contract is made (e.g., the parties think they are contracting for the sale of a diamond but in reality the stone is a cubic zirconia);
(ii) The mistake has a material effect on the agreed-upon exchange (for example, the cubic zirconia is worth only a hundredth of what a diamond is worth); AND
(iii) The party seeking avoidance did not assume the risk of the mistake.
When is Mutual Mistake NOT a Defense?
If the party asserting mistake as a defense bore the risk that the assumption was mistaken (e.g., if one party better knew the risks than the other party or where the parties knew that they were ignorant)
Mistake in value generally not a defense (unless severe difference in value)
Unilateral Mistakes
If the non-mistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party.
- The mistake must have a material effect on the agreed-upon exchange
- The mistaken party must not have borne the risk of the mistake
