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J.Edits.Contract.Law > Defenses > Flashcards

Defenses Flashcards

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1
Q

What are the two types of incapacity in contract law?

A
  1. Infancy/Minors

And

  1. Mental Incapacity
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2
Q

What are the 6 categories of defenses available to the enforcement of a contract?

A
  1. Capacity
  2. Misrepresentation
  3. Duress
  4. Undue Influence
  5. Unconscionability
  6. Public Policy/Illegality

Defenses apply to the common law and the UCC

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3
Q

Who is considered a minor?

A

Any person under the age of 18.

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4
Q

What is the validity of a contract with a minor?

A

Minors may enter into a contract but it is voidable at the minor’s option.

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5
Q

What is the majority minority split on the validity of contracts for minors who are married or emancipated?

A

Majority rule: minors enjoy the power of avoidance even if emancipated or married

Minority rule: eliminates defense.

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6
Q

What happens if a minor avoids a contract?

What happens if there is damage to property that was part of the contract?

A

The majority rule is that the minor must return the goods if they are in his possession when he disaffirms the contract, but he is not liable for damage, wear and tear, or any depreciation in value.

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7
Q

What is the effect of a minor avoiding a contract for personal services?

A

The minor is under no further obligation to compensate the performing party.

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8
Q

What is the minority rule for minor liability in the event of avoidance?

A

The minor would be liable for: depreciation, damages, and compensation for services received.

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9
Q

How can a minor ratify a contract?

A

Once minors turn 18 they may expressly or impliedly ratify contracts enter into during minority and bind themselves.

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10
Q

What is the rule when a minor contracts for necessaries?

A

A minor’s contract for necessaries: is voidable but the merchant has a quasi-contract right to recover the reasonable value of the goods or services.

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11
Q

List the necessaries for a minor?

A
  1. Food
  2. Clothing
  3. Shelter
  4. Medical care
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12
Q

When will lack of capacity serve as a defense?

A

If a party was mentally incompetent at the time of contracting.

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13
Q

What are the requirements for mental incompetence?

A
  1. Adjudicated incompetent

Or

  1. Cognitive Defects
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14
Q

What is the burden of proof for cognitive defects?

A

A person will be deemed mentally incompetent if he is unable to understand in a reasonable manner the nature and consequences of the transaction.

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15
Q

When can volitional defects can establish incompetence?

A
  1. A person is unable to act in a reasonable manner in relation to the transaction
  2. The other party has reason to know of this condition.
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16
Q

What is the legal consequence to being adjudicated mentally incompetent?

A

If there’s been an adjudication of mental incompetence: contracts are altogether void

If there’s been no adjudication: contracts are voidable at the option of the incompetent party.

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17
Q

How can a mentally incompetent person ratify a contract?

A

A party who is mentally incompetent at formation may expressly or impliedly ratify the contract if he later becomes competent.

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18
Q

What is the mentally incompetent party duty to seller if they avoid the contract and receive a benefit?

A

He is required to pay the reasonable value of the goods or services rendered.

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19
Q

What is due to a seller that takes advantage of a person’s incompetence?

A

The incompetent person is only required to return benefits still in his possession.

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20
Q

List the categories of misrepresentation.

A
  1. Fraudulent Misrepresentation
  2. Non-Fraudulent Misrepresentation

And

  1. Fraudulent Non-Disclosure
21
Q

What are the elements of fraudulent misrepresentation?

A
  1. There is a misrepresentation of an existing fact
  2. The misrepresentation is purposeful
  3. The misrepresentation is on a material term of the contract
  4. The aggrieved party reasonably relied on the misrepresentation.
22
Q

Can opinions be misrepresentations?

A

No, unless it is a professional opinion.

23
Q

What are the elements for negligent misrepresentation?

A
  1. There is a misrepresentation of an existing fact
  2. The misrepresentor should have known it was false
  3. The misrepresentation is on a material term of the contract
  4. The aggrieved party reasonably relied on the misrepresentation
24
Q

What are the elements for innocent misrepresentation?

A
  1. There is a misrepresentation of an existing fact
  2. The misrepresentation is on a material term of the contract
  3. The aggrieved party reasonably relied on the misrepresentation.
25
Q

What are the elements for fraudulent nondisclosure?

A
  1. The nondisclosure was material to contract
  2. The aggrieved party reasonably reliance on non-disclosure
  3. Nondisclosure had a duty of disclosure.
26
Q

When does a party have the duty to disclose?

A

If a party is aware of material facts that are unlikely to be discovered by the other party in the exercise of ordinary care and diligence, then there will be a duty to disclose that information in these circumstances:

  1. Where the parties enjoy a relationship of trust and confidence (attorney, trustee)
  2. Where the party has made an assertion that was true at the time but has been rendered untrue by intervening events
  3. If the obligation of good faith would require the party disclose the information.
27
Q

What remedies apply to all types of misrepresentation?

A
  1. Use as a shield: a misrepresentation can be used as defenses to a breach of contract claim.
  2. Use as a sword: they may all be used as an action for recession of the contract and for reliance damages.
28
Q

What remedy is available to fraudulent and non-fraudulent misrepresentation but not fraudulent nondisclosure?

A

A party may continue with the contract and sue for the anticipated benefit of the bargain.

29
Q

What remedy is available to fraudulent misrepresentation no other type of misrepresentation?

A

Party may be able to seek punitive damages because it is an intentional tort.

30
Q

What are the elements of duress?

A
  1. Threat
  2. The threat is wrongful in nature
  3. There is no reasonable choice but to succumb to the threat.
31
Q

What threats are wrongful in nature?

A

The threat is:

  1. A crime or a tort
  2. Criminal prosecution or a bad faith civil process
  3. Economic duress (a bad faith breach of contract).
32
Q

What is a threat?

A

A manifestation of an intent to inflict harm on another person made by words or conduct.

33
Q

How do you distinguish between a bad-faith threat to breach a contract from a good-faith demand?

A

If the demand is due to increased burden caused by unanticipated circumstances, then there is no duress.

34
Q

When is economic duress reasonable to succumb to?

A
  1. There is no adequate nor reasonably price substitutes for services or goods threatened to be withheld
  2. If the threatened breach would cause the party to break his own contract

And

  1. When the alternative of acquiescing to the threat and suing for damages is inadequate.
35
Q

What are the legal remedies for duress?

A
  1. Avoidance: contracts made under physical compulsion are void and all other contracts are voidable
  2. Restitution: The aggrieved party is entitled to restitution of any benefits conferred as long as he returns any benefits received.
36
Q

What are the elements of undue influence?

A
  1. Unfair persuasion
  2. The other party was vulnerable to the persuasion.
37
Q

What are the seven red flags for unfair persuasion?

A
  1. The discussion of the transaction at an unusual or inappropriate time
  2. The consummation of the transaction at an unusual place
  3. There were insistent demands that the transaction be completed immediately
  4. Extreme emphasis on the negative consequences of delaying the transaction
  5. The use of multiple persuaders
  6. Absence of third party advisors
  7. Statements that there is no time to consult advisors or attorneys.
38
Q

When can a party be considered vulnerable for undue influence?

A
  1. Vulnerability is due to some recent trauma or event
  2. Where the mental infirmity is due to age or illness
  3. Where there is a relationship of trust or confidence.
39
Q

What are the legal consequences of undue influence?

A
  1. The contract is voidable by the aggrieved party

And

  1. The aggrieved party is entitled to restitution of any benefits conferred as long as he returns any benefits received.
40
Q

What triggers the unconscionability defense?

A
  1. Procedural unconscionability

And

  1. Substantive unconscionability.
41
Q

What circumstances bring about procedural unconscionability?

A
  1. Near miss cases: cases almost meeting the requirements for incompetent or duress

And

  1. When there is an absence of bargaining power.
42
Q

When is a contract substantively unconscionable?

A

The terms are unreasonably favorable to one party to the contract by way of:

  1. Grossly excessive price
  2. Grossly disproportionate consequences for a minor breach
  3. Provisions binding on one party but not the other
  4. Provisions that are grossly unfair.
43
Q

Upon a finding of unconscionability, what may a court do to the contract?

A
  1. Refuse to enforce the contract
  2. Blue pencil the offending clause
  3. Limit the application of the offending clause so as to avoid any unconscionable result.
44
Q

When may public policy be raised as a defense to the enforcement of a contract?

A
  1. Where the subject of the contract itself is explicitly prohibited by law (prostitution, gambling)
  2. Where a contract is formed for the purpose of committing a crime
  3. Where the contract performance would constitute a tort
  4. Where the contract performance would violate certain values and freedoms designated by the state.
45
Q

What are the sources of public policy defenses?

A
  1. Legislation
  2. Judicial Decisions
46
Q

What may judges base their public policies upon?

A
  1. Moral and social values
  2. Economic considerations

And

  1. Protection of governmental processes and institutions.
47
Q

What is the result of a public policy defense that is successful?

A

The ∆ wins irrespective of whether he promised to perform the public policy violation or pay for it.

48
Q

What happens to a contract that is subject to the defense of public policy?

A
  1. It is automatically void if illegal

And

  1. Otherwise voidable.

J.Edits.Contract.Law (8 decks)

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