Defenses

Question 1

Contract Enforceability:

Void, Voidable, & Unenforceable

Answer 1

• A void contract results in the entire transaction being regarded as a nullity, as if no contact existed. (e.g. illegal)
• A voidable contract operates as a valid contract, unless and until one of the parties takes steps to avoid it. (e.g., minor)
• An unenforceable contract is a vaalid contract that cannot be enforced if one of the parties refuses to carry out its terms. (e.g., no consideration)

Question 2

Defenses to Formation

Answer 2

• Mistake
• Misunderstanding
• Misrepresentation, Nondisclosure, Fraud
• Undue Influence
• Duress
• Capacity

Question 3

Mistake

Answer 3

A mistake is a belief that is not in accord with existing facts as to a basic assumption on which the contract was made that materially affects performance.

• Mutual (voidable)
  
  • P did not assume risk
• Unilateral (voidable)
  
  • P did not assume risk AND
    
    • D caused mistake
    • D had duty to disclose
    • D knew of mistake and failed to disclose
• Defense:
  
  • P’s breach (major or minor)
  • P’s conscious Ignorance (awareness)
• Remedies
  
  • Rescission
  • Reformation (scrivner’s error)

Question 4

Misunderstanding

Answer 4

A misunderstanding occurs when both parties believe that they are agreeing to the same amterial terms, but they in fact agree to different things.

• Neither party knows/should know:
  
  • no contract (no meeting of minds)
• One party knows/should know
  
  • contract based on unknowing party’s term
• Both parties know
  
  • no contract unless both parties intended same meaning
• Waiver
  
  • a pary may waive misunderstanding and envorce according to other party’s terms

Question 5

Mistake vs Misunderstanding

Answer 5

• Mistake concerns facts
• Misunderstanding concerns the agreement itself

Question 6

Misrepresentation

Answer 6

A misrepresentation is an untrue assertion of fact (not law/opinion) that can make the contract void or voidable if:

• material
• induced assent
• justifiable reliance
• not cured before avoidance

Note: “as is” provisions can shift risk to buyers.

Fraudulent Misrepresentation

• Elements
  
  • knowingly/recklessly
  • intent to mislead
• Types
  
  • Fraud in execution/factum: (agreement/legal effect)
    
    • P elect to void or reform
  • Fraud in inducement: (factual)
    
    • Voidable

Nondisclosure Misrepresentation

• affirmative conduct to conceal
• omission if D knows that disclosure:
  
  • is necessary to prevent previous assertion from being misrepresentation
  • would correct P’s mistake and nondisclosure would constitute lack of good faith and fair dealing
  • would correct P’s mistake concerning contents or effect of writing
  • Confidential fiduciary relationship

Question 7

Undue Influence

Answer 7

Undue influence is the unfair persuasion of a party to assent to a contract. The threshold issue for undue influence is whether the assenting party has been able to exercise free and competent judgment or whether the persuasion of the other party has seriously impaired that judgment. A party who is the victim of undue influence can void the contract.

• Factors:
  
  • fairness
  • availability of independent advice
  • susceptability to persuasion

Common: Special relationships

Third Party undue influence

• Not voidable if non-victim party
• gave value or detrimentally relied on the contract
• while acting in good faith
• without kreason to know of undue influence

Restitution damages may be available to the unduly influenced party, in addition to avoidance.

Question 8

Duress

Answer 8

Duress is

1. an improper threat
2. that deprives a party of meaningful choice.

Improper threats

• crime
• tort
• criminal prosecution
• bad faith threats to pursue civil action;
  
  • good faith threats of civil action (demand letters) are not improper threats.

Subjective standard, not necessarily reasonable.

A party is deprived of meaningful choice only when they do not have a reasonable alternative to succumbing to the threat.

Effect:

• physically compelled: void.
• other: voidable (social, economic)

Question 9

Capacity

Answer 9

A contract can be void or voidable where a party is incompetent.

Incompetency arises because of

• infancy,
  
  • voidable before majority or within a reasonable time,
  • must return benefit if possible
  • liable for necessities
• mental illness or defect,
  
  • void if adjudicated incompetent
  • voidable if unable to act in a reasonable manner and other party knows or should know
  • liable for necessities
• guardianship,
  
  • void
• intoxication,
  
  • voidable if unable to understand nature and consequences and other party knows or should know

Other party awareness required only for intoxication and non-adjudicated mental illness.