Defenses Flashcards
What are the contract defenses?
1) Misunderstanding
2) Incapacity
3) Mistake
4) Fraud/Misrepresentation/Nondisclosure
5) Duress
6) Illegality
7) Unconscionability
When is Misunderstanding a defense to a contract?
1) parties use a material term that is open to two or more reasonable interpretations
2) Each side attaches a different meaning to the term
3) neither party knows or should know of the confusion.
When is incapacity a defense?
1) Minors under age of 18 - unless for necessities then have to pay FMV
2) Intoxicated person - depends on what the other side knows or should know at the time
3) Mentally ill - if they cannot understand the nature of the contract, but if they can act in a reasonable manner in relation to transaction it is ok.
Incapacity Standards based on the other side:
1) Minors - blanket protection except for necessities
2) Intoxicated - depends on what the other side knows
3) Mentally Ill - intermediate level of protection
How does a party without capacity ratify the deal?
By keeping the benefits.
What is a mistake
A belief not in accord w/ a present fact.
What happens if there is a mutual mistake and what are the elements?
Adversely affected party may rescind if:
1) Mistake of fact at time of deal
2) Mistake relates to a basic assumption of the contract
3) Mistake has a material impact on the contract
4) Impacted party didn’t assume the risk of mistake.
What are the elements for a Unilateral Mistake?
1) Mistake of fact at time of deal
2) Mistake relates to a basic assumption of the contract
3) Mistake has a material impact on the contract
4) Impacted party didn’t assume the risk of mistake.
5) The mistake would make the contract unconscionable or the other side knew or had reason to know of the mistake.
What can occur if there is a unilateral mistake?
The harmed party may rescind.
Elements to show Fraud, Misrepresentation or Nondisclosure
1) Misrepresentation of a present fact and not an opinion
2) Material or fraudulent
3) It was justifiable to rely on the statement.
What is fraud in execution
When you trick someone into signing something that isn’t a contract or that is the wrong contract
Nondisclosure
The other party doesn’t learn the truth about something but now you just remain silent.
Durress
Improper threat that deprives the other party from making a reasonable choice. Can be economic.
When does undue influence arise?
High pressure sales tactics or seeking out susceptible people.
Rule on Illegal contracts:
A contract entered in furtherance of an illegal act that is not in itself an illegal act will be enforceable. But a contract for an illegal act will be enforceable.
