Defenses to contract

Question 1

What are the seven defenses to a Contract

Answer 1

Misunderstanding 
Incapacity
mistake 
fraud and Misrepresentation 
Duress
Illegality
Unconscionability

Question 2

Misunderstanding

Answer 2

when each party is saying the same thing but attaching

a different meaning to different things

Question 3

What do you need to show for Misunderstanding as a

defense?

Answer 3

Must show
1. parties used a material term which is open to one or two
interpretations- the objective standard test governs

2. each side attaches a meaning to each of those terms
3. either party knows about or should know about the
   confusion

Question 4

Incapacity

Answer 4

when one party lacks the capacity to contract

Question 5

who is protected under Incapacity to K?

Answer 5

1. Minors - under 18
2. intoxicated PPL (if the other side knows) treated as if
   they’re mentally ill
3. mentally ill- two standards
   a. the person cannot under the nature and
   consequences of his actions orb. the person cannot act in a reasonable manner and the
   other side knows this

Question 6

Who gets the most and least protection in incapacity to K defense?

Answer 6

Minors get the most protection- blanket rule

Mentally ill get intermediate protection

intoxicated get the least- depends on the other side konws

Question 7

Exceptions to voidable incapacity K?

Answer 7

Gen Rule= incapacitated person can disaffirm the contract

Exceptions

1. When necessities are involved
   - the party w/o capacity must still pay fair value for the
   necessity
   - Necessities are things that you need to live i.e.
   food,
   shelter,
2. After/When capacity is obtained/regained
   - a party w/o capacity can also ratify the deal after they
   become capable
   • EX. if a 16 y/o after 18 can ratify- once ratified can’t void
     - Less protection for intoxicated but different for the mentally ill - usually after they reach a lucid period

Question 8

Mistake

Answer 8

a belief that is not in accord w/ a present fact

2 types of mistake

1. mutual - effects both parties     2. unilateral - one side is fundamentally affected by the mistake- the other side is unaffected or does not care.

Question 9

When can a party rescind in a MUTUAL MISTAKE scenario?

Answer 9

Adversely affected party can rescind K if:

1. there is a mistake of FACT existing at the time the deal is
   made (not an opinion)
2. The mistake relates to a basic assumption of K and has
   a material impact on the deal; AND
3. The adversely affected party must not have assumed the risk

EX. a compromise of conscious ignorance - buying assumes risk since both are unaware

Question 10

Who can use UNILATERAL MISTAKE defense?

Answer 10

The affected party proves all the elements of mutual mistake PLUS show that
either-
1. the mistake would make the K unconscionable OR

2. the other side knew of it, had reason to know, or caused the mistake

Question 11

Fraud

Answer 11

Two types

Fraud in the execution
- trick someone into signing something they don’t even
know is a K

Question 12

Misrepresentation

Answer 12

Misrep - false statement at the time of K, can be accidental

Must show that there is a misrep of

1. a present FACT(not opinion)
2. that is MATERIAL or FRAUDULENT misrep
3. which Is made under the circumstances where it’s justifiable to rely on the Representation

Question 13

Nondisclosure

Answer 13

• close to misrep
  is when seller remains silent

Gen Rule- normally you don’t have to tell the other side everything related to the deal

Exception

• active concealment - is tantamount to fraud
• special fiduciary duty

Question 14

Duress

Answer 14

is an improper threat that deprives a party from making a meaningful choice to K.

2 TYPES

1. UNDUE INFLUENCE
   - arises when a party puts very intense sales pressure on another party who often seems weak minded or susceptible to high-pressure sales tactics.
2. ECONOMIC DURESS
   - when one party makes threats to induce another party to K (or modify a K)

Question 15

Illegality

Answer 15

illegal Ks are unenforceable BUT a K entered in furtherance of an illegal act (that is not itself illegal) will still be enforced.

The law will leave the parties where they stand, but there is a modern trend toward allowing less-guilty parties to recover restitution (i.e get their money back)

• Ks against Public Policy will not be enforced - meaning Ks that are not formally illegal but present some other pp concern… EX. broad exculpatory agreements

Question 16

Unconscionablilty

Answer 16

Shocks my conscience - ultimate K defense

2 TYPES

1. PROCEDURAL UNCONSCIONABILITY
   - a defect in the bargaining process itself, such as a hidden (surprise) or an absence of meaningful choice…no other contracting option.
2. SUBSTANTATIVE UNCONSCIONABILITY
   - a rip-off in some term of the K

*** some jurisdictions require both varieties to be present before a deal is strike down…others may act if only one variety is present.