Defenses to contract enforcement Flashcards
Defenses based on lack of capacity to contract
infancy
mental illness or defects
intoxication
Infancy R14
All contracts formed by minor are voidable at the option of the minor. R14
o Minor can Disaffirm the contract
o Minor can ratify the contract
o Public policy; We have this statute to protect the minor from their immaturity and from adult exploiting them.
o Webster v. Sheridan: if something was a necessary a minor cannot void the contract, on the other hand if it was not necessary then its voidable.
Mental Illness or defects R15
contracts with mentally incompetent persons who have been adjudicated incompetent are generally void, at the option of the incompetent person. R15
- Cognitive test R15 (a): he is unable to understand in a reasonable manner the nature and consequences of the transaction.
- Motivational test R15 (b): he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.
Intoxication R16
Only voidable if the other party has reason to know that the other party by intoxication is:
- unable to understand in a reasonable manner the nature and consequences of the transaction, or
- unable to act in a reasonable manner in relation to the transaction.
Defenses related to defects in mutual assent
- mistake
- misrepresentation
- duress
- undue influence
- unconscionability
Definition Mistake R151
A mistake is a belief that is nit in accord with the facts. The defense of mistake applies to assertions of facts, and NOT to promises, opinions or predictions
MUTUAL MISTAKE R 152
Defense of mutual mistake can be used when both parties made the same erroneous assumption, mistake by both parties (Sherwood v. Walker – Barren Cow case).
Both parties need to be operating under mistake. In Wood v. Boynton, Wood though the stone was a Topaz, Boynton also believed it was a topaz, thus both were mistaken.
UNILATERAL MISTAKE R 153
When only one party made an erroneous assumption about the relevant fact. Only one party was mistaken. In the Wild-fred case, even if there was a unilateral mistake the court permitted rescission because the mistake was so palpable that the other party is put on notice about the mistake. Bidding mistake: occurs when a party makes a one-sided technical error that results in an offer that is incorrect, and the offeree accepts that offer.
Elements that a party must prove to successfully claim the defense of mistake.
-There is a mistake
-It is mutual (a mistake of both parties)
-It is present at the time the contract is made
-It relates to a basic assumption
-It has a material effect on the exchange
-The party seeking relief did not bear the risk
Misrepresentation and Examples of misrepresentation through nondisclosure.
There are 3 types of misrepresentation:
- Affirmative misstatements (deliberate lie) (Statement non in accord with the facts)
- Concealment (hiding the truth by an affirmative act)
- R 161 Nondisclosure (keeping silent). If someone has superior knowledge, they do not need to disclose it to others. Are generally non-actionable.
Examples of misrepresentation through nondisclosure:
o Relation of trust and confidence exist between the parties, entitling one to disclose the fact in question, but the other party fails to disclose.
o Party makes a statement that is was true at the time, but later the party acquires knowledge that makes the statement false, and that party does not disclose the new information.
o A party knows the other is acting under mistaken impression, and the party does nothing.
R162. Fraudulent or material
Is puffing a misrepresentation?
A misrepresentation is fraudulent when the maker intent his assertion to induce the other party to manifest his assent and the maker knows that such assertion is not in accord with the facts.
Puffing is not a misrepresentation if the statement is:
- general,
- unqualified,
- oral,
- informal,
- an opinion.
when does the defenses of duress?
it applies when an agreement (manifestation of assent) was compelled by a threat or other form of pressure such as physical compulsion, improper threats (bodily harm, death).
For a claim of duress:
1. manifestation of assent to the terms of the other,
2. was compelled by a threat,
3. and there is no alternative but tu succumb.
types of duress
duress by physical compulsion renders an agreement void and duress by improper threat renders to agreement voidable.
duress by physical compulsion
o If conduct that appears to be a manifestation of assent by a party who does not intent to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent R 174.
Example: grabbing someone’s hand to force her to sign.
Duress by improper threat
If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
undue influence
Defense of undue influence applies when the other party obtained assent by coercing agreement through abuse of a relationship of trust and dependence or a position of power.
Unconscionability UCC 2302
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
This defense is raised by the contracting party with less knowledge, power, or bargaining strength in the transaction. It is an extreme defense not often a winning one.
determining unconscionability in Sitogun case
Substantive / Procedural
- Unfairness in the formation of the contract, and
- Excessively disproportionate terms, sometimes referred to as “procedural” and “substantive”.
Substantive unconscionability: focuses on the actual terms of the agreement. it can include several inadequacies such as age, literacy, lack of sophistication, hidden or unduly complex terms, bargaining tactics, vulnerable to unfair transactions, also look for evidence of several irregularities such as.
Procedural unconscionability: focuses in the manner in which the contract was negotiated and the circumstances of the parties.
RELIEF FOR SUBTANTIVE UNCONCIONABILITY ALONE?
Court rarely rely solely on substantive unconscionability but the are exceptions where the court found that the price was egregious enough to support a finding of unconscionability, even without facts showing also procedural unconscionability.
Violation of Public Policy
The defenses previously discussed, serve to protect a party autonomy and prevent oppression but if the court refuses to enforce part or all of a contact on the grounds of public policy, it is to avoid enforcement of contracts sees as being against the public interest.
