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Contract law > Defenses to contract formation > Flashcards

Defenses to contract formation Flashcards

1
Q

Defenses to contract formation include:

A

Incapacity - bottle of whiskey
Illegality - Prescription drugs in paw shop

Mistake - Blue-ray player (actually DVD)
Misunderstanding - Map of Paris, TX
Misrepresentation - Counterfeit watch

Undue influence - Old and overinflated tire
Unconscionability - Unfair contract terms

Duress - Hatchet

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2
Q

Incapacity

A

Capacity = party must have (R2 §12)

Infancy = VOIDABLE and can be ratified at 18 (R2 §14)

Mental illness = VOIDABLE unless fair and D does not know of P’s mental illness (R2 §15)

Intoxication = VOIDABLE if D knows, otherwise valid K (R2 §16)

Necessaries doctrine = incapacitated party owes REASONABLE value (not K price) under quasi-contract

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3
Q

Mistake

A

A belief not in accord with the facts. §151

My BAD

M - Mistake existed at the time deal was made
B - Basic assumption on which deal was made
A - Assumption of risk NOT assumed by P (as-is)
D - Material impact on deal

Mutual = VOIDABLE

Unilateral = VOIDABLE
Unilateral adds UNCONSCIONABILITY / Knowledge / Cause

R2 §153

City of Everett v. Estate of Sumstad (sold safe w/ $35k - seller ASSUMED the RISK)

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4
Q

Misunderstanding

A

Where parties attach different meaning to ambiguous terms.

NOT DISCUSSED IN ADAPTIBAR

Ambiguous terms - 3 possible results:

  1. Neither party knows - NO K unless SAME MEANING was attached to ambiguous term
  2. Both parties know - NO K unless SAME MEANING was attached to ambiguous term
  3. One party knows = BINDING K with meaning given to IGNORANT party’s interpretation

R2 §20

E.g., Goods to be delivered “next Friday.”

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5
Q

Misrepresentation def and elements

A

An assertion of fact that is not true or nondisclosure of a material fact.

FRAUD

F - False statement (or NONDISCLOSURE) of fact
R - Reasonable reliance induces
A - Aware D
U - Unaware P
D - Damages

Always ask, INTENTIONAL? If not, then apply materiality analysis.

R2 §161 & §162

Fraud = VOID
Fraud in the Factum = execution (trick, carbon copy with additional terms not know to P)
Fraud in the Inducement = used to induce reliance

NonFraudulent = VOIDABLE
NonFraudulent = D doesn't know, but is MATERIAL (REASONABLE person standard, BUT specific to party being induced e.g., Iceman)
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6
Q

Duress, undue influence, illegality and unconscionability

A

Duress - physical = VOID; improper threat = VOIDABLE

Undue influence (overinflated tire) = VOIDABLE

Illegality (prescription drugs in pawnshop) = VOID

Unconscionability = VOIDABLE if it “shocks the conscience of the court.” Procedural and Substantive types

E.g., Unreasonable non-compete, waive liability for intentional or reckless harm

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7
Q

Statute of Frauds (contracts subject to)

A

MOUSER (valuable lamp)

Marriage
One-year (cannot be performed within one year)
UCC goods contracts for $500+
Suretyship (3 party where one guarantees debt of another should they default)
Executor/administrator of an estate (promising to pay a debt of the estate personally)
Realty (TRC - transfer, receive, create an interest in RP)

Note that in a combined contract for services and the sale of goods, SoF applies only if the primary purpose of the contract was for the sale of goods and services were incidental. Otherwise, common law applies (one-year provision).

Note that partial performance negates the requirement.

Satisfied by: signed writing OR performance

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8
Q

Requirements of a writing (SoF) - UCC vs. common law

A

Common law: Subject matter / Quantity / Parties identities / Price / Signature of party to be charged = SQIPS

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9
Q

Satisfaction of SoF by performance

A

One-year provision = FULL performance or payment

Real estate = FULL performance by SELLER (conveys real estate to buyer)

Real estate = BUYER - payment, possession, improvements (MORE than a LEASE contract) (2 of 3 required, but ONLY EQUITABLE damages)

UCC goods $500 (§2-201)= P.A.W.S.

P - Performance (for quantity received/accepted, paid/transferred only)
A - Admission in court
W - Written confirmation between MERCHANTS (10 days to object)
S - Specially manufactured goods

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10
Q

Rules of construction (what courts consider when interpreting ambiguities)

A

Ambiguities can be patent (ambiguous on the face) or latent if multiple meanings could be assigned to a term. Courts will apply the rules of construction:

  1. Intent and purpose
  2. Words and conduct
  3. Lawful, effective construction
  4. Specific terms over general terms
  5. Negotiated terms over boilerplate
  6. Construction AGAINST drafter
  7. Course of performance
  8. Course of dealing
  9. Trade usage

R2 §§202-203

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11
Q

Misrepresentation is fraudulent and material if

A

Fraudulent:

  1. Intended to induce assent, or
  2. Known to be untrue or not confident of truth

Material:

  1. Likely to induce a reasonable person’s assent, or
  2. Known to be likely to induce a RP’s assent

The defense of misrepresentation may be asserted by a party whose assent was induced by a misrepresentation, or untrue assertion, that was either fraudulent or material, as long as the party’s reliance on the assertion was JUSTIFIED.

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12
Q

Undue influence when

A
  1. Under domination

2. In a relationship that justifies a party will not act inconsistently with party’s welfare

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13
Q

When will a party be found to bear the risk of mistake?

A
  1. Terms of K
  2. Court has allocated (reasonable under circumstances)
  3. Conscious ignorance
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14
Q

Incapacity - Infancy - contract is

and

Exceptions

A

Voidable and can be ratified at 18

Exceptions:

  1. Married
  2. Necessaries
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15
Q

Incapacity - mental illness - impact on K

A
  1. Voidable unless
  2. Fair; and
  3. D does NOT have to know and still valid defense.
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16
Q

Incapacity - intoxication - impact on K

A
  1. Voidable if D knows, otherwise

2. Valid

17
Q

Mistake definition

A

A belief not in accord with the facts. §151

18
Q

Mistake elements

A

My BAD

M - Mistake existed at the time deal was made
B - Basic assumption on which deal was made
A - Assumption of risk NOT assumed by P (as-is)
D - Material impact on deal

19
Q

Mutual mistake - K is

A

Voidable

Due to Lack of mutual assent

20
Q

Unilateral mistake - K is

And

Requires 1 of 3 things

A
  1. Voidable; one of the following:
  2. Unconscionability
  3. D knows of mistake
  4. D caused mistake

§153

21
Q

Mistake case example

A

City of Everett v. Estate of Sumstad (sold safe w/ $35k - seller ASSUMED the RISK)

22
Q

Unilateral mistake - Bearing the risk

A

Cannot raise defense of mistake if adversely affected party bears the risk.

  1. Allocate in K
  2. Court allocates (reasonable under circumstances)
  3. Consciously ignorant
23
Q

Misrepresentation definition

A

An assertion of fact that is not true or nondisclosure of a material fact.

24
Q

Misrepresentation elements

A 
F - False statement (or NONDISCLOSURE) of fact
R - Reasonable reliance induces
A - Aware D
U - Unaware P
D - Damages
25
Q

Unilateral mistake - not a defense UNLESS

A
  1. Unconscionable
  2. Cause or clerical (other party caused)
  3. Knew of mistake (other party)
26
Q

Fraudulent misrepresentation - elements

A
  1. Scienter = knew or SHN it was false
  2. Intent to induce reliance
  3. Justified in relying
27
Q

Negligent misrepresentation - elements

A
  1. Innocent party detrimentally relies

2. Special relationship

28
Q

Duress - definition

A

Wrongful threat

29
Q

Duress - elements

A
  1. Improper threat

2. No reasonable alternative

30
Q

Undue influence - elements

A
  1. Unfair
  2. Excessive persuasion
  3. Domination
  4. Special relationship
31
Q

Unconscionability - effect on K

A

Voidable

32
Q

Unconscionability if

A
  1. One-sided
  2. Fundamentally unfair
  3. Procedural
  4. Substantive
33
Q

Procedural unconscionability - elements

A
  1. Unequal bargaining power

2. Unfair surprise

34
Q

Substantive unconscionability - elements and example

A
  1. Overly harsh terms or
  2. One-sided

e.g., take it or leave it basis

35
Q

SoF - Satisfaction by performance - 1 year

A
  1. FULL performance or

2. Payment

36
Q

SoF - Satisfaction by performance - Real estate (seller)

A

Conveyance to buyer (FULL performance)

37
Q

SoF - Satisfaction by performance - Real estate (buyer

A
  1. Payment
  2. Possession
  3. Improvements (> lease K)
  4. 2 of 3 required
  5. Equitable damages only
38
Q

SoF - Satisfaction by performance - UCC goods $500

A

P.A.W.S.

P - Performance (for quantity received/accepted OR paid/transferred only)
A - Admission in court
W - Written confirmation between MERCHANTS (10 days to object)
S - Specially manufactured goods & SUBSTANTIAL BEGINNING

39
Q

Mistake - Basic assumption on which contract was made generally does not include

A

Value of consideration exchanged.

See Wood v. Boynton - exchange of topaz later found to be an uncut diamond. The mistake was not a basic assumption on which K was made.

E.g.#2, Puppies adopted turn out to be pure-bred - no mistake defense, not a basic assumption on which K was made.

Contract law (8 decks)

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