Defenses to Contract Formation Flashcards
Defenses to Contract Formation
Unconscionability
Duress
Undue Influence
Misrepresentation/Non-disclosure
Fraud
Duress Elements
- a party involuntarily accepts the other party’s contract terms
- due to the other party’s wrongful, oppressive, or coercive acts or threats (threat is just as valid as doing the act itself)
- the party has no reasonable alternative
Types of Duress
- physical force or threats of physical force
- economic or societal
Exceptions:
If a time delay is involved and imminent loss is present, there are no reasonable alternatives
(The alternatives must be reasonable)
Duress Characteristics
- Wrongful, oppressive or coercive acts or threats
- No reasonable alternative
Undue Influence Elements
- unfair persuasion of a weaker party to accept contract terms
- by a more dominant party
- that overcomes the free will of the weaker party
- such a contract is voidable at the option of the weaker party
Types of Undue Influence
- Based on a confidential relationship
Example: client/attorney; doctor/patient
- Based on domination
Factors that tend to prove undue influence
- Negotiation at an inappropriate time
- Negotiation at an inappropriate place
- Use of multiple persuaders
- Demand to act immediately
- Emphasizing bad consequences of delay
- No time for advisors
- No time for an attorney
Don’t have to prove all 7 - one good enough, better to prove more
Types of Unconscionability
- Procedural. Applies to defects in the negotiation/bargaining process.
- Substantive. Applies to defects in the contract terms.
Unconscionability Elements
- applies to defects in the negotiation process and in the terms of the contract
- applies when the contract terms exceed what is customary and reasonable
- applies when the contract terms are grossly unfair, oppressive, unjustifiable
- generally voidable at the option of the protected party
Fraud Elements
- applies when a party makes a false representation of a material (major/significant/substantial) fact
- with intent to deceive the other party [called “scienter”]
- the other party justifiably relies on the false representation
- the other party suffers injury (damages)
Fraud Exceptions
- Silence [does not apply to fiduciary relationships or where silence could result in death or serious bodily injury]
- Opinions
- Future predictions
Innocent misrepresentation
Applies when a party makes a representation (a statement of fact) which the party honestly, reasonably believes to be true, but the representation (statement) is not true. Courts allow such a contract to be voidable at the option of the other party, but generally do not allow damages to be recovered.
Misrepresentation Elements
- Party makes a representation (representation = statement of fact)
- Party honestly/reasonably believes the statement to be true
a. Lay person or, - misrepresentation between lay persons are generally unreliable (don’t rely on someone else who may also not know, find out for yourself)
b. Lawyer – get to terminate agreement with lawyer, sue lawyer for damages (holding lawyer to higher standard) - The statement is not true
- Then, the K is voidable by other party, but not damages are available
Misrepresentation of law
Generally, not actionable, since each party is assumed to know the law
Exception: such a contract is voidable if a party who is an attorney has intentionally misrepresented the law to a less sophisticated party
Non-Disclosure
- Type of Fraud
- Parties fail to disclose facts that they know and are material
- Reasonable person unable to discover with reasonable diligence
- Voidable at option of protected party, or, less damages for non-disclosure
