Defenses to Contract Formation

Question 1

Defenses to Contract Formation

Answer 1

Unconscionability
Duress
Undue Influence
Misrepresentation/Non-disclosure
Fraud

Question 2

Duress Elements

Answer 2

1. a party involuntarily accepts the other party’s contract terms
2. due to the other party’s wrongful, oppressive, or coercive acts or threats (threat is just as valid as doing the act itself)
3. the party has no reasonable alternative

Question 3

Types of Duress

Answer 3

1. physical force or threats of physical force
2. 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)

Question 4

Duress Characteristics

Answer 4

i WOCT ra
2. 1. Involuntary accepts
2. Wrongful, oppressive or coercive acts or threats
3. No reasonable alternative

Question 5

Undue Influence Elements

Answer 5

1. unfair persuasion of a weaker party to accept contract terms
2. by a more dominant party
3. that overcomes the free will of the weaker party
4. such a contract is voidable at the option of the weaker party

Question 6

Types of Undue Influence

Answer 6

1. Based on a confidential relationship

Example: client/attorney; doctor/patient

2. Based on domination

Question 7

Factors that tend to prove undue influence

Answer 7

• 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

Question 8

Types of Unconscionability

Answer 8

1. Procedural. Applies to defects in the negotiation/bargaining process.
2. Substantive. Applies to defects in the contract terms.

Question 9

Unconscionability Elements

Answer 9

1. applies to defects in the negotiation process and in the terms of the contract
2. applies when the contract terms exceed what is customary and reasonable
3. applies when the contract terms are grossly unfair, oppressive, unjustifiable
4. generally voidable at the option of the protected party

Question 10

Fraud Elements

Answer 10

1. applies when a party makes a false representation of a material (major/significant/substantial) fact
2. with intent to deceive the other party [called “scienter”]
3. the other party justifiably relies on the false representation
4. the other party suffers injury (damages)

Question 11

What is not fraud?

Answer 11

1. Silence [does not apply to fiduciary relationships or where silence could result in death or serious bodily injury]
2. Opinions
3. Future predictions

Question 12

Innocent misrepresentation

Answer 12

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.

Question 13

Misrepresentation Elements

Answer 13

1. Party makes a representation/ statement of fact
2. Party honestly/reasonably believes the statement to be true
3. The statement is not true
4. Then, the K is voidable by other party, but not damages are available

Question 14

Misrepresentation of law

Answer 14

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

Question 15

Non-Disclosure

Answer 15

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

Question 16

Unconscionability
Elements

Answer 16

1. applies to defects in the negotiation process and in the terms of the contract
2. applies when the contract terms exceed what is customary and reasonable
   (or)
3. applies when the contract terms are grossly unfair, oppressive, unjustifiable
4. generally voidable at the option of the protected party

Question 17

Types of Unconscionability

Answer 17

Procedural
Substantive

Question 18

Procedural Unconscionability

Answer 18

Applies to defects in the negotiation/bargaining process.

• Deceptive sales practices (Spanish speakers, negotiating in Spanish, K in English)
• Use of fine print (very small)

Question 19

Substantive Unconscionability

Answer 19

Applies to defects in the contract terms.

• Price is exorbitant
• Emergencies In CA: (1) emergency needs to be declared (2) can’t be more than 10%
• Terms exclude legal remedies (like not being able to asks for jury trial)

Question 20

Remedies for Unconscionability

Answer 20

• Can throw out contract all together
• Enforce contract but throw out the unconscionable provision
• Don’t throw out, just limit the enforcement/effect of the unconscionable provision

Question 21

Who has the burden of proof to show there was undue influence

Answer 21

the weaker party

Question 22

What are some ways a dominant party can make a rebuttal?

Answer 22

1. If the consideration was fair
2. There was full disclosure of all material facts
3. The weaker party had access to independent advisors

Question 23

What are defenses to contract formation?

Answer 23

Duress

Undue Influence

Misrepresentation

Fraud

Unconscionability