Defenses to enforceability Flashcards
A husband and wife and their four children lived on a farm that the wife had inherited from her father. On numerous occasions, the wife’s brother had offered to buy the farm from her, but she had always refused.
The husband died suddenly in an accident. The day after the husband’s funeral, the brother and his attorney visited the wife at the farm. The brother again told the wife that he wanted to buy the farm and told her that she would need the proceeds for the sale to support her children. The brother also said that his attorney had drafted an offer to purchase the farm and the wife needed to sign it right away. The attorney confirmed the need to accept quickly. The wife reluctantly signed the offer and sold the farm to the brother for its fair market value.
A few days after the sale, the wife learned that her husband had a life insurance policy that would provide her with a substantial payout and she had not needed to sell the farm to support her children.
What would be the wife’s strongest argument for rescinding the contract?
Undue Influence – or “over persuasion” often includes factors such as the existence of a confidential relationship, unusual time and place for the persuasion, multiple persuaders, and time pressure. here the facts presented demonstrate all of these factors.
It cannot be duress, because duress requires force or an improper threat, neither of which occurred based on the facts. The brother did not force the wife to sell the farm, and the brother’s comment regarding the wife’s need to sell the farm to support her children does not amount to an improper threat.
Thus, the stronger argument for rescinding the contract is undue influence.
Rescission of a contract for a unilateral mistake requires either that the non-adversely affected party is aware of the mistake or than enforcement would be unconscionable; neither element is present either – therefore Mistake would not the stronger argument.
For a contract to be invalid as unconscionable there must be both a lack of bargaining power (procedural unconscionability) and unfair terms that unreasonably favor one party (substantive unconscionability). Neither element is present here.
A contractor agreed to build a wood-frame house for a landowner for $300,000. the parties agreed that the price would increase by the amount that the cost of lumber for the job exceeded the then-current cost of $30 per 100 board feet. The landowner reduced the agreement to writing but inadvertently failed to include in the written contract the price-escalation clause relating to the cost of lumber. Both parties signed the contract without noticing the omission.
When the contractor purchased lumber for the job, the price of the lumber had risen to $60 per 100 board feet. When the contractor submitted a final bill that included the increased price of lumber, the landowner refused to pay the increased price for the lumber on the grounds that the price-escalation clause was missing from the written contract.
If the contractor sues the landowner to recover the additional cost, will the contractor be likely to prevail?
Yes b/c since the parties were both mistaken as to the content of the writing, the court will reform the writing to express their agreement.
When a written contract fails to express the actual agreement between both parties due to a mutual mistake, the court may reform the writing to be an accurate expression of the agreement. Here, the landowner and contractor both agreed to the price escalation clause, and both parties mistakenly believed that the price-escalation clause was included in the written contract they signed. thus, the court may reform the contract so that the terms accurately reflect their agreement regarding the price-escalation clause.
A man needed a loan to purchase a business. The man submitted to a lender a loan application that included a then accurate statement of his financial condition. The lender reviewed the application and concluded that the man was creditworthy without verifying any of his information. A week after the man submitted his application, however, his financial condition changed significantly for the worse. The man did not report this change to the lender. Two days later, the lender approved the loan, and the man and the lender signed the loan agreement. Before disturbing the funds, the lender learned of the change in the man’s financial condition.
is the lender entitled to cancel disbursement of the funds and rescind the loan agreement?
Yes. b/c after his financial situation changed, the man was obligated to disclose facts necessary to prevent the previous statement of his financial condition from being a misrepresentation.
Non-disclosure of a fact is the equivalent of a misrepresentation when a person knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation. here, the man was obligated to disclose facts necessary to prevent his previous statement regarding his financial condition from being a misrepresentation
Although the man did not make an affirmative misrepresentation, failure to disclose his changed financial condition is the equivalent of an assertion.
