Defenses to Formation Flashcards
Defenses to Formation
A person who is asserted to be in breach of a contract can defend the action by showing that there was no “meeting of the minds” due to a mistake or misunderstanding, misrepresentation or fraud, undue influence or duress, or the party’s own lack of capacity
Defenses to formation - Mistake
A mistake is a belief that is not in accord with the facts as to a basic assumption on which the contract was made that materially affects performance.
Must be with regard to a belief about an existing fact and not with regard to something that will happen in the future.
Changing facts - doctrines of impracticability and frustration of purpose
Mutual Mistake
Mutual mistake occurs when both parties are mistaken as to an essential element of the contract.
Mutual Mistake - elements to be voidable
The contract may be voidable by the adversely affected party upon proof of the following:
1. Mistake of fact existing at the time the contract was formed
2. The mistake relates to a basic assumption of the contract
3. The mistake has a material impact on the transaction; and
4. The adversely affected party did not assume the risk of the mistake
When reformation of the contract is available to cure a mistake, neither party can avoid the contract
Mutual Mistake - conscious ignorance
Limited Knowledge - accepts as sufficient
Mutual Mistake - Mistaken party’s negligence
failure to discover facts - can assert mistake
Unilateral Mistake
When only one of the parties was mistaken as to an essential element of the contract at the time the contract was formed, either party can generally enforce the contract on its terms.
Unilateral Mistake - Elements
The mistaken party can void the contract if the elements for a mutual mistake exist and either:
1. the mistake would make enforcement of the contract unconscionable; or
2. the non-mistaken party caused the mistake, had a duty to disclose or failed to disclose the mistake, or knew or should have known that the other party was mistaken
For a unilateral mistake to form the basis for recession, there must be an absence of serious prejudice to the other party
Reformation of a writing for mistake is available if
Writing failed to express the agreement because of the mistake of both parties - at request court may reform the writing to express the agreement
Except to the right of the third-parties who relied
1. There was a prior agreement (either oral or written) between the parties
2. There was an agreement by the parties to put that prior agreement into writing; and
3. As a result of a mistake there is a difference between the prior agreement and the writing
Misunderstanding
Misunderstanding both parties believed that they are agreeing to the same material terms but they in fact agree to different terms
Neither party knows or should know of the misunderstanding - no contract
One party knows or should know of the misunderstanding - meaning of the term as understood by the unknowing party
Both parties know of the misunderstanding
There is no contract if both parties at the time of contracting knew or had reason to know that a material terms were ambiguous, unless both parties intended the same meaning
Waiver of the misunderstanding
Even if there is a misunderstanding one party may waive the misunderstanding and choose to enforce the contract according to the other party’s understanding
Subjective determination of misunderstanding
know or have reason to know
Misrepresentation
A misrepresentation is an untrue assertion of fact
Assertion must be about a present event or past circumstance
Can be innocent, negligent, or fraudulent
Fraudulent Misrepresentation - Elements
- A false assertion of fact made knowingly, or recklessly without knowledge of its truth and
- With the intent to mislead the other party
- Misrepresentation induced assent to the contract
- The adversely affected party justifiably relied on the misrepresentation
