Defenses to Formation

Question 1

What are defenses to contract formation?

Answer 1

1. Duress
2. Illegality
3. Incapacity
4. Misrepresentation
5. Mutual Mistake
6. Unconscionability
7. Undue Influence
8. Unilateral Mistake

Question 2

What is the defense for duress?

Answer 2

An improper threat that deprives a party from making a meaningful choice to contract which results in the contract generally being voidable

Question 3

What is the defense for illegality?

Answer 3

If illegal or contrary to public policy, then the contract is void, however, a contract entered into in furtherance of an illegal purpose may still be enforced.

Question 4

Who are the people protected by the defense of incapacity?

Answer 4

Minors - lack capacity per se
Intoxicated people - only if the other side knew or had reason to know of the intoxication
Those with mental illnesses

Question 5

What is the defense of incapacity?

Answer 5

The contract is voidable by the incapacitated party.

The incapacitated party can ratify the deal by keeping the benefits after capacity is obtained.

If it involves the purchase of necessaries, the incapacitated party must still pay the FMV

Question 6

What is misrepresentation?

Answer 6

a statement at the time of contracting that is not true, whether intentional or accidental

Question 7

What is the defense for misrepresentation?

Answer 7

The party claiming the defense must show that:

1. the misrepresentation was. a present fact (not opinion)
2. it was material or fraudulent, AND
3. it was made under circumstances in which it was justifiable to rely on the representation

Question 8

What is the defense for mutual mistake?

Answer 8

The adversely affected party may RESCIND the deal if:

1. it is a mistake of fact,
2. it relates to a basic assumption of the contract,
3. it has a material impact on the deal, AND
4. the impacted party did NOT assume the risk of the mistake

Question 9

What is the defense for unconscionability?

Answer 9

If a contract is so unfair or oppressive to one party that it shocks the conscience, the court may refuse to enforce it.

Note: some courts require both procedural and substantive unconscionability to bar enforcement

Question 10

What is the defense for undue influence?

Answer 10

When a party’s assent is induced due to his susceptibility to pressure and the other side’s excessive use of pressure (which makes the contract usually voidable)

Question 11

What is the defense for unilateral mistake?

Answer 11

(same as MM +) the adversely affected party may RESCIND the deal if:

1. there is a mistake of fact,
2. it relates to a basic assumption of the K
3. it has a material impact,
4. the impacted party did NOT assume the risk of the mistake, AND
5. the mistake would make the K unconscionable OR the other side knew or had reason to know of or caused the mistake