Formation Defenses Flashcards
Misrepresentation/Fraud
Person must prove a 1) statement of fact that 2) was untrue 3) D knew it was untrue 4) and the untrue statement was the reason he entered the contract and 5) he lost money as a result.
a. silence is not fraud, no duty to disclose information
b. Puffery is not fraud, sales pitch is not a statement of fact
Mutual Mistake
If at the time of formation, both sides are making the same material adverse mistake, the contract is void.
Exceptions: Assumption of Risk, Mistake in Judgement/Value, Unilateral Mistake
Assumption of Risk
No defense if one party assumed risk of mistake
Mistake in Judgment/Value
No defense if mistake concerns prediction or judgment (usually misjudgment about value - parties assume risk of determining value, unless both relied on 3rd party advice)
Unilateral Mistake
Generally not a defense, unless the non-mistaken party knew or should have known of the mistake prior to acceptance the contract is void
Transmission MIstake
Mistake is attributed to the party who hired the intermediary transmitter, unless mistake was obvious to one/both sides
Ambiguity
Both sides agree to the same term but attach a different meaning to that term
a. UCC: not defense for latent ambiguity - ability to look at other factors
Indefiniteness
Contract is missing key terms that cannot be implied by the court. Modernly courts are more willing to supply reasonable terms if parties clearly intended to make a contract.
Exceptions:
a. Contract that would otherwise be void due to indefiniteness is made valid if parties begin performance or have detrimental reliance
b. Real estate: Identification of land and price required
c. Employment Contract: Duration must be specified. If not specified, usual rule is that contract is terminable at will be either party.
d. Sale of Goods: Quantity must be certain or a seller’s output or a buyer’s requirement. (“all the widgets I require” vs. “all the widgets I want”)
Infancy
Persons under age 18 lack capacity to contract. Binding on adult but not infant. Entitled to recover economic loss.
Exception: If contract is for a necessity of life (food/shelter/medical/transport/etc) the D is entitled to “wholesale value” of what they provided.
Incapacity
High standard - person must not even know they are entering into a contract. (simply being slow is not enough)
Intoxication
High standard - facts showing a person is so intoxicated they did not know what they were doing (simply being drunk is not enough)
Illegality
If the consideration or subject matter is illegal, contract is void
Duress
Physical force or threat causing one person to enter a contract he would not otherwise do (more than taking economic advantage of another)
Economic Duress
When one party seriously threatens the other parties’ finances and there is no adequate alternative to avoid the threat