Formation: Defenses to Formation

Question 1

Definition: Defenses to Formation

Answer 1

No “meeting of the minds” due to mistake or misunderstanding, misrepresentation or fraud, undue influence or duress, or lack of capacity.

Question 2

Definition: Mutual Mistake

Answer 2

Both parties mistaken as to essential element.

Question 3

Mutual Mistake: When is a Contract Voidable by the Adversely Affected Party? (4 Elements)

Answer 3

1. Mistake existed when K was formed;
2. Mistake relates to basic assumption of K;
3. Mistake has material impact on transaction; and
4. Adversely affected party did not assume the risk of the mistake.

Question 4

True or False: Either party can avoid the K is reformation is available to cure the mistake.

Answer 4

False.

Question 5

Definition: Unilateral Mistake

Answer 5

One party is mistaken as to an essential element of the K, but either party can enforce the K on its terms.

Question 6

Unilateral Mistake: When Can the Mistaken Party Void the K If He Didn’t Bear the Risk? (2 Factors)

Answer 6

1. Mistake would make enforcement of K unconscionable; or
2. Non-mistaken party caused the mistake, had duty to disclose or failed to disclose mistake, or knew or should have known the other party was mistaken.

Question 7

True or False: There must be an absence of serious prejudice to other party to rescind the K.

Answer 7

True.

Question 8

Definition: Reformation

Answer 8

Court can reform writing except to extent that rights of third parties who relied K would be unfairly affected.

Question 9

Definition: Misunderstanding

Answer 9

Both parties believe they are agreeing to the same material terms, but they in fact agree to different terms.

Question 10

Misunderstanding: Neither Party Knows or Has Reason to Know

Answer 10

Not K is material term is involved.

Question 11

Misunderstanding: One Party Knows or Has Reason to Know

Answer 11

K formed based upon meaning of material term as understood by unknowing party.

Question 12

Misunderstanding: Both Parties Know Terms Ambiguous At Time of K Formation

Answer 12

No K unless both parties intended the same meaning.

Question 13

Misunderstanding: Waiver

Answer 13

One party can choose to enforce K according to other party’s understanding.

Question 14

Misunderstanding: Subjective Determination of Misunderstanding

Answer 14

Each party’s knowledge or reason to know of the misunderstanding governs (i.e., not what a reasonable person would know)

Question 15

Definition: Misrepresentation

Answer 15

An untrue assertion of fact (i.e., present event or past circumstances)

Question 16

Three Elements of Fraudulent Misrepresentation

Answer 16

Requires proof that:

1. The misrepresentation is fraudulent (knowing or reckless false assertion of fact with intent to mislead);
2. The misrepresentation induced assent to the K; and
3. Justifiable reliance on the misrepresentation by the adversely affected party.

Question 17

Misrepresentation: Nondisclosure

Answer 17

Conduct to conceal a fact for nondisclosure of a known fact is tantamount to an assertion that the fact does not exist.

Question 18

Misrepresentation: Fraud in the Fact (execution)

Answer 18

Fraudulent misrepresentation prevents party from knowing character/essential term of transaction, so no K is formed and apparent K is void unless reasonable diligence would have revealed K’s true terms.

Question 19

Misrepresentation: Fraud in the Inducement

Answer 19

Fraudulent misrepresentation is used to induce another to enter into a K; K voidable by adversely affected party if she justifiably relied on the misrepresentation.

Question 20

Misrepresentation: Nonfraudulent Misrepresentation (innocent/negligent)

Answer 20

Renders K voidable by adversely affected party who justifiably relied on material misrepresentation and was induced to assent to K because of it.

Question 21

Misrepresentation: Effect of Party’s Fault

Answer 21

A party’s fault in not knowing or discovering facts before entering into the K does not prevent the party’s reliance on the misrepresentation from being justified (unless it constitutes a failure to act in good faith).

Question 22

Misrepresentation: Cure of Misrepresentation

Answer 22

K not voidable if facts cured before deceived party has avoided the K.

Question 23

Misrepresentation: Avoidance/Reformation for Misrepresentation

Answer 23

When content/legal effect of K is misrepresented, deceived party can avoid K, or reform it to express what was represented.

Question 24

Definition: Undue Influence

Answer 24

Unfair persuasion of a party to assent to a K.

Question 25

Undue Influence: Unfair Persuasion

Answer 25

Relationship between dominant party and dependent party due to lack of expertise or experience, or diminished mental capacity
-OR- Persuasion of one party seriously impairs the free and competent judgment of other party.

Question 26

Undue Influence: Confidential Relationship

Answer 26

Dominant party has burden of proving K was fair (may be held to higher standard of disclosure).

Question 27

Undue Influence: Third Party Undue Influence

Answer 27

Victim may void K unless nonvictim party to K gave value or materially relied on K in good faith and without knowledge of undue influence.

Question 28

Undue Influence: Damages

Answer 28

Restitution available.

Question 29

Definition: Duress

Answer 29

Improper threat that deprives party of meaningful choice.

Question 30

Duress: Improper Threat

Answer 30

Threats of criminal or civil action (made in bad faith)

-OR- threats to breach K in violation of good faith and fair dealing.

Question 31

Duress: Deprivation of Meaningful Choice

Answer 31

Person has no reasonable alternative such that threat induced his assent.

Question 32

Duress: Effect on K

Answer 32

K is void when duress is through physical compulsion and voidable in other instances.

Question 33

Capacity to K: Infancy (under 18)

Answer 33

Voidable by infant but not by adult (except for reasonable value of necessaries).

Question 34

Capacity to K: Mental Illness

Answer 34

K is void for one who is adjudicated mentally incompetent, but only voidable if there has been no adjudication.

Question 35

Capacity to K: Guardianship

Answer 35

K is void for individuals under guardianship (except for reasonable value of necessaries).

Question 36

Capacity to K: Intoxication

Answer 36

K is voidable by intoxicated party is she was unable to understand nature/consequences of K and other party knew of intoxication.