Formation: Defenses to Formation Flashcards
Definition: Defenses to Formation
No “meeting of the minds” due to mistake or misunderstanding, misrepresentation or fraud, undue influence or duress, or lack of capacity.
Definition: Mutual Mistake
Both parties mistaken as to essential element.
Mutual Mistake: When is a Contract Voidable by the Adversely Affected Party? (4 Elements)
- Mistake existed when K was formed;
- Mistake relates to basic assumption of K;
- Mistake has material impact on transaction; and
- Adversely affected party did not assume the risk of the mistake.
True or False: Either party can avoid the K is reformation is available to cure the mistake.
False.
Definition: Unilateral Mistake
One party is mistaken as to an essential element of the K, but either party can enforce the K on its terms.
Unilateral Mistake: When Can the Mistaken Party Void the K If He Didn’t Bear the Risk? (2 Factors)
- Mistake would make enforcement of K unconscionable; or
- 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.
True or False: There must be an absence of serious prejudice to other party to rescind the K.
True.
Definition: Reformation
Court can reform writing except to extent that rights of third parties who relied K would be unfairly affected.
Definition: Misunderstanding
Both parties believe they are agreeing to the same material terms, but they in fact agree to different terms.
Misunderstanding: Neither Party Knows or Has Reason to Know
Not K is material term is involved.
Misunderstanding: One Party Knows or Has Reason to Know
K formed based upon meaning of material term as understood by unknowing party.
Misunderstanding: Both Parties Know Terms Ambiguous At Time of K Formation
No K unless both parties intended the same meaning.
Misunderstanding: Waiver
One party can choose to enforce K according to other party’s understanding.
Misunderstanding: Subjective Determination of Misunderstanding
Each party’s knowledge or reason to know of the misunderstanding governs (i.e., not what a reasonable person would know)
Definition: Misrepresentation
An untrue assertion of fact (i.e., present event or past circumstances)
Three Elements of Fraudulent Misrepresentation
Requires proof that:
- The misrepresentation is fraudulent (knowing or reckless false assertion of fact with intent to mislead);
- The misrepresentation induced assent to the K; and
- Justifiable reliance on the misrepresentation by the adversely affected party.
Misrepresentation: Nondisclosure
Conduct to conceal a fact for nondisclosure of a known fact is tantamount to an assertion that the fact does not exist.
Misrepresentation: Fraud in the Fact (execution)
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.
Misrepresentation: Fraud in the Inducement
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.
Misrepresentation: Nonfraudulent Misrepresentation (innocent/negligent)
Renders K voidable by adversely affected party who justifiably relied on material misrepresentation and was induced to assent to K because of it.
Misrepresentation: Effect of Party’s Fault
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).
Misrepresentation: Cure of Misrepresentation
K not voidable if facts cured before deceived party has avoided the K.
Misrepresentation: Avoidance/Reformation for Misrepresentation
When content/legal effect of K is misrepresented, deceived party can avoid K, or reform it to express what was represented.
Definition: Undue Influence
Unfair persuasion of a party to assent to a K.
