Requirement That No Defense Exist Flashcards
Absence of Mutual Assent - Mutual Mistake as to Existing Facts (3)
if both parties entering into an contract are mistaken ABOUT EXISTING FACTS (not future happenings) relating it the agreement, the contract may be voidable by the aversely affected party if:
i) The mistake concerns a BASIC ASSUMPTION on which the contract is make;
ii) the mistake has a MATERIAL EFFECT on the agreed-upon exchange; AND
iii) The party seeking avoidance DID NOT ASSUME THE RISK of the mistake.
Absence of Mutual Assent - Mutual Mistake as to Existing Facts - Not a Defense if Party Bore the Risk
Mutual mistake is not a defense if the party asserting mistake as a defense bore the risk that the assumption was mistaken. This commonly occurs when one party is in a position to better know the risks than the other party (e.g. contractor vs. homeowner) or where the parties knew that their assumption was doubtful (i.e. when the parties were consciously aware of their ignorance).
Absence of Mutual Assent - Mutual Mistake as to Existing Facts - Not a Defense if Party Bore the Risk - Mistake in Value Generally Not a Defense
If the parties to a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will generally not be remedied – even though the value of the subject matter is generally a basic assumption and the mistake creates a material imbalance – because both parties usually assume the risk that their assumption as to value is wrong.
Absence of Mutual Assent - Unilateral Mistake
If only one of the parties is mistaken about facts relating to the agreement, the mistake will NOT prevent formation of a contract. However, if the non mistaken party KNEW OR HAD REASON TO KNOW OF THE MISTAKE made by the other party, the contract is voidable by the mistaken party. As with mutual mistake, the mistake must have a material effect on the agreed-upon exchange and the mistaken party must not have borne the risk of the mistake.
Unilateral mistakes arise most commonly when one party makes a mechanical error in computation . . . like a subcontractor’s bid.
Absence of Mutual Assent - Mistake by the Intermediary (Transmission)
When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message AS TRANSMITTED is operative unless the other party knew or should have known of the mistake.
Absence of Mutual Assent - Ambiguous Contract Language
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity:
i) Neither Party Aware - no contract unless both parties intended the same meaning;
ii) Both parties aware - no contract unless both parties intended the same meaning;
iii) One party aware - binding contract based on what the ignorant party reasonably believed to be the meaning of ambiguous words.
Ambiguity is one area where subjective intent is taken into account.
Absence of Mutual Assent - Misrepresentation - Fraudulent Misrepresentation (Fraud in the Inducement)
If a party induces another to enter into a contract by using FRAUDULENT MISREPRESENTATION (i.e. by asserting information she knows is untrue), the contract is VOIDABLE by the innocent party if she JUSTIFIABLY RELIED on the fraudulent misrepresentation.
This is FRAUD IN THE INDUCEMENT.
Absence of Mutual Assent - Misrepresentation - Nonfraudulent Misrepresentation
Even if a misrepresentation is NOT fraudulent, the contract is VOIDABLE by the innocent party if the innocent party JUSTIFIABLY RELIED on the misrepresentation and the misrepresentation was MATERIAL.
A misrepresentation is material if:
i) it would induce a reasonable person to agree, OR
ii) the maker knows that for some special reason it is likely to induce the particular recipient to agree, even if a reasonable person would not.
Absence of Mutual Assent - Misrepresentation - Innocent Party May Rescind Agreement and Recover Damages
Note that the innocent party need not wait until she is sued on the contract but may take affirmative action in equity to RESCIND the agreement. In addition, she may pursue all remedies available for breach of contract.
Absence of Consideration
If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, NO CONTRACT exists.
In this situation, of of the promises is always illusory.
Public Policy Defenses - Illegality
If the CONSIDERATION OR SUBJECT MATTER of a contract is illegal (e.g. a contract to commit a murder), the contract is void.
Exceptions:
i) the plaintiff is unaware of the illegality while the defendant knows of the illegality;
ii) the parties are not in pari delicto (i.e. one party is not as culpable as the other); OR
iii) the illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than for protection of the public.
If only the PURPOSE behind the contract is illegal, the contract is voidable by a party who was i) unaware of the purpose; OR ii) aware but did not facilitate the purpose AND the purpose does not involve serious moral turpitude.
Defenses Based on Lack of Capacity - Legal Incapacity to Contract - Contracts of Infants
Infants (in most jurisdictions, persons under the age of 18) generally lack capacity to enter into a contract binding on themselves. However, contractual promises of an ADULT made to an infant are binding on the adult.
Defenses Based on Lack of Capacity - Legal Incapacity to Contract - Contracts of Infants - Disaffirmance
An infant may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority. If an infant chooses to disaffirm, she must return anything that she received under the contract THAT STILL REMAINS at the time of disaffirmance.
However, there is no obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed.
Defenses Based on Lack of Capacity - Legal Incapacity to Contract - Contracts of Infants - Disaffirmance - Exceptions
States have created a few statutory exceptions for student loans, insurance contracts, and agreements not to reveal an employer’s proprietary information.
Defenses Based on Lack of Capacity - Legal Incapacity to Contract - Contracts of Infants - Disaffirmance - Necessaries
“Necessaries” are items necessary for the minor’s subsistence, health or education (e.g. food, shelter, clothing, medical care). A minor may disaffirm a contract for necessaries but in most states will be liable in restitution for the value of the benefits received.
