Week 6 Defenses and Promissory Estoppel Flashcards
What is the fundamental goal of promissory estoppel?
To protect a party if that party legitimately relies on another party’s promise, even if the technical requisites for contract formation have not been met.
What theory does promissory estoppel contrast with?
The formation theory (the ‘bargain theory’).
What is the reliance theory in relation to promissory estoppel?
A separate theory of contract formation that allows enforcement of promises based on reliance.
What are the two departures reflected by the doctrine of promissory estoppel?
- A departure from traditional contract formation to an alternative doctrine.
- A departure within contract law from a formal approach to modern approaches based on policy rationales.
What does Diagram 4-1 in the Contract Law Graphic Organizer depict?
Where promissory estoppel fits within the big picture of contract law.
True or False: Promissory estoppel is considered a traditional method of contract formation.
False.
Fill in the blank: Promissory estoppel may be thought of as a doctrine based on a completely separate theory of contract formation called the _______.
[reliance theory]
What does promissory estoppel allow courts to do?
Enforce promises based on reliance.
Who advocates for the more modern approaches in contract law reflected in promissory estoppel?
Lawyers, law professors, and judges.
What is a statute of fraud?
Statutes which require signed writings.
What role does promissory estoppel play in contract law?
Provides a mechanism to enforce promises that do not comply with signed writing requirements.
What is the focus of this chapter in contract law?
A range of contract defenses that enable parties to get out of contracts.
What can lead parties to assert contract defenses?
Inducement by deception, duress, or fundamentally mistaken apprehension.
What is the common thread in contract defenses discussed?
Legally cognizable ground to doubt voluntary and fully informed consent.
How do contracts affect freedom of action?
They limit contracting parties’ freedom of action.
What is ‘buyer’s remorse’?
The feeling of regret after entering a contract that turns out to be a bad deal.
What is ‘seller’s remorse’?
The feeling of regret after entering a contract that is unfavorable from the seller’s perspective.
What should courts be cautious about regarding contract defenses?
Parties’ attempts to assert defenses as a way to avoid contractual obligations.
What does the Latin phrase ‘pacta sunt servanda’ mean?
Agreements are to be observed.
What tension exists in contract law according to this chapter?
Between public policy rationales of predictability and freedom of contract and fairness concerns.
What categories are highlighted under ‘Contract Defenses’?
Deception and Mistake.
What is the significance of Diagram 5-1 in the text?
Depicts where contract defenses fit within the big picture of contract law.
What do parties often feel after realizing a contract is not beneficial?
Remorse.
Fill in the blank: Promissory estoppel is a mechanism to enforce promises that do not comply with _______.
signed writing requirements.
True or False: Courts are generally very receptive to parties’ attempts to assert defenses to avoid contractual obligations.
False.
What is misrepresentation?
Misrepresentation refers to a false statement that leads another party to enter into a contract.
Misrepresentation can be intentional (fraudulent) or unintentional (negligent or innocent).
What are the five elements of misrepresentation?
- A false statement of fact, intention, or opinion
- Addressing a fact, intention, or opinion material to the contract
- Made with the requisite state of mind (intentional, negligent, or innocent)
- Actually and justifiably relied on by the other party
- Caused damage to the other party
True or False: If a misrepresentation is intentional, it is necessary to establish that it was material.
False
What does ‘false’ mean in the context of misrepresentation?
‘False’ means untrue, inaccurate, or erroneous.
Define ‘fact’ as used in misrepresentation law.
A ‘fact’ is something that exists or occurs.
What is an ‘intention’ in the context of misrepresentation?
An ‘intention’ is a determination to act in a certain way in the future.
What is an ‘opinion’ in legal terms?
An ‘opinion’ is an expression of a person’s belief or viewpoint, not a matter of positive knowledge.
When are opinions actionable in misrepresentation?
Only opinions that imply specific underlying facts are actionable.
What does ‘material’ mean in the context of misrepresentation?
A fact is ‘material’ if a reasonable person would regard it as important in deciding whether to make a contract.
What does the term ‘reasonable person test’ refer to?
It refers to an objective standard used to determine if a fact is material based on what a hypothetical person would think.
What are the three states of mind in misrepresentation?
- Intentional misrepresentation (fraud)
- Negligent misrepresentation
- Innocent misrepresentation
What distinguishes intentional misrepresentation from negligent and innocent misrepresentation?
Intentional misrepresentation does not require a showing of materiality, while negligent and innocent do.
What remedies are available for victims of intentional misrepresentation?
Victims are entitled to punitive damages and may also rescind the contract.
What is the remedy for victims of innocent misrepresentation?
Victims can only rescind the contract; they are not entitled to damages.
Fill in the blank: A misrepresentation is actionable if it is _______.
[false and material]
Why do courts not usually award damages for innocent misrepresentations?
It is considered efficient to place losses on the parties who are in the best position to avoid the problems causing losses.
What is the public policy rationale for limiting liability in innocent misrepresentation?
It promotes efficiency by placing losses on the better loss avoider.
What is ‘actual’ reliance in the context of contract law?
‘Actual’ reliance occurs when a party acts because of a representation, meaning the representation caused them to make a contract.
This concept is reflected in RESTATEMENT (SECOND) OF CONTRACTS §167.
What does ‘justifiable’ reliance mean?
‘Justifiable’ reliance means that reliance on a representation is not completely irrational, preposterous, or absurd.
Courts consider reliance justifiable if there is any basis for believing the representation, even if a reasonable person would not have believed it.
What is the standard for finding justifiable reliance?
The standard for finding justifiable reliance is very low.
This low standard is supported by public policy and sympathy for victims.
What rationale supports the low standard for justifiable reliance?
The rationale is that ‘no rogue should enjoy his ill-gotten plunder for the simple reason that his victim by chance is a fool.’
What does the term ‘damage’ refer to in legal terms?
‘Damage’ refers to some type of loss, harm, or injury.
Courts generally require some type of harm to be shown before a party is entitled to a remedy in a legal action.
What elements are analyzed in a legal problem concerning damage?
The elements that may arise and be analyzed include:
* Damage
* Falsity
* Reliance
True or False: Actual reliance requires that a party acted without any representation.
False
Fill in the blank: A party’s reliance is ‘justifiable’ if it is not completely _______.
irrational
What is the primary focus of non-disclosure?
Failing to speak about important facts.
What are the five elements of non-disclosure?
- Failure to disclose a fact
- A duty to disclose that fact
- The non-disclosed fact was material
- The other party actually and justifiably relied on the state of things in the absence of disclosure of the fact
- Damage
What is the first element of non-disclosure?
Failure to disclose a fact.
What is the second element of non-disclosure?
A duty to disclose that fact.
Is there generally a duty to disclose material facts to another party?
No.
What is the focus of the material fact requirement in non-disclosure?
The importance of a fact to a party’s decision to enter into a contract.
What does the actual reliance element focus on?
The causal basis for a party’s decision to enter into a contract.
What does the justifiable reliance requirement assess?
The reasonableness of a party’s decision to believe a representation.
What is the definition of concealment?
Engaging in active efforts to prevent another party from learning a fact.
What are the elements of concealment?
- Active efforts to prevent another party from learning a fact
- The concealed fact was material
- The other party actually and justifiably relied on the facts as they appeared without the concealed fact
- Damage
What is an example of concealment?
A homebuilder installing tiles on a floor to cover up a defect.
How does misrepresentation differ from non-disclosure?
Misrepresentation involves misstating a fact, while non-disclosure involves not stating a fact.
How does concealment differ from the other types of deception?
Concealment involves hiding a fact.
What should you identify on an exam regarding deception?
Which type of deception a given question raises.
Fill in the blank: The focus of non-disclosure is _______.
[not stating a fact]
True or False: Concealment involves lying about a fact.
False.
What is the second contract defense discussed in the text?
Mistake
What are the two types of mistake defenses?
- Mutual mistake
- Unilateral mistake
What is mutual mistake?
It applies to situations where parties make contracts based on crucial assumptions about particular qualities of what they are buying and selling, which later prove untrue.
What are the three elements of mutual mistake?
- A mistake by both parties about the facts surrounding a transaction at the time a contract is made
- Concerning a basic assumption on which the contract was made
- Which has a material effect on the parties’ contractual exchange
Fill in the blank: Mutual mistake applies to situations where parties make contracts in light of certain, crucial assumptions about particular qualities of what they are buying and selling and those assumptions prove _______.
[untrue]
