contract enforceability Flashcards
defenses (56 cards)
What defenses will be tested?
Illegality, public policy, capacity, duress, undue influence, mistake of fact, misrepresentation, unconscionability
illegality
contract cannot be enforced if the contract is illegal or violates public policy; harm cannot be disproportionate to the bargained-for labor
Examples of harm that is disproportionate to bargained-for labor
unjust enrichment
harm of forfeiture
causes more harm not to enforce
public policy
a contract should not be enforced because its terms or purpose violate fundamental principles of fairness, morality, or public welfare, even if it otherwise meets the requirements of a valid contract
void
contract is invalid from the beginning and has no legal effect
voidable
contract is initially valid but can be canceled by one party for a legitimate reason
capacity
a party lacked the legal ability to enter into a binding agreement, rendering the contract void or voidable
What parties are protected under the capacity defense
minority, mentally incapacitated, and severe intoxication
minority
voidable contracts until the age of 18
exceptions: marriage, military service, emancipation
when is restitution required for minority
minor can disaffirm the contract, but still has to pay for the loss of value of the good UNLESS there was a misrepresentation, tortious damage to property, or willful destruction of property, or necessaries
restitution analysis for necessaries
(1) does it fall within general class of necessaries?
(2) if so, is it necessary under the circumstances of this particular case?
mental incapacity
contracts made by “insane persons” are voidable
- no reasonable perception of understanding of the nature and terms of the contract (cognitive v. volitional test)
when is restitution required for mental incapacity
restitution is required in full to the extent of any benefit received UNLESS the other party had knowledge of the incompetency
severe intoxication
contracts made by a person who is intoxicated is voidable if the other party has reason to know that, due to intoxication
elements of severe intoxication
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction
duress
occurs when a party is coerced into a contract against their will by an improper threat, rendering the contract voidable
elements of duress
(1) threat
(2) threat must be improper
(3) threat must induce victim’s manifestation of assent
(4) there must be no reasonable alternative
Element #1 of Duress
Threat
(1) manifestation of intent to inflict some loss or harm on another
(2) may be inferred from words or conduct; physical compulsion
Element #2 of Duress
Threat must be improper
(1) what is threated is a crime or tort
(2) threats of criminal prosecution
(3) threats of civil prosecution made in bad faith
(4) threats of breach of contract made in bad faith
OR
> unfair terms AND
> one of following:
- no benefit to party making threat
- prior unfair dealing
- use of dominant bargaining power for illegitimate ends
Element #3 of Duress
Did threat induce assent?
Threat must induce victim’s manifestation of assent
(1) subjective test
(2) consider age, background, and relationship of the parties
(3) look for:
- they were going to sign anyway (not signing because of threat); or
- they weren’t going to sign, but decided to after the threat
(4) when threats of violence, we can often assume the other party wouldn’t have assented other than because of the threat
Element #4 of Duress
There must be no reasonable alternative
(threat must be sufficiently grave to justify the victim’s assent/irreparable harm) was the threat sufficiently severe to justify assent?
(1) how serious was the threat?
- nature of the threat/severity of thing threatened
- likelihood person will follow through
- would there be irreparable harm?
(2) were there reasonable alternatives?
Duress by third party
Who should pay when there are two innocent parties?
What are the arguments the K should be enforced?
What are the arguments the court should void the K?
Must prove 4 elements, PLUS: voidable unless other party
(1) acted in good faith;
(2) didn’t know about the threats;
(3) gave value or materially relied
What is the Bond rule?
K is void if:
- duress by actual physical compulsion
- duress by threat of physical violence in such magnitude as to cause a reasonable person to fear: loss of life; serious physical injury; actual imprisonment
- without regard to whether the other party knew of threats
economic duress
must meet ALL elements of duress
coercion because of a threat of economic injury; established when facts show that such breach will result in irreparable harm or injury
