Contracts 1L Flashcards
Learn 1L Contracts Formation (107 cards)
1
Q
Name and describe two sources of law governing international contracts.
A
CISG-Convention on Contracts for International Sale of Goods. A UN Treaty which applies when parties do business in countries which ratified the CISG.
UNIDROIT-Independent organization which seeks to harmonize law of different countries. Persuasive, not binding unless adopted; similar legal force as Restatement, but domestically.
2
Q
What is the definition and elements of a contract?
A
A CONTRACT is a promise or set of promises, for which the law provides a remedy in event of a breach.
Elements are mutual assent (offer & acceptance) and consideration.
3
Q
When is an advertisement an offer?
A
An advertisement is generally an invitation to offer. An exception to rule that advertisements aren’t offers, are ads that are “clear, definite, explicit & leave nothing open for negotiation.” (Lefkowitz)
Ads can be offers if all requirements of an offer are met.
4
Q
What is the definition and elements of a promise?
A
A PROMISE is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding a commitment has been made.
Must include (1) a statement of commitment (2) certain in terms, (3) communicated to the promisee.
5
Q
What are three general ways in which contracts can be made.
A
Express- mutual assent explicitly manifested, orally or in writing.
Implied in Fact- when mutual assent is established by the conduct of the parties or non-explicit words of agreement.
Implied in Law- Quasi contract, no contract exists but party relied on promise and was unjustly enriched by it, meriting restitution.
6
Q
What are the elements of an Offer?
A
An offer must contain: (1) A manifestation of intent to bargain; (2) communicated to the offeree; (3) Definite as to price, terms, quantity, parties, and time for performance.
If accepted, no further negotiation would be needed.
7
Q
What is the legal significance of an Offer?
A
An Offer creates the “power of acceptance” in the offeree.
8
Q
What is the difference between a bilateral and unilateral offer?
A
A bilateral offer involves a mutual exchange of promises by the parties.
A unilateral offer is only one promise, accepted by offeree’s full performance of the terms.
9
Q
What are the ways an Offer can be terminated?
A
Termination of Offer. An offer lasts until:
* rejection
* counteroffer
* revocation
* lapse; or
* death/incapacity of either party.
10
Q
What is an Offer?
A
An **OFFER **is a manifestation of willingness to enter a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it
or
A manifestation of present contractual intent, definite in its terms and communicated to the offeree.
11
Q
When does an offer usually lapse?
A
An offer lapses at the time specified in the offer, or if not specified, within a reasonable time.
Reasonableness depends on circumstances at time of offer, including the nature of contract and manner communicated.
In face-to-face/instantaneous discussion, lapse is end of conversation
12
Q
What are the rules for termination by Death or Incapacity?
A
The Offeree’s power of acceptance terminates upon death of *either *offeror or offeree.
1) This applies whether or not offeree knows of it.
2) This does not apply to option contracts, including unilateral contracts where performance has begun.
13
Q
What is a rejection, and when is it effective?
A
A rejection is a communication that manifests the offeree’s intent to reject the offer.
A rejection is generally effective upon receipt subject to mailbox rule exceptions.
14
Q
When does a rejection not terminate an offer?
A
Rejection does not terminate offer:
(1) if the offeror indicates that the offer will stand despite rejection; or
(2) if the offeree indicates it will continue to consider the offer, despite initial rejection. (Restat. 2d. § 38, 39.)
15
Q
What is a Counteroffer?
A
A Counteroffer is an offer made by the offeree regarding the same subject matter as the original offer, but proposing alternative terms.
16
Q
What is the legal significance of a counteroffer?
A
A counteroffer functions as a rejection of the initial offer, terminating the offeree’s power of acceptance, but is also a new offer, creating a new power of acceptance in the original offeror.
17
Q
How is a counteroffer distinguished from an inquiry or request which does not terminate the original offer?
A
A counteroffer is distinct from an inquiry or request, in which offeree accepts but makes a request incidental to contract.
i) Test to distinguish between counteroffer/inquiry, is whether RPP would have believed it to be a separate offer inviting acceptance.
ii) If request is unconditional and incidental to the offer, it is not a counteroffer.
18
Q
What is the definition and legal significance of a Revocation?
A
A revocation is a communication that manifests the offeror’s intention to retract the previously proposed offer.
It terminates the offeree’s power of acceptance. (Restat.2d. § 42.)
19
Q
How must a revocation be communicated to the offeree?
A
Revocation can be communicated either expressly or through conduct. This is called direct and indirect revocation.
Direct revocation is when the offeror expressly revokes offer. This is the favored manner of revocation.
Indirect revocation is made if (i) the offeror takes action that clearly shows that they no longer intend to commit to the offered bargain; and (ii) the offeree learns of that action from a reliable source. (Restat. 2d. 43.)
20
Q
When may revocation of an offer be made?
A
Revocation is possible at any time before acceptance, even if the offeree says it will be held open, subject to exceptions:
i) This does not apply in option contracts, where there was separate consideration for holding open.
ii) This does not apply to otherwise irrevocable contracts, such as those made irrevocable by statute (i.e. UCC § 2-205 Firm Offers).
21
Q
What is an option contract, and what are examples of same?
A
Option Contracts are contracts which are held open for an “option period” during which the contract is irrevocable, supported by separate consideration.
Examples are (1) unilateral contracts in which performance has begun; (2) UCC firm offer contracts; (3) any other contract where an option is created by separate consideration.
22
Q
What are the rules for Unilateral Option Contracts?
A
Once the offeree begins performance of a unilateral offer, an “option contract” is created.
The courts distinguish between beginning performance, and preparing to begin performance, which does not establish an option.
If the offeree does not complete performance, this is not an acceptance and the offeror may withdraw the offer. (Restat.2d. § 45.)
23
Q
What is the UCC § 2-205, “Firm Offer Rule”
A
An offer that is (1) for the sale of goods; (2) by a merchant; (3) signed & in writing, is irrevocable, without consideration, for either the time stated, or up to three months.
24
Q
When is acceptance of an option contract effective?
A
Acceptance of option contracts is effective on receipt.
25
What is the definition of Acceptance?
**Acceptance** is “an unequivocal assent to the terms of the offer, communicated to offeree”
-or-
“a manifestation of assent to the terms of the offer, made by the offeree in a manner invited or required by the offer.”
26
What is the Mirror Image Rule?
**The Mirror Image Rule: **
Acceptance of an offer must be positive, unconditional, unequivocal, and unambiguous, and must not change, add to, or qualify the terms of the offer.
27
When does a purported acceptance constitute a counteroffer?
If an acceptance is conditional or materially alters the terms, it is not an acceptance but a counteroffer.
Requests which are incidental to/don’t materially change the offer, are not counteroffers, so the initial offer remains in force.
28
What was the "Last Shot Rule" of Acceptance?
The **Last Shot Rule **was an old rule under common law wherein, in an exchange of offers and acceptance, the last form sent controlled; other terms were discarded.
29
In what manner and method can a bilateral offer accepted?
**Bilateral offers** are accepted by a return promise.
The method may be made explicitly or implicitly, in the manner specified in the offer, or if not specified, in any reasonable manner not precluded by the offer.
Reasonable means the one used by the offeror or customarily used for that type of transaction
Old rule: if unspecified in the offer, the method must be as fast or better than that used by the offeror
30
In what manner and method can a unilateral offer be accepted?
Unilateral offers are accepted ONLY by performance.
Only one party makes an promise, the offeree accepts by completing the requested performance.
| Reward offers usually meet this definition.
31
What is the rule for acceptance of offers which are ambiguous as to bilateral/unilateral?
Offers ambiguous as to manner of acceptance (performance or promise) are construed as either unilateral or bilateral, which essentially amounts to bilateral (because a unilateral contract is one that ONLY can be accepted by performance.
(Restat. 2d. 295, Restat. 1st 294.)
32
What are the rules for acceptance by conduct?
Acceptance may be implied by conduct, when the party intends to engage in the conduct and knows or should know the other party may infer assent from it. (Restat.2d. 19.)
When a party accepts by conduct, the moment performance begins is construed as the moment of acceptance. (Restat. 2d. 32, 62.)
33
When can acceptance be made by silence (inaction) ?
Generally silence is not acceptance. However, it can be if either:
1) Offeree takes benefit of offered services, knowing there was an expectation of compensation, with a reasonable opportunity to reject the offered benefits.
2) Offeror has stated or given reason to believe silence will be assent.
3) Previous dealings or circumstances reasonably indicate that offeree should notify offeror if he doesn’t wish to accept.
34
When must notice be given for a bilateral contract?
Generally, an acceptance must be communicated to offeror.
However, an acceptance is permitted by conduct, when the offeree intends to accept and knows acceptance will be inferred by the offeror.
If it wouldn't come to offeror’s notice within reasonable time, the offeree must take reasonable steps to notify them of acceptance, unless offeror waived notice or learns of it within reasonable time.
35
When must notice of acceptance of a unilateral offer be given?
No notice needed of intent to perform for unilateral contracts. But notice of completed performance required within reasonable time if offeree has reason to know offeror won’t learn of it in reasonable time; if not given, promisor’s performance can be discharged.
36
When is an acceptance effective?
General Rule-acceptance is effective upon receipt if made by face to face or other instantaneous communication.
Mailbox Rule- If mailed, acceptance is effective upon dispatch. Established in *Adams v. Lindsell. *Sources are mixed on whether this includes email or fax. Some caveats, notes and exceptions apply.
37
What are exceptions to the mailbox rule?
A (mailed) acceptance is effective on receipt when:
* It is made late, after termination/lapse, and thus has the force of a counteroffer.
* When offeror expressly negates mailbox rule.
* When acceptance is made in a manner or method not reasonably invited by the offer.
* Option contracts
38
How are crossed acceptance & rejection treated under the mailbox rule?
If acceptance was sent before a rejection, acceptance is valid as it is effective on dispatch.
-Exception, if offeror received rejection first and detrimentally relied on it, rejection may control.)
If rejection was mailed before acceptance, whichever arrives first determines if a contract was formed.
- If rejection arrives first no contract is formed and subsequent acceptance is treated as counteroffer.
- If acceptance arrives first, contract is formed.
39
What does UCC 2-204 state, and when does it apply?
This section applies when 2-206 & 2-207 don’t fit, and there exists a question as to whether a contract existed at all.
1) States a contract for sale of goods can be made in any manner sufficient to show agreement, including conduct.
2) The moment of formation can be uncertain.
3) The terms can also be uncertain if a reasonable basis for a remedy exists, and the parties intended to form a contract.
40
What does UCC 2-206 state, and when does it apply?
UCC 2-206 concerns manner of acceptance.
1a) An offer invites acceptance by any reasonable method or manner, unless language or circumstances unambiguously say otherwise. (same as common law rule).
1b) The offeree can accept by promise to ship, or performance of shipping, any conforming or nonconforming goods. If goods are nonconforming, and offeree gives reasonable notice that said goods are an accommodation, it is not an acceptance, but a counteroffer.
2) When performance is begun by reasonable means, an offeror who is not notified of acceptance can treat the offer as lapsed.
41
What does UCC 2-207, subd. (1) state, and when does it apply?
UCC 2-207(1) determines whether a contract for sale of goods was formed.
It states that a definite and seasonable expression of acceptance, or a written confirmation sent within a reasonable time, operate as acceptance even if different or additional terms are stated, unless the acceptance is conditional upon acceptance of the additional/different terms
42
What does UCC 2-207, subd. (2) state, and when does it apply?
UCC 2-207(2) Determines what to do with additional terms.
It provides that: Additional terms are construed as separate proposals for addition/rejection. However, between two merchants, additional terms become part of the contract, unless:
i) The offer expressly limits additional terms
ii) The terms materially alter the contract; or
iii) Notification of objection to the additional/different terms is given within a reasonable time.
43
Under UCC 2-207(2), how are *different* terms handled?
The UCC only says what to do with additional, not different terms. Courts have decided 3 ways of handling:
* Majority Rule for Different Terms: Knockout rule- any different terms are “knocked out” and replaced with UCC gap filler terms.
* Dominant Minority Rule. First Shot Rule-offeror’s terms control and offeree’s terms drop out.
* Smaller Minority Rule. Treats different terms the same as additional terms.
44
What does UCC 2-207(3) state, and when does it apply?
UCC 2-207(3) applies when the parties’ writings do not form contract, but the conduct might.
It states that conduct by both parties which recognizes the existence of a contract is sufficient to establish one, even if the writings exchanged do not.
i) Any terms which agree become part of the contract.
ii) Any conflicting terms are subject to the knockout rule; i.e. knocked out and replaced with UCC gap fillers.
45
What is consideration?
Consideration is a bargained-for exchange that causes a detriment to the promisee.
46
What are the elements of consideration?
The promisee must either give a benefit (bargained for exchange) or suffer a detriment in exchange for the promise(s).
Bargained-for exchange - sought by the promisor in exchange for his promise and given by the promisee in exchange for that promise. (Reciprocally motivated).
Detriment - doing something that one is not already legally obligated to do or forbearing to do something that one has a legal right to do.
47
What are the tests for consideration?
1) Benefit-Detriment Test. At common law, consideration was defined as either a benefit or detriment, and the test asked whether either had occurred.
2) Bargained-for Exchange/Reciprocal Motivation Test. Whether there has been an exchange of promises, which are reciprocally induced by what the other party gives and what they get back.
48
What is a gift promise and does it constitute consideration?
**Conditional gifts/Gratuitous Promises**. A gift promise is a promise to give a gift.
It doesn’t form a contract because it fails both the bargained for exchange and benefit-detriment tests for consideration.
49
What is an illusory promise and does it provide consideration?
**Illusory promise** is a statement in a promissory form, that doesn’t actually bind the promisor. An illusory promise is not consideration.
50
What are examples of promises that are/are not illusory?
*Illusory*
Promises with unlimited termination clauses; one party retaining total discretion over whether or not to perform.
*Not Illusory*
Satisfaction clauses (I’ll do X if I am satisfied).
Promises of “reasonable effort” to do something.
*Maybe Illusory*
Conditional promises, depending whether or not condition is possible to meet. If possible, not illusory, if impossible; illusory.
Voidable but otherwise valid promises.
51
What is a settlement agreement and when is it supported by consideration?
A settlement agreement consists of relinquishing a legal claim in exchange for compensation.
1) Forbearance from pursuing a valid legal claim DOES constitute consideration.
2) Forbearance from pursuing an uncertain/invalid legal claim does not constitute consideration, unless made on a good faith belief
| (some courts require reasonableness test also).
52
What is the general rule for modifying a contract?
Parties can modify an existing contract. The modification it is itself a contract, requiring offer, acceptance, and new consideration.
53
What is the Pre-existing duty rule, and exceptions?
*Rule*
A pre-existing legal duty cannot serve as consideration for a new promise.
*Exceptions*
A duty under an executory contract can be modified without new consideration if the modification is fair and equitable under circumstances not existing at time of original agreement.
Under UCC § 2-209, a modification of an agreement for the sale of goods does not require new consideration if made in good faith
54
What is the rule for past consideration?
*Rule*
Promises or actions that were performed in the past cannot constitute consideration for a new bargain
55
What is sham consideration/nominal consideration?
Consideration in name only. Has the form of consideration but lacks the substance of a real bargain. Ex. giving $1 for a large purchase, just to give appearance of consideration.
56
What is the general rule for discharge of an obligation?
A duty under a contract can be wholly or partially discharged by mutual agreement, supported by fresh consideration. Without consideration, the discharge is ineffective. If performance is only partial, the duty is partially discharged.
57
What are the mechanisms for discharge of obligations?
Mutual Recission
Novation
Substituted Contract
Substituted Performance
Accord & Satisfaction
58
What are the definition and rules for mutual recission?
Mutual Recission is rescinding both parties’ obligations by exchange of promises.
The promises are the consideration for the recission agreement
Only permitted if a contract is at least partially “executory.”
The sole purpose is mutual discharge.
59
What are the definition and rules for substituted contract & substituted performance?
**Substituted Contract**. An offer to perform a different duty in place of the original agreed-upon duty.
**Substituted Performance**. Similar to a substituted contract, except that a performance is offered in place of the original duty, rather than a promise.
*Rules*
Upon acceptance, the original obligation is discharged.
Claims of breach must be brought under substituted agreement, not original.
60
What is the definition and rules for Novation?
**Novation**. When parties bring a 3rd party to replace an original party.
1) The consideration is the obligee’s surrender of rights, and 3rd party’s assumption of the duty.
2) Any claims of breach are brought under the novation, not the original agreement.
61
What are the definition and rules for Accord & Satisfaction?
Accord & Satisfaction. An agreement (“accord”) to accept a substituted promise without discharging the original obligation until satisfaction of the substituted obligation (“satisfaction”).
1) The original obligation is suspended, not fully discharged until satisfaction occurs.
2) Before satisfaction, a claim of breach can be brought under either the original or substituted agreement.
62
What is the definition and types of remedies?
Remedies are a means by which to make the non-breaching party whole in event of a breach or other non-contractual theory.
There are legal and equitable remedies.
63
What are examples of legal remedies?
Legal remedies include Monetary Damages. There are several types of monetary damages.
Expectation Damages. The money necessary to fulfill the expectation created by the promise.
Reliance Damages. Money necessary to compensate
64
What are examples of equitable remedies?
1. Specific Performance. Orders the breaching party to perform as promised.
2. Restitution. If no contract exists, but benefits have been conferred on the promisor, the promisor must disgorge said benefit by paying the value of said benefits to avoid unjust enrichment.
3. Injunction. An order to forebear from doing something, or to perform some action.
65
What is the definition and rule for promissory estoppel?
Promissory Estoppel is a non-contractual theory of recovery based on detrimental reliance on a promise.
A promise which the promisor should reasonably expect to induce action/forbearance on part of the promisee or a 3rd party, and which does induce such a promise, is binding if injustice can be avoided only by enforcing said promise. (Rest. 2d, 90.)
66
What are the elements of promissory estoppel?
Promissory estoppel contains four elements:
*Promise*. A clear, definite promise was made.
*Foreseeability of Reliance*. The promisor should have reasonably expected or foreseen that the promisee would rely on it.
*Reasonable Reliance*. The promisee reasonably relied on the promise by performing some action or forbearance induced by it.
*Avoidance of Injustice*. Justice can only be served by enforcing the promise
67
How are gift promises treated under promissory estoppel?
*Gift promises*
Although there is no consideration for a gift promise, if a party incurred notable detriment to acquire the promised gift, courts will enforce gift promises under promissory estoppel theory.
68
How are subcontractor bids treated under promissory estoppel?
Contractor/Subcontractor Bids. Restat. 2d § 87 provides that in some circumstances subcontractors sub-bids are binding. However, most courts view it as unfair to subcontractor, preferring Restat. § 90.
69
What is the charitable promise exception under promissory estoppel?
Charitable Promises. Restat. § 90 provides that charitable promises are binding even without proof that the promise induced action.
70
What are the main differences between the original and second restatement approach to promissory estoppel?
Original v. Second Restatement. Most courts follow Restat. 2d § 90, however, some follow the original § 90; others follow variations of both.
Partial Recovery. Original restatement allowed full extent of recovery.
2d Restatement added subsection (1) limiting monetary recovery to actual reliance damages.
71
What is restitution?
Restitution. The act of making a party disgorge (relinquish) a benefit which was unfairly gained at another’s expense, to prevent unjust enrichment.
72
Terms which have slightly different meanings but are often used interchangeably with restitution include quantum meruit, quasi-contract, unjust enrichment, and implied-in-law contract. What do they mean?
*Quantum Meruit/Quantum Valebant* Means “as much as deserved” or “as much as it’s worth” respectively. These describe a restitutionary measure of relief; meruit for services and valebant for goods sold.
*Quasi-Contract*. An implied-in-law contract created when one confers a benefit on another with no real contract.
*Unjust Enrichment* Flexible definition; one party gained a benefit unfairly at another's expense.
73
What is the doctrine and elements of unjust enrichment?
A party may not unjustly enrich himself at the expense of another.
Three elements:
* Benefits were conferred on one party by another.
* There was an expectation of payment for said benefits.
* Retention of the benefits without payment would be unjust.
74
When is restitution a permissible theory of recovery?
When permitted. Restitution is an available remedy only when there is an invalid/unenforceable contract or no contract.
75
How does restitution differ from promissory estoppel?
Absence of Promise. Restitution differs from promissory estoppel in that it is based on a promise implied by law, rather than an express or implied in fact promise.
76
What is the Officious Intermeddler Doctrine, and exceptions to same?
*Officious Intermeddler Doctrine.* A theory which bars recovery in restitution for services performed without consent.
*Exception*
Services performed during emergencies where consent is impossible, are not considered officious.
77
What are defenses, what are the categories available, and what do they include?
A contract defense is a challenge to a contract’s formation and enforceability.
Categories are:
Lack of capacity: Intoxication, Infancy, Mental Illness
Flawed Assent: Mistake, Misrepresentation, Duress, Undue Influence, Unconscionability
Public Policy. Contract is illegal or otherwise contravenes public policy.
78
What is the difference between void, voidable, and unenforceable, and what categories of defenses to they apply to?
**Void**. A contract is treated as if it never formed.
*Applies to public policy defense*
**Voidable**. A party has the power to avoid the legal obligations imposed by the contract.
*Applies to flawed understanding & lack of capacity defenses*
**Unenforceable**. An unenforceable contract is one that may be valid but which the court will not enforce for any number of reasons.
79
What is the defense of Infancy?
Infancy. A minor can make only voidable contracts. Such a contract is binding on the adult, but voidable by the minor.
80
What are the rules for invoking the Infancy defense?
A minor may affirm a contract after reaching majority, or disaffirm the contract during minority or within a reasonable time after reaching majority. (Restat. 2d. 14)
If not disaffirmed, the minor is said to have ratified the contract, and the infancy defense is no longer available.
Ratification and disaffirmance may be express or implied by conduct.
81
What are exceptions to Infancy defense?
*Contracts for Necessaries/necessities are not voidable for infancy*. Necessaries are goods or services needed to maintain the minor’s existence. Whether something is a necessary is determined by the trier of fact based on the circumstances.
*Deliberate Misrepresentation of age*, upon which the other party reasonably was misled, can estop the minor’s avoidance.
82
What is the Mental Illness defense?
A person's mental illness interferes with their ability to meaningfully assent to a contract.
83
What are the rules for invoking the Mental Illness Defense?
Contracts with people adjudicated to be mentally incompetent are void.
However, contracts with people claiming mental illness who haven't been adjudicated incompetent, are voidable at the option of the mentally ill person or their representative.
The person has the option to affirm the contract during periods of lucidity, which eliminates the defense.
84
What are exceptions to the Mental Illness defense?
Exceptions. Necessaries- if the contract was for necessities such as food or shelter, a mentally ill person may still be held liable.
85
What is the definition & rule for the intoxication defense?
Intoxication is a defense arguing that a person's assent made under the influence of alcohol or drugs, was not meaningful.
*Rules*
Contracts with intoxicated people are voidable at the option of the intoxicated person, if the sober party has reason to know that they cannot reasonably understand the nature of, or act in a reasonable manner in relation to, the contract.
The party can affirm the contract during sobriety, eliminating the defense.
86
How is mental illness tested for purposes of invoking the defense?
Mental illness can be demonstrated by either the cognitive or motivational tests:
- Cognitive: inability to reasonably understand the nature or consequences of the contract. (Traditional)
- Motivational: inability to act reasonably with regard to the contract. (Modern)
87
What damages is a minor responsible for paying after disaffirming a contract
Upon disaffirmance, the minor is not required to make restitution; the minor must only return what remains of the consideration they received, without allowance for depreciation, loss in value, damage, or use.
88
What is the mistake defense?
Mistake is when one or both parties had an erroneous belief about a material fact existing at the time of making contract, making the contract voidable at the option of the party asserting the defense.
89
What are the general rules for mistake defense?
1. The mistake must relate to a material fact in existence at the time of contract, not an error in judgment, opinion, or future prediction.
2. The mistake must significantly affect the agreed exchange of performances.
3. The aggrieved party neither assumed the risk of mistake nor would it be justly allocated to him/her.
90
What are the elements required for mutual mistake?
Both parties are mistaken about a material fact upon which the contract is based.
The mistake has a material effect on the agreed exchange of performances
The party seeking to void the contract did not bear the risk of the mistake.
91
When does one "bear the risk" of a mistake?
Under Restat. 2d. 154, one bears the risk of the mistake if:
* The risk was allocated expressly to the party (i.e. liability clause)
* The party was aware at the time of formation that he had limited knowledge of the facts, but treated this knowledge as sufficient
* The court finds it reasonable as a matter of law to place risk upon a party.
92
What are the required elements of unilateral mistake?
- There is a mistaken factual belief on the part of only one party.
- The mistake induced that party's assent to the contract.
- The mistake had a material effect on the transaction, which was adverse to the party.
- The party seeking to avoid the contract did not bear the risk of mistake (under Restat. 2d. 154, supra.)
- Either the other party should’ve known about the mistake, *or* enforcing the contract would be unconscionable.
93
What is the definition and general rule for misrepresentation?
Misrepresentation. A misrepresentation is an assertion that is not in accord with the facts, by means of fraud, concealment, or non-disclosure.
If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party, upon which the recipient is justified in relying, the contract is voidable by the recipient.
94
What are the 3 ways misrepresentation may be made?
Misrepresentation may be made by fraud, concealment, or non-disclosure.
- Fraud. An affirmative statement that is not true; a deliberate lie.
- Concealment. An affirmative action to hide or prevent another from learning a fact.
- Non-disclosure. Failing to disclose a fact.
95
What are the elements of misrepresentation?
i) There must have been a fraudulent or material misrepresentation;
ii) The aggrieved party’s assent was induced by the misrepresentation.
iii) The recipient was justified in relying on the misrepresentation.
96
What is the difference between fraudulent and material misrepresentation?
A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and (1) knows it is not true, (2) lacks confidence it is true, or (3) knows he lacks a basis for it.
A misrepresentation is material if it would likely induce a reasonable person to manifest his assent (objective) or the specific party to assent (subjective).
97
When can a misrepresentation be based on an opinion instead of a material fact?
The parties are in a fiduciary relationship, or one of special trust/confidence.
The representee does not have equal opportunity to apprise themselves of the truth or falsity of the fact.
98
What are the rules for misrepresentation by non-disclosure?
Generally, there’s no duty to speak unless:
- The parties are in a fiduciary relationship, or one of special trust/confidence.
- The speaker has superior skills or knowledge relevant to the fact.
- If party has disclosed some information about a fact, all relevant information about it must be disclosed.
- A statute requires disclosure (i.e., seller of a house).
99
When is a contract voidable for duress?
Duress. A contract is voidable for duress when a party was induced to assent by an improper threat or physical compulsion, which overcame their exercise of free will.
100
What are the types of duress and their effect on a contract?
Duress can be caused through either improper threat or physical compulsion.
*Improper threats* A contract is voidable for duress when:
* Assent was induced by improper threats
* No reasonable alternative but acquiescence.
*Physical compulsion*. Duress by physical compulsion renders contract void by recipient.
101
What kind of threats constitute improper threats for purposes of duress?
* Threat of crime or tort.
* Threat of criminal prosecution or civil liability.
* Economic duress (no alternative but accept or face financial hardship)
102
What are the elements of duress?
Elements. For duress to exist the following must all be present.
i) Improper threats or compulsion.
ii) Overcoming free will.
iii) Assent was induced by the duress.
103
What is the undue influence defense?
A contract is voidable for *Undue Influence* when assent was induced by unfair persuasion of either:
1- A weaker party by a dominant party, or
2- A party who by virtue of their relationship reasonably believes the persuader will act in in their best interest.
104
What is unconscionability and when is it present?
An unconscionable contract is one that is grossly unfair and made by parties with unequal bargaining power.
Unconscionability is present when
(1) there is an absence of meaningful choice for one party, and
(2) the terms are unreasonably favorable to the other party.
105
What are exceptions to the past consideration rule?
*Moral obligations.* Moral obligations arising from past actions are not enforceable, unless based on a material benefit received.
*Promises by Minors.* An adult may reaffirm a voidable promise made as a minor without new consideration provided the new promise is not also voidable.
*Time-barred debts*. A promise to pay a debt, which is barred by the statute of limitations, is enforceable without new consideration.
*Bankruptcy Debts*. A promise to pay a debt discharged in bankruptcy is enforceable if bankruptcy proceedings pre-date the promise.
106
What are the elements of unconscionability?
* An adhesive contract (a non-negotiable, one-sided contract)
* Procedural unfairness (unfair circumstances surrounding formation)
* Substantive unfairness (terms themselves are unfair/oppressive)
107
What are the options for avoiding an unconscionable contract under the UCC & Common Law?
Under both the UCC and Common Law, a court has the option to:
* Void the entire contract
* Void the unconscionable term only
* Limit the unconscionable term to make it fair.
| UCC 2-302; Restat. 2d. 208.
