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Flashcards in Contracts - Defenses Deck (43):
1

Under the modern law, what are the three elements of duress?

A threat that is wrongful in nature AND leaves the party with no reasonable choice but to succumb to the threat

2

What the the forms of incapacity?

Infancy Mental incompetence

3

What is I fancy?

A

4

What is the modern rule for infancy?

Majority Minority

5

What are the requirements for mental incompetence?

A

6

what are the defenses to contracts?

Duress Undue Influence Unconsconiability Misrepresentation Public Policy Incapacity

7

What are the categories of defenses?

Incapacity

Duress

Misrepresentation

Undue Influence

Unconsc

Public Policy

8

What is incapacity?

  1. Infancy
  2. Mental Incompetence

Available both under the UCC & common law

9

What is infancy?

Any person who is under the age of 18 (some states use 21)

Modern Rule

  • minors may enter into a K but the K is voidable @ the option of the minor

Married/Emancipated special rule

  • Majority - follow the modern rule
  • Minority - Elminates the power of avoidance

 

10

How to exercise the power of avoidance/disaffirmance?

The minor just has to say so & is obligated to:

  • Majority rule -
    • minor must return the goods & is not liable for any damages, wear & tear or any other depreciation
    • service K 0 the minor is under no further obligation to compensate the other pty
  • Minority rule
    • minor can only disaffirm by making the other pty whole
    • minor responsible for depreciation, wear & tear & compensating other pty

11

How can a minor ratify a contract?

Once they turn 18, they may expressly or impliedly ratify Ks entered during minority thus bind themselves

  • silence alone does not do it

12

What are the exceptions to infancy?

Necessary K

  • is voidable but the merchant has a quasi-K right to recover the reasonable value of the goods or services
  • food, clothing, shelter, or medical care
  • education & automobiles - cts are split

Misrepresentaion by minor - minority of jurisdiction

  • if the minor misrepresents his age to get goods/services, he may be equitably estopped from proving his real age in ct & thus prevented from invoking infancy

 

13

What is the defense of mental incompetency?

Modern Rule

A person lacks capacity to contract if he was mentally incompetent @ the time of the contract.

14

What are the requirements for mental incompetence?

If adjudicated incompetent & a guardian is appointed then that is sufficient.

If not, prove either:

  1. Cognitive defect
  2. Volitional defect

15

What is cognitive defect?

A person will be deemed mentally incompetent if he is unable to understand in a reasonable manner the nature & consequences of the transaction

16

What is volitional defect?

Mental incompetence can be established if:

  1. A person is unable to act in a reasonable manner in relation to the transaction AND
  2. The other pty has reason to know of this condition

17

What are the legal consequences of the mental incompetence defense?

Depends on whether it has been adjudicated:

  • YES - The K is void as a natter of public policy
  • NO - The K is voidable @ the option of the incompetent pty

18

How can a K be ratified if the pty is mental incompetent?

If the pty was mentally incompetent @ the time of entering into the K, the pty can expressly or impliedly ratify if he becomes competent at a later tiem.

19

What is the mentally incompetent pty's duties of restitution?

Generally - if they exercise their power of avoidance & have received some benefit  under the K, he is required to make the other pty whole by paying the reasonable value of the goods/service render (different from minors)

EXCEPTION

If the other pty takes unfair advantage the mentally incomptent person by being aware of his incompetence then they are only entitled to return of any benefits still in possession of the mentally incompetent individual

20

What is the rule for necessary K in regards to mental incompetence?

The mentally incompetent can disaffirm the K but the provider of the necessaries can recover in quasi contract for the reasonable value of the goods/services rendered

Necessaries include:

Food, clother, shelter & medical care needed for survival

Legal representation in connection with incompetency proceedings

21

What are the types of misrepresentation as a defense to a K?

  1. Fraudulent Misrepresentation
  2. Non-fraudulent misrepresentation
  3. Fraudulent Nondisclosure

22

What are the elements for fraudulent misrepresentation?

  1. a misrepresentation
  2. a wrongful state of mind
  3. Materiality of the misrepresentation
  4. Reasonable reliance on the misrepresentation

23

What are the requirements for "a misrepresentation" in fraudulent misrepresentation?

D must have made an assertion that is inconsistent with existing facts (just wasn't true)

Sufficient proof of the element would be:

  • oral or written misrepresentation 
  • fraudulent conduct as concealment
  • a half truth 

Misrepresentation is not:

  • broken promises rather only misstatements of existing facts
  • not opinions or questions
  • EXCEPTION - Professional opinions are treated as representation about the facts of the matter

24

What are the requirements for a wrongful state of mind?

  • Scienter is satisfied if D made the statement:
    • knowing it to be false
    • knowing he had no idea whether it was true or false
  • Intent to mislead requirement is satisfied if D made the assertion either:
    • first for the purpose of misleading the agrreived pty
    • know there was substantial likelihood that the aggreived pty would be misled

25

What are the different forms of materiality in fraudulent misrepresentation?

  1. Objective Materiality
    • Where such an assertion is likely to induce a reasonable persont o enter into a K
  2. Subjective Materiality
    • Where the pty making the assertion had reason to know it was likely to induce the particular aggreived pty into entering into the K

26

When is reliance unreasonable in fraudulent misrepresentation?

Unreasonable if:

  • aggrieved pty has independent knowledge that the statement in question is false
  • the aggreived pty reason to believe statement is made by an unreliable person
  • if no reasonable person would have believed the assertion
  • the aggreived pty could have easily ascertainthe truth by cursory inspection of the goods

27

What are the types of Non-Fraudulent Misrepresentation?

  1. Negligent misrepresentation
  2. Innocent misrepresentation

28

What are the elements of non-fraudulent missrepresentation?

  1. A misrepresentation
  2. Materiality of the misrepresentation
  3. Reasonable reliance on the misrepresentation

NOTE - Do not need "scienter" or "intent to mislead"

  1. State of mind
    • Negligent misrepresentation
      • D would have known the assertion was false if he had exercised reasonable care
    • Innocent misrepresentation
      • D simply made an assertion not in accord with existing facts

29

What is fraudulent nondisclosure?

The defendant’s silence when there was a duty to disclose

30

What are the elements of fraudulent nondisclosure?

  1. The nondisclosure was material to the contract
  2. Reasonable reliance on the nondisclosure
  3. A duty to disclose AND a failure to fulfill it
    • Duty to disclose if a pty is aware of material facts that are unlikely to be discovered by the other pty in the exercise of ordinary care & diligence:
      • where ptys enjoy a relationship of trust & confidence
      • when a pty has made an assertion that was true @ the time but has since been rendered untrue by intervening events
      • if the obligation of good faith would require the pty to disclose the info

31

What are the remedies for misrepresentation?

Available for all types:

  • use as a :shield" (avoidance)
    • All can be used as defenses to a breach of contract claim
  • use as a "sword" (rescission & reliance damages)
    • All can be used in a tort action for recession of the contract & also for damages resulting from reliance on the misrepresentation

Available for only fraudulent/non-fraudulent:

  • They may live with the contract & sue for the benefit of the bargain

Available only to fraudulent misrepresentation:

  • A party can seek punitive damages since it is an intentional tort (willful/malicious/intentional wrongdoing)

32

What the elements of duress?

Modern law:

  1. A threat
    • a manisfestation of intention to inflict harm on a person made in words or by conduct
  2. The threat is wrongful in nature
    • Three types of circumstances:
      • If what is threaten is either a crime or a tort
      • If what is threaten is a criminal prosecution or bad faith civil process
      • If what is threaten is a bad faith breach of K/economic duress
  3. There must be no reasonable choice but to succumb to the threat
    • Usually arise in economic duress cases in 3 situations:
      • Where there are no adequate & reasonably priced substitutes for the services or goods that are threaten to be withheld
      • When the threaten breached would caused the aggrieved party to break his own Ks
      • When the alternative of acquiesces to the threat & then suing for damages is inadequate to address the harm caused
  4. The aggrieved party must protest the threaten breach rather than acquiesce w/o complaint to the wrongful threat*********(this 4th element is only in minority jurisdictions)

33

What is the legal consequenc eof duress?

Avoidance:

  • Contracts made under physical compulsion are absolutely void & all other contracts are voidable

Restitution:

  • The aggrieved party is entitled to restitution of any benefits conferred on the other party so long as he likewise returns any benefits received

34

What are the elements to undue influence?

  1. Unfair persuasion used
    • Test include these factors:
      • Discussion of the transaction at an unusual or inappropriate time
      • Consummation of the transaction at an unusual place
      • Insistent demands that the transaction or business be finished immediately
      • Extreme emphasis on the untored consequences of delaying the transaction
      • The use of multiple persuaders against the target of persuasion
      • Absent of 3rd party advisors to the target of persuasion
      • Statements that there is no time to consult an advisor or attorney
  2. The other pty was vulnerable to such persuasion
    • Established if the following circumstances exist:
      • Where the mental infirmary is due to age or illness
      • Where the vilnerability is due to recent trauma or event
      • Where there is a relationship of trust or confidence

35

What is the legal consequence of undue influence?

  • The contract is voidable at the option of the aggrieved party
  • The aggrieved party is entitled to restitution of any benefits conferred to the other party so long as he likewise returns any benefits received

36

What are the elements of the unconscionability defense?

  1. Procedural unconscionability
  2. Substantice unconscionability

37

What is procedural unconscionability?

It is where the bargaining process created an absence of meaningful choice for the aggreived party (you didn't really have much say in the matter)

  • Types of Circumstances in which this occurs
    • Near miss cases
    • Absence of bargaining power
      • i.e. - adhesion K, pty weakened by poverty/language
    • Fine print terms - terms you need a magnifying glass to see

38

What is substantive unconscionability?

It is where the K terms are unreasonably favored to one pty of the K

  • Types of circumstances where this is found:
    • Grossly excessive price - @ some point it will be too excessive
    • Grossly disproportional consequences for a minor breach
    • Provisions binding on one pty but not another
      • seen alot in environmental K & arbitration clauses

39

What are the legal consequences of a finding of unconscionability?

The court may find:

  1. Refuse to enforce the contract altogether
  2. Excise the offending clause & enforce the remainder of the K
  3. Limit the application of the offending clause so as to avoid any unconscionable result

40

In what context can the defense of public policy be raised as a defense?

  1. When the subject of the K itself is specifically prohibited by law
    • i.e. - prostitution, bribery, gambling
  2. Where a K is formed for the purpose of committing a crime
    • i.e. - murder
  3. Where the K performance would constitute a tort
  4. Where the K performance would violate certain values & freedoms designated by the state
    • i.e. - selling organs on the black market

41

What are the sources of public policy (defense)?

  1. Legislation
  2. Judicial decisions
    • where the subject matter is not specifically prohibited by law but judicial plocies may be invoked
      • Moral & social values
        • K against marrying, selling organs, selling child
      • Economic consideration
        • i.e. - antitrust, K not to compete
      • Protection of governmental processes & institutions

42

How does the defense of public policy operate?

  • This defense is almost always used
  • When sucessful, D will win whether he was the pty promising to perform the PP violation of paying for it thus the pty attempting to enforce the K will be out of luck
    • EXCEPT
      • Where one pty has been more egregiously "in the wrong" than the other, the courts will allow an in pari delicto )not equally at fault) defense allowing the innocent pty to receove rstitution against the guiltier pty for any benefits conferred even though the K itself remains unenforceable
  • Voidable @ the option of the defending pty

43

Where would you most likely find a public policy defense?

  1. Noncompete Agreements
    • generally enforceable, they may be contrary to the PP of promoting a citizen's right to work
    • Should consider the extent the provision imposes an unreasonable geographic or durational barrier on the employee
  2. Sales of goods ia bribery
    • the victim of the bribe has a PP defense
  3. Sales of goods intended for unlawful use
    • if seller knows it is for unlawful use,l PP prohibits actions by the seller to get payment & action by the buyer for delivery
  4. Liability limitation provisions
    • provisions limiting liability restricting an injured pty's right against reckless or intentional harm will not be upheld
    • provisions that limit liability for negligent conduct is generally permissible
  5. Unlicensed goods for services