Contracts II Unit 8 and On Flashcards
(125 cards)
1
Q
Mental incompetence is determined when?
A
at the time of contracting
2
Q
The law presumes that ______ are competent to contract
A
adults; must rebut this presumption by proving severe mental incapacity (cannot form rational contractual intent)
3
Q
the cognitive test rule [Sect. 15(1)(a)]
A
IF at the time of contracting, the party was unable to understand the nature AND the consequences of the transaction THEN the contract may be avoided
4
Q
the motivational test [Sect. 15(1)(b)]
A
IF the party is unable to act in a reasonable manner in relation to the transaction AND IF the other party has reason to know of this condition THEN a party may avoid a contract
5
Q
what is the goal of the “motivational/volitional” test?
A
to protect the reliance interest of the other party who had no reason to know of the condition
6
Q
a “voidable” contract is
A
one where a party has discretion over whether to have the agreement rescinded or seek judicial rescission
7
Q
rule for minor/major voidability:
A
the rule is that the infant makes a contract voidable at the election of the minor
8
Q
Restatement 2d Section 14: Infancy
A
Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday
9
Q
as a matter of public policy, what does it mean for a contract to be “void”?
A
if “void,” a contract may NOT be enforced by either party; determined by a judge as a matter of law
10
Q
Rule for “disaffirming” (after reaching the age of majority)
A
IF a minor has reached the age of majority AND IF they raise the incapacity defense within a reasonable time THEN they may disaffirm the contract under the defense of incapacity
11
Q
Rule for “reaffirming”
A
IF a minor has reached the age of majority AND IF the party reaffirms orally OR IF a court could determine the contract was ratified by their conduct THEN a minor will be deemed to have reaffirmed the contract they entered into as a minor EXCEPT WHERE they disaffirm within a reasonable time after reaching the age of majority
12
Q
What does the restoration of consideration look like for each party after disaffirmation?
A
For the minor: they must return the goods still in their possession AND they receive the full $ back
For the adult (seller): they must return the full amount of the $ previously received AND receive what goods if any that are left in the minors possession
13
Q
what is a “necessary”
A
a necessary includes whatever goods or services (in addition to food, water, shelter, and medical care) that are needed for the minor’s livelihood and well-being in accordance with reasonable standards of living, OR appropriate to the minor’s own circumstances and standard of living (EXCLUDING luxuries)
14
Q
what is a “necessity”
A
traditionally includes food, clothing, shelter, and medical services (a minor must be unable to attain these things elsewhere)
15
Q
How do we prove incapacity?
A
the party must demonstrate that 1. the condition existed at the time of contracting and 2. that the condition was in nature and extent severe enough to preclude an adequate degree of assent
16
Q
Rule for relief following disaffirmation
A
IF a contract was made and IF it was between parties of full contractual capacity AND IF the contract is avoided THEN each party must restore whatever was received from the other under the avoided contract
17
Q
In assessing mental capacity, a court may examine:
A
the credibility of conflicting medical opinions and diagnoses, observations of the party’s conduct, degree of comprehension, and the nature of the contract
18
Q
Actionable Mental Incapacity
A
psychiatrically diagnosed mental illness or incompetence
19
Q
contracts with minors and mentally incompetent persons are ________
A
VOIDABLE not void
20
Q
a contract with a mentally incompetent person may “hang in the balance until…”
A
- the contract is disaffirmed OR
- the incapacity abates and the formerly incompetent party (or their guardian) affirms it
21
Q
Incapacity and Intoxication Rule
A
Relief may be granted where the contracting party did not: 1. understand the nature and consequences OR 2. act reasonably in relation to the transaction AND the other party had reason to know they were impaired
22
Q
Rule for Duress
A
IF a party is the victim AND IF their manifestation of assent is induced AND IF the threat is made by the other party improperly AND IF the threat leaves the victim with no reasonable alternative THEN the contract is voidable
23
Q
What are the three elements of Duress?
A
- Inducement
- Improper threat
- No reasonable alternative
24
Q
Inducement:
A
whether a person’s will has been overcome by a subjective standard; BUT FOR the
improper threat the victim would not have entered the contract
25
A threat is improper if:
1. what is threatened is a crime or a tort
2. criminal prosecution/ or threat of civil process
3. threat is made in bad faith
4. threat is a breach of duty of good faith and fair dealing under the contract
26
"No reasonable alternative" would be found by a court IF
the alternative to litigation would cause immediate and irreparable loss to one's economic or business interests
27
Physical duress
IF a party is physically compelled by duress to enter the agreement THEN the contract is VOID
28
Economic duress
IF one contracting party took advantage of another's economic circumstances AND IF it was an improper threat THEN a contract is VOIDABLE for economic duress
29
Inducement
1. judged by a SUBjective standard
2. The undue influence must substantially contribute to the victim’s decision to enter the contract
30
Unfair persuasion
when persuasion crosses the line into coercion, it is "unfair"; Typically, a court will look at the surrounding circumstances to determine if the dominant party tried to play upon the other person’s “mental, moral, or emotional weakness"
31
caveat emptor
"let the buyer beware" - gets the seller off the hook
32
Undue susceptibility (two things)
Undue susceptibility to domination by another party may be present either because there is (1) some weakness in the mind or (2) the parties are in a
relationship of trust
33
Four "Unfairness" factors considered by the court:
1. econ consequences to the victim
2. divergence from victims prior intent in the dealing
3. relationship of the value conveyed to the value of any services or consideration received OR
4. was the change appropriate in light of the LENGTH and NATURE of the relationship?
34
Elements of "over persuasion" from Odorizzi (7)
(1) discussion of the transaction at an
unusual or inappropriate time, (2) consummation of the transaction in an
unusual place, (3) insistent demand that the business be finished at once, (4)
extreme emphasis on untoward consequences of delay, (5) the use of
multiple persuaders by the dominant side against a single servient party, (6)
absence of third-party advisers to the servient party, (7) statements that
there is no time to consult financial advisers or attorneys
35
What kind of liability is a breach of contract?
Strict Liability - liable without fault
36
a decree of rescission:
an equitable remedy; can VOID a contract
37
What two kinds of remedies have we discussed?
Legal remedy or equitable/money remedy
38
benefit/use rule:
upon rescission, recovery of the full purchase price is subject to a deduction for the minor's use of the merchandise
39
ratification doctrine
because you did not disavow an action, you are responsible for your conduct
40
Article 1-103(b)
Unless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, and other validating or invalidating cause supplement its provisions
41
Article 1-303
course of performance and course of dealing defined in the U.C.C.
42
necessary "exception" doctrine:
an exception to the minor incapacity doctrine - when the item/good/service was a necessary for the minor
43
emancipation/emancipated:
a situation in which a minor lives independently of of parents and is not supported by them; or marriage or military enlistment
44
In what ways can the court "police" behavior in contract formation?
Through the doctrines of misrepresentation, duress, undue influence, and unconscionability
45
"misrepresentation" (Re2d Sect. 159)
an assertion not in accord with the facts; a factually incorrect representation made by one of the parties at the time of contracting
46
Misrepresentation as conduct:
at or before contract formation, could be conduct objectively interpreted as conveying false statement of a fact
47
What are the three categories of misrepresentations?
1. lie (untruth), 2. active concealment, 3. duty/nondisclosure = (fact doesn't exist)
48
In GA, Title 39 is the _____ statute
minor
49
Rule for rescinding based on fraudulent misrepresentation
IF one party intentionally makes a false statement of a fact AND IF the misrepresentation induces another manifestation of assent THEN the deceived party may be able to rescind the agreement based on FM
50
Fraud in Factum: Re. 2d sect. 163
(rare; usually pertains to loan docs)
VOID agreement; misrepresenting what the party is signing to them
51
Opinions as Misrepresentation of Fact:
Generally: opinions are not normally ACTIONABLE UNLESS an expert expresses a favorable opinion, AND IF his or her opinion is in reality unfavorable, THEN relief is available
52
Active concealment/Tort of deceit OCGA 51-6-2
a misrepresentation must usually be intentionally false and intended to deceive ("scienter"); COA seeking $ damages for injury
53
Equitable remedies are distinguishable from legal remedies in that equitable remedies:
specific action or specific forbearance; legal is monetary
54
Material Misrepresentation Rule (Sect. 162.2)
A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases ONLY:
(a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
(b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
(c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
(d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.
55
Rule for avoidance based on Nondisclosure
1. the ND must materially affect the value of the transaction AND
2. not be readily observable or known to the uninformed party
56
Three most common remedies for Misrepresentation and Nondisclosure
1. rescission (restore)
2. reformation (rewrite)
3. RARELY sue for damages
57
A misrepresentation is a material IF
a reasonable person would likely be induced by the misrepresentation to enter into the contract OR the maker knows the recipient is more likely than not to be induced where a reasonable person may not
58
Rule for Duty to Disclose:
IF the circumstances create a duty to speak AND IF a party conceals or is silent about a material fact AND IF this fact is one that the party is bound in good faith to disclose THEN the party may be liable for fraud/misrepresentation
59
The elements of "misrepresentation"
(1) made a statement of fact (not opinion); (2) the statement was material; (3) the statement was false; (4) the defendant knew it was false (5) the DEF intended to induce reliance on the statement; (6) the plaintiff actually relied on the statement; (7) his or her reliance was reasonable; and (8) the plaintiff suffered some actual pecuniary loss as a result of its reliance
60
misrepresentation defined
a false statement of fact that exists at the time the contract is made; OR conduct that is objectively OR subjectively* interpreted as conveying a false statement
61
Objective (material) misrepresentation
A reasonable person would likely be induced by the misrepresentation to enter the contract
62
Subjective (material) misrepresentation
The maker knows that this specific recipient would likely be induced by the representation to enter the contract even though a reasonable person might not be so induced
63
What is inducement?
that the misrepresentation
must have occurred at or before contract formation
64
When nondisclosure is equivalent to an assertion:
Re 2d Sect. 161
65
Re 2d Sect. 166/Sect. 2-716
"buyers right to specific performance" (remedy of specific performance) when a misrepresentation as to a writing justifies reformation
66
Concealment Restatement: when action is equivalent to an assertion
Re 2d Sect. 160
67
Sect. 160 cont'd: nondisclosure
Concealment necessarily involves an element of non-disclosure, but it is the act of preventing another from =learning of a fact that is significant and this act is always equivalent to a misrepresentation
68
Elements of Inducement:
1) If the misrepresentation
“substantially contributes” to a party’s decision to enter the contract, AND
2) the party must have relied on the misrepresentation as
being true in their decision to enter the contract
3) then the party was induced by the misrepresentation
69
Fraud in the "factum"
when someone tricks a victim into signing a meaningful agreement by making it appear that he or she is signing a completely different document, such as an innocuous letter or a receipt
70
3 situations in which a seller has a "duty to disclose":
1. where the disclosure is necessary to correct an earlier statement
2. when he KNOWS that the disclosure will correct a mistake of the other party concerning one of their basic assumptions about the deal
3. when the parties have a confidential or fiduciary relationship with one another
71
What is the court's discretionary power to not enforce an unconscionable clause?
severance
72
What is the effect of the "no reliance" clause?
parties may include written terms specifying the extent to which they have relied on one another's representations
73
Multi-Factor Soft Balancing Test for excessive pressure/unfair persuasion
1) discussion of the transaction at an unusual or inappropriate time
2) consumption of the transaction in an unusual place
3) insistent demand that the business be finished at once
4) extreme emphasis on untoward consequences of delay
5) the use of multiple persuaders by the dominant side against a single subservient party
6) absence of 3rd party advisers to the subservient party
7) statements that there is no time to consult financial advisors or attorneys
74
Issue of Justifiable Reliance
whether the recipient
knew or should have known about the falsity of the statement. If the
recipient should have known the representation was false but was
consciously ignorant, then their reliance was not justified
75
The U.C.C. § 2-316 prevents enforcement of a disclaimer that contradicts an express warranty subject to the effect of the ______ __________ ____.
parol evidence rule (hearsay in contract law)
76
The parol evidence rule does apply where the misrepresentation is not included in writing BUT:
was allegedly made orally before or at the time of execution of the written contract OR made in prior written communication
77
Foster v. Cross - "material fact"
is one to which a reasonable man might be expected to
attach importance in making his choice of action
78
burden of proof in a civil case
preponderance of evidence
79
Comment E of Section 79 - Economic Duress
gross inadequacy of consideration in a context of usury, overreaching, and misrepresentation (EX: grocery shopper overpriced $200 scrip)
80
Usury defined:
the illegal practice or action of lending money at unreasonably high rates of interest
81
Economic duress (improper threat) Sect. 176
VOIDABLE; type of unfair bargaining tactic that uses financial pressure to induce an agreement (improper breach/modification)
82
Physical duress
VOID; when the party has their free will taken from them; is limited to situations where one of the parties physically controls the other party's actions, such as by taking the victim's hand and moving it on the piece of paper while the victim signs,281 or, in some jurisdictions, a threat of imminent physical harm.
83
Re2d Sect. 177 Undue Influence Defined
(1) Undue influence is UNFAIR persuasion of a party who is under the domination of the person exercising the persuasion OR who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.
84
Re2d Sect. 177 Undue Influence RULE
(2) IF a party's manifestation of assent is induced by undue influence by the other party, OR
(3) IF a party's manifestation of assent is induced by one who is not a party to the transaction, THEN the contract is voidable by the victim UNLESS the other party to the transaction in good faith AND without reason to know of the undue influence EITHER gives value OR relies materially on the transaction.
85
Re. 2d Sect. 162: defining knowledge of falsity
1) an assertion made with ACTUAL knowledge that is not in accord with the facts
2) an assertion made without confidence in its truth OR w/out a known basis in fact
86
Re 2d 164: When Misrepresentation Makes a Contract Voidable
1) if a party’s manifestation of assent is induced by
2) Fraudulent or material misrepresentation
3) that the other party justifiably relied upon THEN
the contract is voidable by the recipient
87
Where can one locate unconscionability in Article II of the UCC
U.C.C. § 2-302; permits courts to determine that a contract or a clause in a contract is unconscionable
88
procedural unconscionability defined:
(take-it-or-leave-it) when one of the parties lacked a meaningful choice when entering into the contract
89
substantive unconscionability defined:
when the contracts terms are oppressively one-sided + great price disparity
90
Re2d Sect. 208 Comment d
If a contract or term is unconscionable at the time of contracting THEN a court may refuse to enforce the contract OR enforce w/out unconscionable term OR limit application of the unconscionable term to avoid an UC result
91
According to Article II of the UCC comment 1 of Sect. 2.302, the purpose of the unconscionability doctrine is:
to prevent oppression and unfair surprise BUT not to disturb the allocation of risks bc of superior bargaining power
92
What is an "adhesive" contract and what does it do in some jurisdictions?
a take-it-or-leave-it contract; in Cali, adhesive nature of a contract alone is enough to satisfy the first prong of UnCon
93
Rule for Causality and Unconscionability:
a court will not usually inquire into the adequacy of the contractual exchange UNLESS the unequal exchange was CAUSED by behavior that qualifies as procedurally unconscionable, the parties WILL be held to their manifested agreement UNLESS the terms are grossly oppressive that it is evidenced in the opportunistic use of a position of dominance
94
An honest opinion that is erroneous is __________________.
NOT misrepresentation
95
subrogation defined:
the substitution of one person or group by another in respect of a debt or insurance claim, accompanied by the transfer of any associated rights and duties
96
Typical circumstances in which a nondisclosure issue might occur (4)
1. disclosure required by statute
2. intentional concealment
3. relationships of trust and confidence
4. duty to disclose in order to prevent or correct a mistake
97
Mullis v. Speight Seed 1998:
98
Contracts that are void ab initio:
"void from the beginning" 1. public policy 2. illegality
3. physical duress 4. fraud in the factum
99
Rule of Reasonableness: Re. 2d Sect. 186: restraints on trade
IF a promise unreasonably restrains free trade OR IF the performance of the promise would limit competition in any business OR IF the promise would restrict the promisor in the exercise of gainful occupation THEN the promise is unenforceable on the PP grounds
100
Re. 2d Sect. 197-199 rule for restitution NOT being available
IF a contract is voidable by PP THEN a party may not claim restitution for performance rendered UNLESS
1. a disproportionate forfeiture would occur absent restitution
2. one party is EXCUSEABLY ignorant of the PP
3. one party was not equally at fault OR
4. one party withdrew from performance before "improper purpose" was achieved
101
Reasonability factors in non-compete employment agreements:
Restraint is reasonable WHEN
1. legitimate interest of the promises
2. whether imposes hardship on the promisor
3. injury to the public
102
blue-penciling:
to modify unreasonable terms in an agreement to make it complicit with public policy
103
Re 2d Sect. 188: Ancillary Restraints on Competition
104
Re 2d §186: Restraints on Trade
(1)A promise is unenforceable on grounds of public policy if it is
unreasonably in restraint of trade.
(2) A promise is in restraint of trade if its performance would limit
competition in any business or restrict the promisor in the exercise
of a gainful occupation.
105
"reasonableness" factors for non-compete agreements:
1. reasonable time
2. reasonable territorial complaints
106
in pari delicto rule:
where parties share the guilt of entering an illegal contract; aff defense to claim based on an illegal contract
107
test the validity of the agreement by filing a:
declaratory judgment; IF there is a declaratory judgment statute
108
injunction - equitable remedy
a "stop" motion to the court
109
Rule of Reasonableness: CL Rule
restraint of trade; (1) IF restraint is greater than necessary to protect the employer's legitimate interest OR (2) IF that interest is outweighed by the hardship to the employee AND IF (3) likely to injure the public
110
in terrorem effect:
threats to impede or interfere with employee's mobility
111
Re 2d § 184: when the rest of agreement is enforceable
(1) If less than all of an agreement is unenforceable under the rule stated in § 178, a court may nevertheless enforce the rest of the agreement in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange.
(2) A court may treat only part of a term as unenforceable under the rule stated in Subsection (1) if the party who seeks to enforce the term obtained it in good faith and in accordance with reasonable standards of fair dealing.
112
O.C.G.A. 13-8-50:
reasonable restrictive covenants contained in employment and commercial contracts serve the legitimate purpose of protecting legitimate business interests and creating an environment that is favorable to attracting commercial enterprises to Georgia and keeping existing businesses within the state
113
Generally: non-competes that restrict the freedom of trade are unenforceable except
by following the rule of reasonableness
114
U.C.C. Sect. 2.601-602:
Perfect Tender Rule;
115
course of performance
extreinsic evidence particular to the agreement at hand
116
course of dealing
extrinsic evidence from prior agreements that have relevance
117
Re. 2d §235(2) - breach
When performance of a duty under a contract is due any non-performance
is a breach
118
Partial breach
Minor deviations where
the breaching party has substantially performed; IF the breach is
partial, then the non-breaching party must still perform their side of
the bargain, though they may seek damages for any loss suffered.
119
Material breach
when a party has not
substantially performed; allows the non-breaching party to suspend performance and then provide an
opportunity for the other party to cure their breach
IF the breaching party cures the material breach, THEN the material breach has become a partial breach. If the breaching party does not cure the material breach, then it ripens into a total breach.
120
Balancing of Equities: Re. 2d Sect. 241
Was the failure material? - consider the following:
(a) extent to which party expecting a benefit will be deprived
(b) extent to which injured party can be adequately compensated for partial deprivation
(c) extent to which party that failed to perform will suffer forfeiture
(d) likelihood of cure by failing party in light of all reasonable circumst.
(e) extent to which failing party comports to standards of good faith and fair dealing
121
§ 241 cmt a.
No single factor is dispositive
122
Assumptions of the parties to add to a contract in MISTAKE:
Recitals/premises, warranties, representations of the parties, inspection clause, merger clause, or a release
EXCEPT mutual mistake will serve as a defense even mean a MERGER clause is included
123
Problems with a "release" agreement and Remedies
may have agreed to inadequate terms of release not know to the injured party until they discover; INSURANCE releases
Remedies: 1. seek to have release interpreted favorably
2. ambiguity - should be interpreted against the drafter
3. reformation - "release incorrectly states the agreement"
4. PP fairness reasons from the court for obscure or misleading language
124
Unilateral mistakes are not grounds for avoidance UNLESS
when a party knows that the other party is mistaken, he has the duty to disclose his knowledge of "a known latent defect in quality or title" (re. 2d 161 cmt. d)
125
