Defenses Flashcards Preview

Contracts > Defenses > Flashcards

Flashcards in Defenses Deck (49):

2 types of incapactiy

1. Infancy/Minors
2. Mental Incapacity


6 categories defenses available for enforcement of contract ...

1. Capacity
2. Misrepresentation
3. Duress
4. Undue Influence
5. Unconscionability
6. Public Policy/Illegality
common law and UCC


An Infant/Minor is

Any person under the age of 18


Rule for Minor contracts

Minors may enter into a contract but it is voidable at the minor’s option


Validity of contracts for minors who are married or emancipated?

(a) The majority rule: minors enjoy the power of avoidance even if emancipated or married
(b) The minority rule: eliminates defense


What happens if a minor avoids a contract? What if there is damage to property?

The majority rule is that the minor must return the goods if they are in his possession when he disaffirms the contract, but he is not liable for damage, wear and tear, or any depreciation in value


What happens if contract between a minor and another party occurs for something that cannot be returned, such as a services contract or a lease

Under no further obligation to compensate the other party.


Minority rule on minor avoidance of contracts

the minor would be liable for: depreciation, damages, and compensation for services recieved


How can a minor ratify a contract?

Once minors turn 18 they may expressly or impliedly ratify contracts enter into during minority and thus bind themselves


Rule for Minor contracts for necessaries

A minor’s contract for necessaries: is voidable but the merchant has a quasi-contract right to recover the reasonable value of the goods or services


Necessaries for a minor are:

food, clothing, shelter, medical care


When will lack of capacity serve as a defense?

if he was mentally incompetent at the time of contracting.


Requirements for Mental incompetence

1. Adjudicated incompetent;
2. Cognitive Defects


Cognitive Defects require proving that

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


Volitional Defects can establish incompetence if

a) A person is unable to act in a reasonable manner in relation to the transaction; and,
b) The other party has reason to know of this condition


Legal Consequences of the Mental Incompetence Defense depends upon

whether the party has been adjudicated mentally incompetent
(a) If there’s been an adjudication of mental incompetence: contracts are all together void
(b) If there’s been no such adjudication: contracts are voidable at the option of the incompetent party


How can a mentally incompetent person ratify a contract

A party who is mentally incompetent at formation may expressly or impliedly ratify the contract if he later becomes competent


What is the mentally incompetent's party duty to seller if they avoid the contract and receive a benefit?

he is required to pay the reasonable value of the goods or services rendered


What is due to a seller that takes advantage of a person's incompetence?

the incompetent person is only required to return benefits still in his possession


Categories of misrepresentation

1. Fraudulent Misrepresentation
2. Non-Fraudulent Misrepresentation
3. Fraudulent Non-Disclosure


Elements of Fraudulent Misrepresentation

1. There is a misrepresentation of an existing fact (oral, written, concealment, half-truth)

2. State of Mind (know's the fact is false/has no idea + purposely misleading/likely be mislead)

3. Materiality of the misrepresented fact to bring person into contract

4. Reasonable Reliance on the Misrepresentation by the aggrieved party


Can opinions be misrepresentations?

No, unless it is a professional opinion


Negligent Misrepresentation Elements

(a) Element #1: Misrepresentation
(b) Element #2: Materiality
(c) Element #3: Reasonable Reliance
(d) ∆ should have known the assertion was false


Innocent Misrepresentation Elements

(a) Element #1: Misrepresentation
(b) Element #2: Materiality
(c) Element #3: Reasonable Reliance
(d) ∆ made an assertion that is not in accord with existing facts


Fraudulent Nondisclosure elements

(a) Element #1: Nondisclosure was material to contract
(b) Element #2: Reasonable reliance on non-disclosure
(c) Element #3: A duty of disclosure and a failure to fulfill it


When does a party have the duty to disclose?

if a party is aware of material facts that are unlikely to be discovered by the other party in the exercise of ordinary care and diligence, then there will be a duty to disclose that information in these circumstances:

(a) Where the parties enjoy a relationship of trust and confidence (attorney, trustee)
(b) Where the party has made an assertion that was true at the time but has been rendered untrue by in-tervening events
(c) If the obligation of good faith would require the party disclose the information


Remedies that apply for misrepresentation all types of misrepresentation

(1) Use as a “shield” (avoidance): can all be used as defenses to a breach of contract claim
(2) Use as a “sword” (rescission and reliance damages): they may all be used as an action for recession of the contract and for reliance damages.


What’s available to fraudulent and non-fraudulent misrepresentation but not fraudulent nondisclosure?

A party may live with the contract and instead sue for the benefit of the bargain (warranty)


What’s available to fraudulent misrepresentation but not to the other two types of misrepresentation?

Party may be able to seek punitive damages since it is an intentional tort


Duress Elements

1. Threat:
2. If the threat is wrongful in nature
3. There is no reasonable choice but to succumb to the threat


Threats that are wrongful in nature

(a) if what is threatened is a crime or a tort
(b) if what is threatened is a criminal prosecution or a bad faith civil process
(c) Economic duress (a bad faith breach of contract)


What is a threat?

: A manifestation of an intent to inflict harm on another person made by words or Conduct


How to distinguish a bad-faith threat of breach of contract from a good-faith demand

if the demand is due to increased burden caused by unanticipated circumstances, there is no duress


Economic Duress is reasonable to succumb to if

Situation #1: No adequate nor reasonably price substitutes for services or goods threatened to be with-held
Situation #2: If the threatened breach would cause the party to break his own contract
Situation #3: When the alternative of acquiescing to the threat and suing for damages is inadequate


Legal Consequences of physical Duress?

Contract is persumptively void


Legal consequences/remedies for duress?

a. Avoidance: contracts made under physical compulsion are void and all other contracts are voidable
b. Restitution: The aggrieved party is entitled to restitution of any benefits conferred as long as he returns any benefits received


Undue Influence Elements

1. Unfair Persuasion; and
2. The other party was vulnerable to such persuasion


Factor test for unfair persuasion

(a) Discussion of the transaction at an unusual or inappropriate time
(b) Consummation of the transaction at an unusual place
(c) Insistent demands that the transaction be completed immediately
(d) Extreme emphasis on the negative consequences of delaying the transaction
(e) The use of multiple persuaders
(f) Absence of third party advisors
(g) Statements that there is no time to consult advisors or attorneys


When can a party be considered vulnerable for undue influence?

(a) Circumstance #1: Vulnerability is due to some recent trauma or event
(b) Circumstance #2: Where the mental infirmity is due to age or illness
(c) Circumstance #3: Where there is a relationship of trust or confidence


Legal Consequences of Undue Influence

a. The contract is voidable by the aggrieved party
b. The aggrieved party is entitled to restitution of any benefits conferred as long as he returns any benefits received


The elements of unconscionability defense

1. procedural unconscionability
2. Substantive unconscionability


What circumstances bring about procedural unconscionability?

Circumstance #1: Near miss cases (close to incompetent or duress)
Circumstance #2: Absence of bargaining power


When is a contract substantively unconscionable?

the terms are unreasonably favorable to one party to the contract
Circumstance #1: Grossly excessive price
Circumstance #2: Grossly disproportionate consequences for a minor breach
Circumstance #3: Provisions binding on one party but not the other
Circumstance #4: Provisions that are grossly unfair


Upon a finding of unconscionability, the court may:

(1) Refuse to enforce the contract;
(2) Blue pencil the offending clause
(3) Limit the application of the offending clause so as to avoid any unconscionable result


Public policy may be raised as a defense to the enforcement of a contract in the following four contexts

1. Where the subject of the contract itself is explicitly prohibited by law (prostitution, gambling)
2. Where a contract is formed for the purpose of committing a crime.
3. Where the contract performance would constitute a tort.
4. Where the contract performance would violate certain values and freedoms designated by the state.


Sources of Public Policy Defenses

1. Legislation
2. Judicial Decisions


What may judicial decisions base their public policies upon

(a) Moral and social values
(b) Economic considerations
(c) Protection of governmental processes and institutions


What is the result of a public policy defense that is successful?

the ∆ wins irrespective of whether he promised to perform the public policy violation or pay for it


A contract that is subject to the defense of public policy is?

void if illegal and otherwise voidable