Defenses to Contract Formation (and Enforceability)

Question 1

what must you show to prevail on a defense of misunderstanding? (3)

Answer 1

1. The parties use a material term that is open to two or more reasonable interpretations
2. Each side attaches a different meaning to the term; and
3. neither party knows, or should know, of the confusion

void K

Question 2

Incapacity

Who lacks the capcity to make a K? Result?

Answer 2

1. Minors
2. People who are mentally ill: (1) the person cannot understnad the nature and consequnces of his actions or (2) the person cannot act in a reasonable manner in relation to the transaction (if the other side knows or has reason to know this)
3. Very intoxicated persons (if the other side knows or has reason to know)

K is voidable meaning the incapacitated party can disaffirm

Question 3

Incapacity

What must the incapacitate party pay with regard to a K for necessities (something you need to live [food, clothing, shelter])?

Answer 3

fair value

Question 4

Incapacity

How can an incapacitated person ratify a deal?

Answer 4

by keeping the benefits of the K after capacity is obtained

Question 5

Mistake

What is a mistake?

Answer 5

a belief that is not in accord with a present fact

Question 6

Mistake

How is a mutual mistake proven? What is the remedy?

Answer 6

Allows the adversely affected party to rescind if:
1. There is a mistake of fact, existing at the time that the deal is made;
2. the mistake relates to a basic assumption of the K and has a material impact on the deal
3. the impacted party did not bear the risk of mistake

Reformation is also available

Question 7

Mistake

How is unilateral mistake proven? what remedy?

Answer 7

Adversely affected party can rescind if:
1. She can prove all the elements of mutual mistake; and
2. either (1) the mistake would make the contract unconscionable; or (2) the other side knew of, had reason to know of, or caused the mistake

One should note that the second element essentially makes it a fraud or nondisclosure argument. A unilateral mistake alone will not be enough to invalidate a K

Question 8

Fraud, Misrepresentation, Non-Disclosure

Misrepresentation elements? (3)

Answer 8

1. A misrepresentation (untrue statement at the time of contracting) of a present fact (not opinion);
2. That is material OR fraudulent (intentional);
3. That is made under circumstances in which it is justifiable to rely on the misrepresentation

can be intentional or accidental

Question 9

What is fraud in the execution?

Answer 9

you trick someone into signing something that they do not even know is a K

Question 10

Nondisclosure?

Answer 10

the other party does not learn the truth about something, but now you just remain quiet. Normally, you do not need to tell the other side about all material facts related to the deal unless there is a special fiduciary relationship or active concealment

buyer beware no longer applies to the sale of a residence

Question 11

How can someone prevail on a duress defense?

Answer 11

where they can show an improper threat that deprives a party from making a meaningful choice to contract

economic duress arise when one party makes threats to induce another party to contract or modify a contract.

Question 12

Undue influence?

Answer 12

arises when a party puts very intense sales pressure on another party, who often seems weak-minded or susceptible to high-pressure sales tactics

Question 13

Defenses to ENFORCEABILITY (do not affect meeting of minds)

Can an illegal contract be enforced? what about one entered in futherance of an illegal acts (which is not illegal itself)?

Answer 13

1. No
2. Yes

Question 14

Defenses to ENFORCEABILITY (do not affect meeting of minds)

Result of an illegal K?

Answer 14

typically the law will leave the parties where they stand but there is a modern trend toward allowing the less-guilty parties to recover restitution.

Question 15

Defenses to ENFORCEABILITY (do not affect meeting of minds)

What is a K against public policy?

Answer 15

Not formally illegal but present some other policy concern

Question 16

Defenses to ENFORCEABILITY (do not affect meeting of minds)

What is unconsionability? How is it proven?

Answer 16

under the UCC, a K or term is unconscionable when no reaonsble person in the position of the party would have agreed to it.

Two parts:
1. Procedural: a defect in the bargaining process itself. Usually a hidden term (suprise; shock the conscience), or an absence of meaningful choice (no other option)
2. Substantive: a rip-off. egregiously one-sided.

Some jurisdictions require both. Does VA?