Defenses

Question 0

Incapacity - Types

Answer 0

Infancy

Mental Incompetence

Question 1

Defenses in Contracts - List Broad Categories

Answer 1

1. Incapacity
2. Misrepresentation
3. Duress
4. Undue Influence
5. Unconscionability
6. Public Policy

Question 2

Modern Rule re Infancy

Answer 2

Minors may enter into a contract but the contract is voidable at the option of the minor.

Majority is that even emancipated or married minors still hold the power of avoidance.

Minority Rule is that emancipated or married minors do not have the power of avoidance

Question 3

Exercising the Power of Avoidance/Disaffirmance

Answer 3

Majority Rule: Minor must return goods received under the contract but not liable for damage, wear, or any other depreciation. Where the contract provides for something that cannot be returned - services, lease - the minor is under no further obligation to compensate the other party.

A minority will hold the minor liable for damages and depreciation and compensation for services received.

Question 4

Ratification upon reaching the age of majority

Answer 4

Once a minor reaches the age of majority they may expressly or impliedly ratify the contract entered into during minority and be bound by the obligations.

Question 5

Exceptions to the minors power of avoidance

Answer 5

1. Necessaries - contract for necessaries is voidable by the minor but the merchant may retain a quasi contract right to the reasonable goods or services for Necessaries - food, clothing, shelter or medical care. Some also consider education and an automobile.
2. Misrepresentation by a minor - Where a minor has misrepresented his age to obtain goods or services, he may be equitably estopped from proving his age in court and preventing him from exercising his power of disaffirmance.

Question 6

Mental Incompetence - Modern Rule

Answer 6

A person lacks the capacity to enter into a contract if he was mentally incompetent AT THE TIME of contracting.

Question 7

How to establish Mental Incompetence

Answer 7

1. Prior adjudication as incompetent.
2. Cognitive Defects - individual is unable to understand in a reasonable manner the nature and consequences of the transaction.
3. Volitional Defects - person is unable to act in a reasonable manner with respect to the transaction AND the other party has reason to know of this condition.

Question 8

Legal Consequences of Incompetence Defense

Answer 8

Adjudicated incompetent: Contract is altogether void.

No adjudication of incompetence: Voidable at the option of the incompetent party.

An incompetent may expressly or impliedly ratify the contract if he later becomes competent.

The incompetent will have a duty of restitution if he exercised his power of avoidance and received some benefits under the contract he must make the other party whole and pay reasonable value for the goods or services. EXCEPT where the incompetent was taken unfair advantage of. There the party is only entitled to the benefits still in possession of the incompetent party.

Question 9

Contract for Necessaries for an Incompetent

Answer 9

Contract can be disaffirmed but the provider of goods or services can recover in quasi contract for the reasonable value of the goods or services rendered.

Legal representation in an incompetency proceeding is considered one of the necessaries.

Question 10

Types of Misrepresentation - list

Answer 10

Fraudulent Misrepresentation
Non-Fraudulent Misrepresentation - negligent and innocent
Fraudulent Non-Disclosure

Question 11

Fraudulent Misrepresentation - Elements

Answer 11

1. A Misrepresentation
2. Wrongful State of Mind
   a. Scienter
   b. intent to mislead
3. Materiality of the Misrepresentation
4. Reasonable reliance on the misrepresentation

Question 12

Misrepresentation element defined

Answer 12

An assertion that is inconsistent with existing facts.

May be oral or written,
Fraudulent Conduct
half truths

but not:
broken promises, opinions or guesses
Unless such opinion is a professional opinion and is treated as a fact about a matter.

Question 13

Satisfying the requirement of Scienter

Answer 13

If the assertion is made knowing it is false or

made with the knowledge that he had no idea whether the statement was true of false.

Question 14

Satisfying the Intent To Mislead Element

Answer 14

Assertion was made for the purpose of misleading the other party

OR

Knowing that there was a SUBSTANTIAL LIKELIHOOD that the other party would be misled

Question 15

Materiality of the Misrepresentation is satisfied by

Answer 15

1. Objective Materiality - where the assertion is likely to induce a reasonable person to enter into a contract.

OR

2. Subjective Materiality - Where the party making the assertion had reason to know the assertion was likely to induce the particular person to enter into a contract.

Question 16

Examples of UN-Reasonable reliance on a misrepresentation

Answer 16

1. Aggrieved party had independent knowledge or reason to know the statement was false.
2. Aggrieved party had reason to know that the person making the statement was unreliable.
3. If no reasonable person would believe the statement was true.
4. If the aggrieved person could have ascertained the truth by cursory inspection of the goods.

Question 17

2 types of Non-Fraudulent Misrepresentation

Answer 17

Negligent Misrepresentation

Innocent Misrepresentation

Question 18

Elements of Non-Fraudulent Misrepresentation

Answer 18

1. A misrepresentation
2. Materiality of the Misrepresentation
3. Reasonable reliance on the misrepresentation
4. Negligent state of mind - D would have known the statement was false with the exercise of reasonable care.
   Innocent State of Mind - D made a statement that was not in accord with existing fact.

Question 19

Fraudulent NonDisclosure - Elements

Answer 19

Where D was silent when there is a duty to disclose

1. Non-disclosure was material to the contract
2. Reasonable reliance on the non-disclosure
3. Duty of disclosure and a failure to fulfill it.

Question 20

Duty of Disclosure

Answer 20

There is generally no duty to disclose to trading partners.

If however one party is aware of material facts that are unlikely to be discovered in the exercise of ordinary care and diligence, there will be a duty to disclose that information where:

1. the parties enjoy a relationship of trust and confidence.
2. where a party makes an assertion that is true at the time but later rendered untrue by intervening events.
3. If the obligation of good faith would require the disclosure

Question 21

Remedies for Misrepresentation

Answer 21

1. Shield defense for breach of contract claim
2. Sword in a tort action for recision and reliance damages

• Punitive Damages available to fraudulent misrepresentation (Intentional Tort)

**May live with the contract and sue for the benefit of the bargain in all cases except for non-disclosure.

Question 22

Defense of Duress Elements

Answer 22

1. A threat
2. Wrongful in Nature
3. No reasonable choice but to succumb to the threat

Question 23

Threat element of Duress Defense

Answer 23

Manifestation of an intent to inflict harm on the other party made by words or conduct.

Question 24

Threat that is wrongful in nature - circumstances

Answer 24

1. Threat is a crime or tort 2. threat of criminal or bad faith civil process 3. Bad Faith breach of contract threatened.

Question 25

No reasonable alternative but to succumb to threat Economic Duress Scenereos

Answer 25

1. No reasonably priced or adequate alternative to the product or service withheld. 2. Where threatened breach would result in a party breaching his own contracts. 3. Where acquiescing to the threat and suing for damages is inadequate to address the harm threatened.

Question 26

Legal Consequences of Duress Defense

Answer 26

Contracts made under physical duress are absolutely void All others are voidable. Aggrieved party is entitled to restitution of benefits conferred on the other party so long as he returns any benefits received

Question 27

Undue Influence - Elements

Answer 27

1. Unfair Persuasion used | 2. Other party was vulnerable to persuasion

Question 28

Factors determining whether unfair persuasion was used. (7)

Answer 28

1. Discussion of transaction at an unusual time 2. At an unusual place 3. Insistent demand that business be conducted immediately 4. extreme emphasis of untoward consequence for failure to consummate the transaction in the near term. 5. Use of multiple persuaders against the target. 6. Absence of 3rd party advisors 7 Statements that there is no time to consult advisors.

Question 29

Circumstances where the other party is vulnerable to persuasion

Answer 29

1. mental infirmity due to age or illness 2. vulnerability due to recent trauma or event 3. where there exists a relationship of trust or confidence

Question 30

Legal consequences of undue influence

Answer 30

Contract is voidable at the discretion of the aggrieved party Aggrieved party is entitled to restitution of any benefits conferred on the other party so long as he returns any benefits received from that party.

Question 31

Unconscionability Elements

Answer 31

Procedural Unconscionability | Substantive Unconscionability

Question 32

Definition of Procedural Unconsionability

Answer 32

Where the bargaining produced an absence of meaningful choice for the aggrieved party. Near-Miss Cases Absence of Bargaining power - adhesion contract or parties weakened by poverty or language barrier. Fine Print Contracts

Question 33

Substantive Unconscionability - Defined

Answer 33

Where contract terms are unreasonably favorable to one party to the contract. Can include: 1. Grossly excessive price 2. Grossly disproportionate consequences for relatively minor breach 3. Provisions binding one party but not another 4. Provisions which are grossly unfair

Question 34

Legal Consequences of a finding of Unconscionability

Answer 34

1. Court may refuse to enforce 2. Excise offending part of the contract and enforce the remainder 3. Limit the application of the offending clause so as to limit the Unconscionability.

Question 35

Contexts where Public Policy may be raised as a defense

Answer 35

1. Subject of contract is prohibited by law. 2. Contract formed for the purpose of committing a crime. 3. Where performance would constitute a tort 4. Where performance would violate certain values and freedoms designated by the state - limit marriage, etc.

Question 36

Sources of Public Policy (defense)

Answer 36

Legislation Judicial Decisions Decisions involving moral and social values Economic considerations - non-compete agreements Protection of governmental processes and institutions

Question 37

Operation of the defense of public policy

Answer 37

Defendant wins regardless of whether they were the party who promised to perform or the party who paid for performance. Courts will play no role in enforcing such a contract and leave the parties as they find them. Not in pari delicto exception Where one party is much more egregiously in the wrong, it may be possible for the more innocent party to secure restitution of benefits conferred on the more guilty party.

Question 38

Likely Contexts for Public Policy Defenses

Answer 38

1. Noncompete Agreements 2. Sales of goods via bribery 3. Sale of goods intended for unlawful use 4. Liability limitation provisions 5. Unlicensed goods or services

Question 39

How non-compete may be voidable as against public policy

Answer 39

Generally enforceable, such contracts may be deemed contrary to the public policy of promoting a citizens freedom to work. Where provision places an unreasonable geographical or duration upon the employee.

Question 40

Sales of Goods intended for an unlawful use - Public Policy Defense

Answer 40

Contract for the sale of goods seller knows the buyer intends for an unlawful use, defense is available to defeat an action by either seller seeking payment or buyer seeking delivery.

Question 41

Limited Liability Provisions and Public Policy Defense

Answer 41

Provisions limiting a party's liability for tortious conduct by restricting the right of the injured party to pursue claims against the reckless or intentional harms caused by the other party will not be upheld as violative of public policy. Provisions limiting liability for negligent tortious conduct are generally held to be permissible.

Question 42

Minority Rule re misrepresentation by a minor as to his age

Answer 42

In a Minority of jurisdictions a minor who has entered into a contract under false pretenses may be equitably estopped from proving his age in court and thereby denied the right to claim infancy as a defense

Question 43

Duty of restitution by the incompetent

Answer 43

If the incompetent has received some benefit under the contract the. He is obligated to pay the reasonable value of the goods or services to make the other party whole.

Question 44

Exception to incompetents duty of restitution

Answer 44

If the other party has taken unfair advantage of the incompetent by being aware of his incompetence then the person is entitled only to the return of the goods still in possession of the incompetent person.

Question 45

What a misrepresentation is NOT and the exception

Answer 45

Misrepresentations are not broken promises, opinions or guesses. Except for professional opinions which are treated as a representation of facts.