Defenses

Question 1

7 Defenses to Contract Formation

Answer 1

1. Misunderstanding
2. Incapacity
3. Mistake
4. Fraud/Misrepresentation/Nondisclosure
5. Duress
6. Illegality
7. Unconscionability

Question 2

Misunderstanding

Answer 2

Each party attaches different meanings to the same words and neither party knows or should have known of the confusion.

Parties use a MATERIAL TERM that is OPEN TO TWO OR MORE reasonable interpretations

Question 3

Who lacks capacity to make a contract?

Answer 3

Minors, Mentally Ill (see standards), Very intoxicated persons

Question 4

Minors who contract

Answer 4

Blanket prohibition - contract is always voidable by the minor

Question 5

Two standards for those who are mentally ill

Answer 5

1. Cannot understand the nature and consequences of their actions [no knowledge req for other party]
2. Cannot act in a reasonable manner in relation to the transaction [other party MUST KNOW]

Question 6

Very Intoxicated persons who contract

Answer 6

Other side must know they are intoxicated - if they appear lucid, contract is NOT voidable

Question 7

What happens if a party without capacity contracts for necessities?

Answer 7

They must still pay the fair value (NOT necessarily the contract price)

Question 8

What happens after capacity is obtained?

Answer 8

Party who was without capacity can RATIFY the deal by keeping the benefits (after capacity is obtained)

Question 9

Mistake

Answer 9

belief that is not in accord with a PRESENT fact (not future!)

Question 10

Mutual Mistake lets the adversely affected party rescind IF…

Answer 10

1. There is a mistake of fact at the time the deal was made
2. The mistake relates to a basic assumption of the contract AND has a material impact on the deal
3. The impacted party did NOT assume the risk of the mistake

Question 11

Unilateral mistake lets the adversely affected party rescind IF…

Answer 11

1. Prove ALL the elements of mutual mistake (existed at the time of the deal, material impact/basic assumption, no risk assumed)
2. AND mistake would make the contract unconscionable OR other side knew/had reason to know/caused the mistake

Question 12

Defense of misrepresentation must show…

Answer 12

1. Misrepresentation of a PRESENT fact (not an opinion)
2. That is material OR fraudulent misrepresentation
3. That was made under circumstances in which is was justifiable to rely on the misrepresentation

This allows you a defense even when it was an INNOCENT material mistake

Question 13

Nondisclosure - do you normally have a duty to tell the other side all material facts about a deal?

Answer 13

Not normally…EXCEPT

1. Special fiduciary relationship
2. active concealment

Question 14

Duress

Answer 14

Improper threat that deprives a party from making a meaningful choice to contract (see economic duress and PA rules)

Question 15

Undue Influence

Answer 15

A party puts very intense pressure on another party who seems weak minded or susceptible to high-pressure tactics

Question 16

Illegal Acts?

Answer 16

Illegal contracts are unenforceable. Cannot contract for illegal actions

Question 17

Acts in FURTHERANCE of an illegal act

Answer 17

Can be contracted for, if it in itself is not illegal

Question 18

2 kinds of unconscionability

Answer 18

1. Procedural - defect in bargaining process (hidden term, absence of meaningful choice)
2. Substantive - rip off