Defenses To Contract Formation

Front 1

Infancy exceptions

Back 1

in many states, a contract with a minor is a voidable contract. If the minor decides to end it, the remedy may be limited by value of use (it depreciates)

Front 2

Mental incapacity

Back 2

"Mental illness may create voidable contracts, especially if the other party knew or had reason to know of incapacity
---burden is on the party raising the contention of being incapable. "

Front 3

"economic duress

Back 3

"when there is a financial reason why you need to take a contract against your interests
the parties are at unequal places of bargaining power so this is inherently unfair to one side
The party has to show that they are the victim of a wrongful or unlawful act or threat, and it is that act that deprives the person of his will"

Front 4

3 Elements of Economic Duress

Back 4

"party accepted the terms of another
circumstances permitted no other alternative
and those circumstances were the result of coercive acts of the other party"

Front 5

When does Economic Duress not exist?

Back 5

just when the person is the victim of a wrongful act, there has to be absolutely no choice but to agree, and that there are no reasonable alternatives

Front 6

Is it required that a party CAUSE the economic duress

Back 6

split between courts. Some require the pressuring party to be the cause of economic duress. Others just require that the other party be aware of economic hardship

Front 7

Duress under R-K

Back 7

any wrongful threat of one person BY WORDS OR OTHER CONDUCT that induces another to enter into a transaction nder the influence of fear that precludes him from exercising free will and judgement, IF THE THREAT WAS INTENDED OR REASONABLY EXPECTED TO ACT AS AN INDUCEMENT

Front 8

Void Contracts

Back 8

any contract made under coercion involving a physical threat. all others are generally voidable

Front 9

threat of criminal proceedings

Back 9

threatining criminal proceedings to aid a client in a civil dispute may render any resulting agreement unenforceable, and the attorney who made the threat my be sanctioned by the Bar.

Front 10

does a threat need be illegal to count toward Duress?

Back 10

nope! It can just be a threat that is coercive and compelling

Front 11

Undue influence

Back 11

"persuasion that is coercive in nature, and overcomes the will without convincing the judgment
trademarks of it- high pressure exerted on mental, moral, or emotional weakness.
Taking an unfair advantage of another’s weakness of mind, or taking a grossly oppressive and unfair advantage of another’s needs or distress
Many courts will require a special relationship to be a significant factor in the assessment of undue influence"

Front 12

Elements of undue influence

Back 12

"a. Defendant applies pressure
b. Achieve goal/desires of defendant
c. Victim is in a vulnerable situation
Not in plaintiff's interest
makes a contract voidable
"

Front 13

What one considers when looking at undue influence

Back 13

"a. Discussion of the transaction at an unusual place or inappropriate time
b. Consummation of the transaction in an un unusual place
c. Insistent demand that the business be finished at once
d. Extreme emphasis on untoward consequences of delay
e. The use of multiple persuaders by the dominant side against a single servient party
f. Absence of third-party advisers to the servient party
g. Statements that there is no time to consult financial advisers or attorneys"

Front 14

misrepresentation

Back 14

"the legal remedies are that you can sue in tort, or go back to the way life was before the contract, i.e. return money tendered at this point (a recision)

When a settlement has been had between COMPETENT parties, and a release has been FAIRLY ENTERED INTO, without FRAUD OR OVERREACHING, it is binding. Just not reading a contract before signing is not grounds to avoid it."

Front 15

Types of misrepresentation

Back 15

"a. Either misrepresentation that goes to the inducement
i. IE when the seller misrepresents the quality of goods
ii. Contract is voidable
b. Or misrepresentation that goes to the execution/factum
i. IE when one party induces other to sign document by falsely saying it has no legal effect
ii. Contract is void
"

Front 16

Voidable under fraud

Back 16

"if the assent is induced by either a fraudulent or material misrepresentation by the other party upon which there is reliance
There has to be reasonable reliance on the misrepresentation (a 65 year old woman cannot seriously believe she can be trained to be a pro-dancer)"

Front 17

Knowledge by fraudster

Back 17

if a person makes an assertion as true, but has no knowledge or confidence if it is true or false, those statements are reckless and by definition fraudulent

Front 18

rescission by innocent mistake

Back 18

if a person misrepresents facts, even if by genuine mistake or error, the contract can still be rescinded (a heart attack sufferer and insurance companies)

Front 19

false opinions or predictions

Back 19

"Classical- A person’s opinion, even without certainty, cannot be fraudulent
R2-K- an opinion can be a misrepresentation of fact if a person misrepresents his state of mind (say one thing, but believe another will happen)"

Front 20

Parol evidence and fraud

Back 20

always allowable

Front 21

Duty to disclose

Back 21

"a person must disclose known problems if a buyer is unaware of those problems. This is AN AFFIRMATIVE DUTY. You are bound by good faith to disclose (Some states limit this
In other states, the buyer has to take reasonable steps to discover defects"

Front 22

When you must disclose

Back 22

"1-when it necessary to prevent a previous assertion from being a misrepresentation
2-when that disclosure would correct a mistake of the other party as to a basic assumption
3-when it would correct a mistake of the other party as to the contents
4-when they are entitled to know because of a relationship of trust and confidence between them"

Front 23

Innocent nondisclosure

Back 23

some states require the party alleging fraud to prove there was deliberate nondisclosure and ACTUAL KNOWLEDGE

Front 24

Mutual Mistake as to existing facts

Back 24

When both parties are mistaken ABOUT EXISTING FACTS (not future events)

Front 25

Elements to mutual mistake

Back 25

the mistake concerns a basic assumption

the mistake has a material effect on the agreed upon exchange

the party seeking avoidance did not assume the risk of the mistake

Front 26

Assumption of Risk

Back 26

Mutual mistake is not a defense if the adversely affected party bore the risk that the assumption was mistaken
(If the mistake arose out of an expert's advice, then one is not assumed to have assumed the risk)

Front 27

Mistake in value

Back 27

generally not a defense (unless one party, again, relies on an expert and did everything he could to not take a risk)

Front 28

Unilateral mistake

Back 28

"when the mistake is on the part of a single party of a contract, mistake does not usually apply.
However... when the mistake is so obvious that is should put the other party on notice, then the mistake doctrine will likely apply"

Front 29

RK definition of mistake

Back 29

a belief that is not in accord with the facts. (Material facts, such as the value or use of a property)

Front 30

R2-K Unilateral Mistake

Back 30

"requires MUTUAL MISTAKE ELEMENTS AND either
that the mistake be such that the enforement of the contract would be unconscionable (severe enough to cause substantial loss... such as bankruptcy), or
that the other party either had reason to know of, or responsble in causing, the mistake"

Front 31

Neglegence in making a mistake

Back 31

the mistaken party has no requirement to be non-negligent. Only that they not fall below the level of good faith and fair dealing.

Front 32

Barren cow case

Back 32

"A cow thought to be barren was agreed to sale. In reality, she had a calf. When the discovery of the cow’s fertility came to light, the seller attempted to reneg on the contract. The court allowed this because the whole consideration was affected by this mistake, and there was no intent to sell the cow as she actually was.

“The thing sold and bought had in fact no existence.”"

Front 33

An “as is” clause

Back 33

"This is essential in drafting a contract to protect a seller from a mistake of condition that could ultimately come back to bite the seller. This shifts the risk of loss to the buyer, rather than the seller, should a significant defect be discovered.

Other courts do not allow an as is clause to be a catch all"

Front 34

Conscious ignorance

Back 34

When you have the opportunity to avoid mistake, but dont take it, courts usually don’t take sympathy. (estate sells million dollar paintings without having them appraised)

Front 35

Mistake in written expression

Back 35

Usually allowed to rewrite the contract to reflect the parties mutual intent.

Front 36

Death

Back 36

when a person or thing necessary for performance of the agreement dies or is incapacitated, destroyed or damaged, the duty of performance is excused (Dead artist contract)

Front 37

literal (objective) impossibility

Back 37

The thing promise simply could not be performed at all. No one could do it. This is different than subjective “I cannot do it”.

Front 38

Frustration of purpose

Back 38

exchange called for had lost all value to the ∆ because of a supervening change in outside circumstances (Room bought to watch parade, parade cancelled(

Front 39

Impracticable circumstances

Back 39

while the act is not impossible to complete, it becomes so cost prohibitive that it would be inequitable to force performance

Front 40

R2-K Impracticable

Back 40

when a party’s performance is made impracticable without his fault by the occurence of an event, the non occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unles the language or the circumstances indicate the contrary

Front 41

change of cost and impractibability

Back 41

only impracticable if the cost is well beyond the normal range

Front 42

elements to both Impracticability and Frustration

Back 42

"Substantial reduction of the value of the contract

because of the occurrence of an event, the nonoccurrence was a basic assumption of the contract

Without the hurt party’s fault

Party seeking relief does not bear the risk of the occurrence of the event under the language of the K or surrounding circumstances"

Front 43

Natural Disaster and War

Back 43

"Courts generally do not allow this as the basis of impracticability and frustration. (Suez canal closed doesn’t work, predictable flooding doesn’t, but an electrical storm that knocks out power to a concert did work)
Some courts require you to try to mitigate your damages if it is foreseeable"

Front 44

Temporary impracticability

Back 44

If phones are knocked out or a terrorist attack makes travel impossible, then the date on a contract may be extended

Front 45

force majeure clause

Back 45

A party is not liable to perform if the failure is (hell or high water). Sometimes, things such as a strike or goernment action is snuck into the provision. It is intended to make it so you do not have to perform if the situation is completely out of your hands. All goes to foreseeability if it will be enforceable

Front 46

Foreseeablility

Back 46

some courts have held that if an event is forseeable, the party must try and plan to mitigate the damage from it. Most courts do not subscribe to this doctrine. Just because an event is foreseeable, doesn’t mean its reasonable to provide for it

Front 47

Hell or high water

Back 47

performance is necessary in any situation because it is soooo essential

Front 48

Pre-existing duty rule

Back 48

if you hold a person and their contract “ransom” when they are dependent upon your services, you cannot just stop mid-way and ask for more money for the same consideration. Courts look to see if you add more consideration, even slight, to enforce.

Front 49

exceptions to pre-existing duty rule

Back 49

"unforeseen circumstances- when it is fair and equitable in view of circumstances not anticipated when the contract was made

reliance on a promised modification despite the absense of fresh consideration.

A Mutual release (Parties symbolically tear the old contract and replace it with a new contract that does the same thing)"

Front 50

Subsequent modifications following duress

Back 50

"when the initial contract was modified while under duress, the modification does not supersede the earlier contract

There has to be some protest against a higher price to put seller on notice that a modification is not freely entered into to raise economic duress"

Front 51

UCC and modification of sales terms

Back 51

"A contract that does not satisfy the statute of frauds, but which is valid in other respects is enforceable with respect to goods for which payment has been made and accepted OR when goods have been recieved and accepted

If agreement, no new consideration needed

Attempts at modification may operate as a waiver. A retraction of waiver must be accompanied with reasonable notice"

Front 52

UCC delay or impractability

Back 52

A)Delay in delivery in whole or part by party who complies with B and C, if the performance is made impracticable by the occurrence of a contingency, the non occurrence of which was a basic assumption at time contract made
B)Where Causes mentioned in A ^ affect only a part of the seller’s capacity to perform, seller must allocate performance and deliveries among customers
C) Seller must notify buyer seasonably that there will be delay or non-delivery and when allocation is made under B, the estimated quota available to the buyer

Front 53

Modified prices

Back 53

if a price is being modified, you need to complain as loudly as possible if you plan on trying to get out of the contract

Front 54

Ambiguity

Back 54

Uness both parties by chance intended the same meaning when neither party is aware of the ambiguity or if both parties are aware, there is no contract

If there is one party aware, then the intention of the party who is unaware will apply

Front 55

Unconscionability and R-K

Back 55

If contract or term thereof is unconscionable at time contract is made, court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result

Front 56

UCC Unconscionability

Back 56

"If as a matter of law, a court finds contract or any term of a contract to have been unconscionable AT THE TIME IT WAS MADE,
*court may refuse to enforce the contract
*may enforce the remainder of the contract w/o unconscionable term
*it may so limit application of u/c term as to avoid any u/c result

Parties are afforded reasonable opportunity to present evidence as to its commercial setting, pupose, and effect to aid the court in making the determination"

Front 57

Boilerplate language

Back 57

"can usually be considered unconscionable if it goes against the negotiated terms, and also it is very unlikely to be read. They are highly favorable to the drafting party
Look for indicators (such as different font) to see if it is intentionally hidden language
Also, note legal jargon that is hard to understanx, the time taken to read"

Front 58

Adhesion Contract

Back 58

Standardized contract that is imposed and drafted by party of superior bargaining strength and relegates to other party "only opportunity to adhere to contract or reject it"

Front 59

What to look for in Adhesion Contracts that are unconscionable

Back 59

"a. Whether the contract is a standard form printed contract
b. Whether it was ""prepared by one party and submitted to other on a 'take-it-or-leave-it' basis
c. Whether there was 'no true equality of bargaining power' between the parties"

Front 60

Procedural Unconscionability

Back 60

Oppression or "surprise" due to the unequal bargaining power

Front 61

Procedural Unconscionability Indicators

Back 61

"a. The manner in which the contract was entered
b. Whether parties had a ""reasonable opportunity"" to understand terms of contract
Whether the important terms were hidden in a ""maze of fine print""

(Uniquely vulnerable parties considered here)"

Front 62

Substantive unconscionability

Back 62

"""Overly harsh"" or ""one-sided"" results
OR
""Shocking to the conscience,"" ""monstrously harsh,"" and ""exceedingly calloused"" are all terms used to define substantive unconscionability
"

Front 63

Requirements for unconscionability?

Back 63

"Some courts require both procedural and substantive unconscionability, others do not
1. Just because contract is adhesive does not make contract fatal, especially when no “surprise” term
2. Also, just because contract is substantively unconscionable does not make it unenforceable on its face"

Front 64

Remedies for unconscionable contracts

Back 64

"Kill the whole contract
Kill the unconscionable provision
Both of these likely will include court fees to the pleading party"

Front 65

Arbitration clauses and unconscionability

Back 65

"1. Lack of “mutuality” is typically common grounds for finding such contract unenforceable, especially in employment circumstances
2. Other grounds include lack of consent to the clause, prohibitive expense of arbitration, preclusion of class representative "

Front 66

Public Policy

Back 66

"Different situation than others, not where there is some bargain misconduct, but rather where the process of contract formation is untainted, but still unenforceable because the contract itself either violates or runs directly contrary to some public policy because of ""illegality"" (not an illegal term)

Doesn’t necessarily strike down the entire agreement as void, may find agreement only enforced by one of the parties but not the other, or that one part is valid and another invalid"

Front 67

R-K Public policy

Back 67

A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms

Front 68

In pari delicto

Back 68

equally culpable. Courts take the position that the parties should be left where the court finds them and give no remedy to either party. This is applied especially where contract involves serious illegal activity.