Contracts II
Lee
Spring 2018
Defenses to Breach to avoid liability for the breach
1Defense of Incapacity (Due to Age)
Infancy Doctrine
A minor’s contract is not automatically void but it is voidable at the minor’s election.
Without the minor election (choice), the contract is not automatically void (the contract remains valid). Valid contract unless voided by minor
EXCEPTIONS:
1. Contracts that provide for the necessities of life.
A court may deem to be necessary (food, shelter, clothing, medical services… anything that can be argued to be a necessity).
2. Where a minor misrepresents age.
Falsify as being age of majority
3. Willful destruction of property. (You get a truck and cause damage to the truck)
4. Statutory exceptions (e.g., insurance Ks, student loan Ks, etc.)
***Upon reaching the age of majority, a minor may choose to affirm the contract.
Upon affirming the K, you waive the incapacity defense.
If a minor does not actively disaffirm the contract within a reasonable time after reaching the age of majority, then she has affirmed through conduct.
Defense of Economic Duress:
If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable.
Voidable=is up to the victim
Rest 2d Sec. 176(1)
(1) A threat is improper if
(a) what is threatened is a crime or a tort…, or
(b) what is threatened is a criminal prosecution, or
(c) .. the use of civil process and…made in bad faith, or
(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and (any of the following three)
(a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, . Example: Alyeska saying that they can pay in one day or 6 months. (Here Totem needed the money)or
(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends.
What are reasonable alternatives under Rest. 2d Sec. 175? Things such as:
Availability of legal action.
Alternative sources of goods, services, or funds
Toleration if the threat involves only a minor vexation.
No reasonable alternative: no other choice.
Defense of Physical Duress:
If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. Physical duress contracts are automatically void (no one has to raise it)
Defense of Undue Influence:
Persuasion, which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment. Requires both:
Excessive pressure: approaches the boundaries of coercion – i.e. over-persuasion.
Undue Susceptibility may consist of:
Total weakness, without understanding; or,
A lesser weakness which destroys the capacity of a person to make a contract even though he is not totally incapacitated.
Undue Influence does not require a wrongful threat.
Defense of Misrepresentation: (Used for contracts and torts)
When the remedy is to rescind the contract. You do not need intent in contract.
When a Misrepresentation Makes A Contract Voidable Rest. 2d § 164:
If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation (false statement) by the other upon which the recipient is justified in relying, the contract is voidable by the recipient.
When a Misrepresentation Is Fraudulent or Material:
A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker
Knows or believes that the assertion is not in accord with the facts; or
Does not have the confidence that he states or implies in the truth of the assertion, or
Knows that he does not have the basis that he states or implies for the assertion.
A misrepresentation is material if:
It would be likely to induce a reasonable person to manifest his assent; or
If the maker knows that it would be likely to induce the recipient.
Defense of Non-Disclosure
Modern law requires duty to disclose, old business contract law did not**
When Non-Disclosure is Equivalent to an Assertion:
The modern view is that a vendor has an affirmative duty to disclose material facts where:
Necessary to prevent a previous assertion from being a misrep, fraudulent or material;
Disclosure corrects a mistake as to a basic assumption of the contract and if nondisclosure is akin to a failure to act in good faith and fair dealing;
Disclosure corrects a mistake as to the contents or effect of a writing, evidencing the agreement;
The other person is entitled to know because of a relationship of trust and confidence between them.
Class 01/25/17
Defense of Unconscionability
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may
ade as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in Sec. 154, and
The effect of the mistake is such that enforcement of the contract would be unconscionable, or
The other party had reason to know of the mistake or his fault caused the mistake.
Hypothetical: A contracts to sell and B to buy a tract of land, the value of which depends mainly on the timber on it. Both A and B believe the timber is still on the land, but in fact it all has been destroyed by fire.
Is the contract voidable due to a mistake?
What is the governing law? Common Law because eland is not a movable object.
Unilateral or Mutual? Mutual because both A and B believe something that it is not true. It is an erroneous mistake.
Does it relate to a basic assumption of the contract? If the value rests on the timber, they assume that the land is valuable because of the timber so it is a basic assumption.
Does it material effect (deter the value)? B is only buying it because of the value of the timber.
Does this risk allocate the risk? With these facts, court cannot say that a party allocated the risk. It does not look at it.
Defenses of Impossibility, Impracticability, and Frustration of Purpose
Impossibility:
After contract formation;
Without fault of the party raising the defense;
Performance is made literally impossible (Nobody can do it, is an objectively standard);
By occurrence if an event the non-occurrence of which was a basic assumption on which the contract was made (something occurred where the parties thought it would never occurred and that was a basic assumption of the contract);
Party seeking relief does not bear the risk (try to persuade that the party bears the risk).
Impracticability:
After contract formation;
Without fault of party;
Performance is made impracticable;
By occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made;
Party seeking relief does not bear the risk.
