1L Contracts Final - Concepts

Duress

If a party’s manifestation of assent is induced by an improper threat by another party and leaves no reasonable alternative, the contract is voidable by the recipient

Minor Incapacity

A minor’s contracts are voidable by the minor at any time before reaching the age of majority or within a reasonable time after becoming an adult.

Minors, upon reaching the age of majority, may ratify contracts by words or conduct.

A minor who disaffirms a contract is entitled to recover all of the consideration he has conferred and, in return, the minor is expected to restore as much of the

The minor cannot disaffirm contracts of necessity, contracts where the minor misrepresents their age, contracts where the minor willfully harms the product that is the subject of the contract, or contracts about student loans, insurance, or employment contracts.

Mental Incapacity

The presence of mental illness alone does not establish capacity.

Cognitive test: Tests whether a person can reasonably understand the nature and transaction of the contract (comprehension and cause-and-effect reasoning)

Volitional test: Tests whether a person can act reasonably

Undue influence

(1) The unfair persuasion of a party who is under the domination of the person exercising the persuasion or who, by virtue of the relation between them, is justified in assuming that that person will not act in a manner inconsistent with his welfare.

(2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

Misrepresentation

If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentationby the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. A fraudulent misrepresentation is intentional, but a material one is innocent yet still likely to induce a party’s manifestation of assent

Nondisclosure

Generally, there is no requirement for full disclosure of all relevant facts in every business relationship.

Rule: An uninformed party may seek recission of a contract if there are non-disclosed facts that: have a material effect on the transaction, are not readily observable, and are not known by the uninformed party in the following circumstances:

-Where disclosure is required by the statute

-Where one party intentionally conceals the non-disclosed facts from the earlier,

-Where one party is entitled to know of the facts because of a relationship of trust and confidence between the parties, or

-To prevent or correct a mistake of the uninformed party when the nondisclosure is a breach of the duty of good faith

Mutual mistake

(1) Both parties, at contract formation

(2( Make a mistake

(3) About a basic assumption on which the contract was made,

(4) And that mistake has a material effect on the agreed exchange of performances

Exception: Mutual mistake is not available for a party who beats the risk of the mistake.

Unilateral Mistake

A contract is voidable under unilateral mistake if:

(1) One party, at contract formation,

(2) Made a mistake

(3) About a basic assumption on which the contract was made,

(4) And that mistake had a material effect on the agreed exchange of performances

AND EITHER:

(1) The effect of the mistake is such that enforcement would be unconscionable, OR

(2) The other party had reason to know of the mistake of his fault caused the mistake

Unconscionability

A contract entails a degree of unreasonableness that “shocks the conscience”.

Unconscionability requires both (1) procedural and (2) substantive unconscionability. There is a sliding scale used in application that allows for a greater degree of one element and a lesser degree of the other to result in a finding of unconscionability.

Courts that find contracts to be unconscionable may refuse to enforce the contract or limit the unconscionable clause.

Procedural Unconscionability

May be demonstrated by gross inequality in bargaining power or unfair surprise.

Gross inequality occurs when a party lacks a meaningful choice, such as with an adhesion contract.

Unfair surprise occurs when a party’s reasonable expectations are disappointed, typically because of lack of actual knowledge of terms, sharp bargaining practices, and complex and hidden terms in a complicated document.

Substantive Unconscionability

Refers to the unfairness of the terms. It may be shown by:

(1) Overly harsh allocation of risks not justified by the circumstances, or

(2) Great price disparity (like gross inadequacy of consideration)

Illegality

Changed Circumstances

Impossibility

Impracticability

Frustration of Purpose