Defenses in Contracts

Three requirements for a legally enforceable contract:
- Agreement: An offer and acceptance must be present.
- Consideration: There must be an exchange of something of legal value.
- Lack of defenses: Defenses such as fraud, duress, undue influence, and mistake can render a contract unenforceable.

Defenses can render a contract unenforceable:
- The innocent party's duty to perform may be discharged if a valid defense is present.
Historical testing of contract defenses:
- Defenses are a crucial area in contracts that are frequently tested. One key detail is that very few defenses make a contract void; most make it voidable at the option of the adversely affected party.
Key Pass Key: A Per Se (PIE) contract is void; all other defenses are voidable.

Defense of Fraud requirements (M A I D S):
- Misrepresentation of Material Fact:
- The misrepresentation must concern a material fact rather than opinions.
- Actual and Reasonable Reliance:
- The victim must have reasonably relied on the misrepresentation; reliance on opinion is typically not reasonable.
- Intent to Induce Reliance:
- The defrauding party's purpose was to induce reliance.
- Damages:
- The defrauding party is liable for losses suffered due to the fraud, allowing for rescission or monetary damages, but not both.
- Scienter (Intent to Deceive):
- The misrepresentation must be made with intent to deceive, either knowingly or with reckless disregard for the truth.

Fraud in the Execution:
- Occurs when parties are deceived into signing something that is not a contract, thereby making the contract void due to a lack of a "meeting of the minds."
Fraud in the Inducement:
- Involves misrepresentation regarding the terms of a contract that the defrauded party is aware of; it makes the contract voidable.

Definition of Innocent Misrepresentation:
- Contains all elements of fraud except scienter.
- The misrepresentation is made innocently, resulting in compensatory damages rather than punitive damages.
- The contract is voidable by the party who relied on the misrepresentation.

Definition of Duress:
- Occurs when a party’s free will is overcome by unlawful threats of harm.
- If the threat involves physical force, the contract is void.
- If the threat is economic or social, it is voidable.
- Taking advantage of someone’s economic situation without threats is not duress.

Definition of Undue Influence:
- Exists when a party’s free will is overcome by the other’s abuse of a position of trust or confidence.
- Fiduciary duty is present when parties are related; a transaction not at arm's length is a valid defense that makes the contract voidable.
Example: A lawyer convincing a client, who has an intellectual disability, to sell personal property would likely succeed in an undue influence defense.

Definition:
- When both parties are mistaken regarding a material fact, the adversely affected party can avoid the contract, excluding value disputes which are considered opinion-based.
Illustration of Mutual Mistake:
- If Alex and Bob contract for a designer watch and later find out it's fake, Alex may avoid the contract.

Definition:
- A mistake made by one party is generally not a defense unless the other party knew or should have known of the mistake.
Illustration of Unilateral Mistake:
- If Sue knows the land cannot support a certain building height, but Tyler intends to build a taller structure, Tyler's unilateral mistake is not a defense unless Sue had reason to know.