2. Defenses to Formation and Enforcement

Question 1

INCAPACITY: Infancy Exception

Answer 1

♣ 1. Agreement entered before capacity

♣ 2. Capacity has been gained and

♣ 3. Benefit has been retained

Question 2

INCAPACITY: Intoxication

Answer 2

Intoxicated persons may lack capacity to contract if other party has reason to know of intoxication

Question 3

INCAPACITY:

Answer 3

Infants and mentally incompetent persons lack capacity to contract

Question 4

INCAPACITY: Right to disaffirm

Answer 4

Person who lacked capacity to contract may disaffirm contract which renders it void.

Question 5

INCAPACITY: Infant liability for necessities

Answer 5

♣ Infants are legally obligated to pay for necessities (e.g. food, clothes)

♣ Liability is based on quasi-contract , so infant cannot be sued for breach (because there is not an enforceable contract)

Question 6

STATUTE OF FRAUDS: Methods of satisfying SoF

Answer 6

♣ 1. Signed writing
• UCC exception: not required if both parties are merchants and the party asserting the SoF defense received a signed writing memorializing the agreement and its essential terms and failed to respond within 10 days of receipt.

♣ 2. Performance
• Service contracts: only full performance satisfies
• Sale of goods: delivery of goods satisfies SoF
o Custom made goods: SoF satisfied once seller makes a substantial beginning toward performance
• Real estate: part performance by the buyer satisfied SoF if buyer has done two of the following three:
o 1. Full or part payment
o 2. Possession of property
o 3. Improvements to property

Question 7

STATUTE OF FRAUDS: Contracts within the SoF (6)

Answer 7

♣ 1. Marriage
♣ 2. Service Contracts incapable of being performed within one year
♣ 3. Land-related Contracts: transfers of property interests, including leases for terms greater than one year
♣ 4. Executor promises: promises by executors/administrators to personally answer for the debts of the decedent’s estate
♣ 5. Guarantees: promises to pay debt of another
♣ 6. Sale of goods of $500 or more

Question 8

Illegality

Answer 8

♣ Look for an illegal subject matter or purpose for the contract

♣ Legality is based on existing law at the time of the contract formation
• Illegal subject matter: contract is not enforceable
• Legal subject matter but illegal purpose: contract only enforceable by one who did not know about its illegal purpose

Question 9

Misrepresentation (fraud):

Answer 9

♣ False assertions, concealment or misstaements about material fact before contract formation

• Contract will be voidable if A induces B into contract by misrepresentation and B relies on misrepresentation.

Question 10

Duress:

Answer 10

♣ Includes both economic and physical duress
• Physical: void
• Non-physical: voidable

Question 11

Unconscionability

Answer 11

Courts may refuse to enforce all or part of a contract that is unfair or oppressive to one party based on unfair bargaining and or unfair substantive terms

Question 12

Unilateral Mistake:

Answer 12

One party makes a mistake concerning facts of an agreement; usually arises with computational errors

• Unilateral mistake will not prevent contract formation
• EXCEPTION: mistaken party may void contract if mistake is material and non-mistaken party knew/should have known of mistake

Question 13

Mutual Mistake (FACT)

Answer 13

♣ Both parties are mistaken about an underlying factual assumption at the time of contract formation

♣ Contract is voidable by an adversely affected party if:
• 1. Both parties are mistaken concerning a basic assumption of fact
• 2. Mistake materially affects the agreed-upon exchange; and
• 3. Adversely affected party did not assume risk of the mistake

Question 14

Misunderstanding (TERMS):

Answer 14

♣ Neither party aware of ambiguity: no contract formed unless both parties intended the same meaning
♣ One party aware of ambiguity: contract formed
• Contract formed according to the intention of the unaware party
♣ Both parties aware of the ambiguity: no contract formed unless both parties intended the same meaning