(3) Defenses

Question 1

Defenses to contract enforcement:

Answer 1

• R2K § 12: Capacity
o You must have capacity to incur at least voidable obligations to be bound by a contract.
o A natural person who manifests assent to contract has full capacity, unless he is:
• Under guardianship (not covering in this class),
• An infant,
• Mentally ill, or
• Intoxicated.

Question 2

Infancy:

Answer 2

• R2K § 14 (paraphrasing): If you contract before your eighteenth birthday, you incur voidable duties.
• Can ratify/affirm the contract after eighteenth birthday. Can disaffirm before eighteenth birthday and within a reasonable time thereafter. (Failure to timely disaffirm will lead to ratification/affirmation.)
• If the infant disaffirms the contract, he must return any property (or its proceeds) in the infant’s possession, although he is not obligated to pay for any loss in value to the property. If the infant contracted for the receipt of services (which are rendered by the adult), the infant may have nothing to return. The other party must return what they received as well.
• The infancy defense may not be available if:
o the infant contracted for necessaries (possibilities include food, shelter, clothing, medicine, transportation, employment, technology, insurance)
o the infant is emancipated from his or her parents (e.g., marriage; living elsewhere for safety reasons)

Question 3

Mental capacity:

Answer 3

• R2K § 15
o A person incurs voidable duties if
• (cognitive test) he is unable to understand in a reasonable manner the nature and consequences of the transaction.
 However, if the other party did not know or have reason to know of his condition,
 The contract was made on fair terms, AND
 The contract has been performed in part or in full,
 Then the power to avoid the contract is terminated.
• OR,
• (motivational test) he is unable
 to act in a reasonable manner in relation to the transaction, AND • the other party has reason to know of his condition.

Question 4

Intoxication:

Answer 4

• R2K § 16
o A contract is voidable if
• The other party had reason to know that by reason of intoxication,
 He was unable to understand in a reasonable manner the nature and consequences of the transaction, OR
 He was unable to act in a reasonable manner in relation to the transaction.
o Observe that the “reason to know” language modifies all subsequent language.

Question 5

Problems with assent: mistake:

Answer 5

• R2K §§ 151, 153, 154
• Mistake of fact (mistake in law = a mistake in fact most of the time)
• By [one party] [both parties] to contract
• At time of contract formation
• Goes to basic assumption on which contract made
• Material effect on agreed – upon contract performance
• Enforcing contract unconscionable, or other party had reason to know of (or caused) mistake [applicable only if unilateral mistake]
• Voidable by that party, UNLESS he bears burden of risk under R2K § 154

Question 6

Bearing Risk Under R2K § 154:

Answer 6

• Contract allocation.
• Aware, but in disregard, of limited knowledge.
• Court allocation (reasonable to do so).

Question 7

Problem with Assent: Misrepresentation (3 flavors):

Answer 7

• Affirmative misrepresentation: R2K § 159
• Concealment: R2K § 160
• Nondisclosure (silence when there’s a relationship of trust): R2K § 161

Question 8

When Misrepresentation Makes a K Voidable:

Answer 8

• R2K § 164: contract voidable when
o Misrepresentation (under R2K §§ 159, 160, 161);
o Either fraudulent OR material (R2K § 162);
o Induces other party to assent (R2K § 167); and
o Other party justified in relying on misrepresentation; reliance reasonable.

Question 9

Problem with Assent: Duress:

Answer 9

• R2K § 174: physical compulsion (void)
• R2K § 175: improper threat (R2K § 176) and no reasonable alterative (voidable)
o NOTEàIf there is a breach, and someone threatens to sue, that is NOT an improper threat. They have the legal right to do that.

Question 10

Problem with Assent: Undue Influence:

Answer 10

• R2K § 177
o Unfair persuasion
• Domination by person exercising persuasion, or
• Special relationship of trust between parties; first party assumes second party will not act inconsistent with first party’s interests.
 Did the stronger party use unfair persuasion on the weaker party to gain that party’s assent? One way to determine whether the dominant party exercised this type of persuasion is to ask:
(1) Was there an imbalance in the resulting transaction?
(2) Did the weaker party have the benefit of the independent advice?
(3) Was there time for reflection?
(4) How suspectable was the weaker party?
o Voidable.

Question 11

Problem with Assent: Unconscionability and Public Policy:

Answer 11

• Unconscionability (Try this if nothing else works)à(see R2K § 208 or UCC § 2-302)
o R2K § 208 and UCC § 2-302(1)
o Procedural unconscionability and substantive unconscionability
o Court options: strike contract; strike unconscionable clause; limit application to avoid unconscionable results
• Public Policy
o R2K §§ 178,195,197

Question 12

Statute of Frauds: R2K § 110:

Answer 12

• Suretyship/Guaranty (R2K §§ 111, 112, 116)
• Contract upon consideration of marriage (R2K § 124)
• Sale for interest in land and LONG-term leases (NC – leases not more than three years are exception. If over 3 years, S/F applies) (R2K § 125)
• Estate executor promises to pay estate debt from own funds (R2K § 110)
• Contract which cannot be fully performed in one year or less (R2K § 130)
• Sale of goods for $500 or more (UCC § 2-201(1)àThis is the UCC S/F!

Question 13

Statute of Frauds: Writing Requirements:

Answer 13

• Restatement: See R2K § 131

* UCC: See UCC § 2-201(1)

Question 14

S/F Writing Requirements:

Answer 14

• R2K
o Essential terms, (2) signed by party to be charged, (3) Language that states with reasonable certainty the essential terms of the unperformed promises in the K, (4) Language that is sufficient to indicate that a K has been made between the parties OR offered by the signer to the other party.
• UCC
o Quantity term, (2) signed by party to be charged, (3) Language sufficient to indicate that a K has been made.

Question 15

Exceptions to the Statute of Frauds: Restatement:

Answer 15

• R2K § 125(3): land provision
o Seller transfers deed to buyer (who has accepted the deed but has not yet paid)
• “When a transfer of an interest in land has been made, a promise to pay the price, if originally within the Statute of Frauds, ceases to be within it unless the promised price is itself in whole or in part an interest in land.” See illustration 11 and 12.
• R2K § 130(2): 1-year provision
o One party has fully performed
• R2K § 139: estoppel
o Enforcing contract necessary to avoid injustice

Question 16

Exceptions to the Statute of Frauds: UCC:

Answer 16

• UCC § 2-201(2) (“merchants should read their mail” provision)
• UCC § 2-201(3)(a) (specially manufactured goods)
• UCC § 2-201(3)(b) (litigation admission)
• UCC § 2-201(3)(c) (part performance; seller accepts buyer’s payment OR buyer accepts goods delivered by seller)

Question 17

Ambiguity of Parol Evidence?

Answer 17

• Ask: What are we doing? (1) Are we determining the what something means? (2) Or are we adding or changing?
o The PE rule does NOT apply to determining an ambiguity! It only applies if we are trying to add/change something in the written contract (aka “supplement or contradict”)

Question 18

Ambiguity (Interpretation):

Answer 18

• Sale of Goods or R2K?
o R2K
• Corbin or plain meaning (4corners)? If 4 corner jurisdiction (possibly minority), look only to the K 4 corners to see if ambiguity exists. If no, we’re done. If yes, consider COPCODUOT to resolve.
• If Corbin, look at K, and court can look to everything else to determine if an ambiguity exists (R2K § 212 tracks this). (including COPCODUOT)
o Sale of Goods
• Language in K clear? If yes, then plain meaning controls. If no, look at COPCODUOT. Then, if that still doesn’t help, consider canons of construction.