Absence of Defenses to K Formation Flashcards
requirement that no defenses exist
- there are many defenses to contract formation or enforcement that can be asserted
- if established, a court can choose not to enforce an otherwise valid K or it can be void/voidable by parties
6 big categories:
1) defenses based on lack of capacity (legal incapacity to K; duress and undue influence)
2) no consideration
3) absence of mutual assent (misunderstanding/ambiguous contract language; mistake; misreprsentation)
4) illegality
5) unconscionability
6) S of F
legal incapacity to K (3 types)
one or both parties lack CAPACITY to enter into a contract
1) contracts of infants/minors:
- infants lack capacity to enter into K binding on themselves (promises of adult made to infant are binding on adult)
- DISAFFIRMANCE: infant can choose to disaffirm a K any time before/shortly after reaching majority age (must be disaffirmed as a whole)
if infant chooses to disaffirm, they need to return anything they got under K that still remains
- minor can disaffirm a K for necessaries but will be liable in restitution for value of benefits received (based on quasi-K)
- AFFIRMANCE: minor can choose to be bound by K in while upon reaching majority age–can affirm expressly or by conduct/implied affirmation is ratification
2) mental incapacity: one whose mental capacity is so lacking that they are not capable of understanding nature of K; made a voidable promise —> can disaffirm
3) intoxicated people: drunk guy who doesn’t get nature of their promise can be held to have made only a voidable promise —> can disaffirm
duress & undue influence
K’s induced by duress or undue influence are voidable and can be rescinded
duress: K can be rescinded based on duress when one party’s assent is due to improper threat by other party (K’s induced by physical duress are void; non-physical–voidable by threatened party)
- taking advantage of another’s economic needs is generally not duress
- BUT withholding something someone wants/needs will = economic duress –> (1) threat re other party’s finances and (2) no means to prevent the threatened loss
undue influence: (1) vulnerable to pressure by one party; (2) excessive pressure by other party
misunderstanding (ambiguous K language)
K includes term with at least 2 possible meanings – depends on whether parties were aware of ambiguity
a) neither party aware - no K (unless agreement re meaning by both parties)
b) both aware - no K (unless agreement re meaning by both parties)
c) one party aware of ambiguity – binding K based on what UNAWARE party of the ambiguity reasonably believed to be meaning of the ambiguous term
mistake
where one or both parties is mistaken/wrong concerning fact of a K
mutual mistake
if BOTH parties entering into a K are mistaken about EXISTING FACTS relating to agreement… K may be voidable by adversely affected party if:
1) mistake concerns basic assumption on which K is made;
2) mistake has a material effect on agreed upon exchange; and
3) party seeking rescission did not assume risk of the mistake (no defense if party asserting mistake bore risk that assumption was mistaken–when parties aware of their ignorance)
mistake in value is generally not a defense
unilateral mistake
- if only ONE PARTY is mistaken about facts relating to agreement, mistake will NOT prevent K formation!
- exception: if nonmistaken party knew/had reason to know of OBVIOUS mistake made by other party, K is voidable by MISTAKEN party (party who is mistaken about fact relating to agreement)
*mistake must have a material affect on exchange
fraud
- K that is formed based on fraud/misrepresentation
- if a party induces another to enter into a K by using fraudulent misrepresentation about a material fact (false assertions, concealment or misstatements), the K is voidable by innocent party if they relied on the misrepresentation
innocent party can take affirmative action to rescind agreement and pursue all remedies available for breach of K
illegality
illegal subject matter (SELLING DRUGS): K is void
legal subject matter but illegal purpose (LEASING CAR TO TRANSPORT DRUGS): K is voidable by a party who was (1) unaware of purpose OR (2) aware but didn’t facilitate purpose
unconscionability
- allows court to refuse to enforce an entire K or a provision in it to avoid unfair terms–usually due to some unfairness in bargaining process (procedural unconscionability)
- determined by circumstances as they existed at time K was formed
spotting unconsionability and when does it arise?
- procedural unconscionability: unfair bargaining process — great differences in bargaining power (big company v. small consumer)
- substantive unconscionability: unfair terms — arises with adhesion K’s (take it or leave it); exculpatory clauses for intentional acts
- certain limitations on remedies can be found unconscionable (if K limits a party to certain remedy and that remedy fails of its essential purposes)
effect if court finds unconscionable clause
court may:
1) refuse to enforce K
2) enforce remainder of K WITHOUT the unconscionable clause or
3) limit application of any unconscionable clause
statute of frauds
- certain types of agreements must be in writing, signed by party sought to be bound
- K’s subject to SoF that fail to meet requirements are invalid
3 questions:
1. which K’s are covered by statute?
2. if statute does apply and no writing, are there other ways to satisfy statute?
3. if statute does apply (and no exceptions are applicable), does the writing satisfy statute?
agreements that are covered by the statute of frauds (MYLEGS)
- Marriage (promises where the consideration is marriage)
-
Year (promises that by its terms can’t be performed within 1 year must be in writing–usually service K’s)
contract measured by a lifetime (employ until I die) is not within b/c it’s capable of performance within a year - Land (promise creating interest in land)
- Executors and administrators (promises to pay estate’s debts from own funds)
- Goods (contracts for sale of goods for $500 or more–writing is good even though it incorrectly or omits a term)
- Suretyship (promise to answer for debts of another; if main purpose of promisor is to serve pecuniary interest of his own, K is not within S of F)
specific exception to goods for $500 or more
(SWAP)
1) specially manufactured goods – S of F satisfied once (1) seller makes a substantial beginning toward performance (e.g., started to manufacture); (2) goods must NOT be sellable in the seller’s ordinary course of business; and (3) goods specially manufactured for buyer
2) written confirmation by a merchant after oral agreement –> SofF satisfied
binds other side if they don’t object to it within 10 days of receipt
3) admission in court – if party against whom enforcement is sought admits in pleadings, testimony that K for sale was actually made – K is enforceable
4) performance – see other slide below
