Contract Defenses

Question 1

Even if an agreement is supported by valuable consideration or a recognized substitute, contract rights may still be unenforceable because: (3 defenses)

Answer 1

(1) There is a defect in capacity (i.e., the obligations are voidable by one of the parties)
(2) There is a defense to formation of the contract, or
(3) A defense to enforcement of certain terms exists

Question 2

What are the three classes of people who may invoke a contract defense based on lack of capacity?

Answer 2

(1) Infants (minors)
(2) Mentally incapacitated people
(3) Intoxicated persons

Question 3

Explain the legal incapacity of infants to contract.

Answer 3

Infants (in most jurisdictions, anyone under the age of 18) generally lack capacity to enter into a contract binding on themselves. But, contractual promises of an adult made to an infant are binding on the adult.

Question 4

How may an infant disaffirm a contract? What is the legal effect and consequence of disaffirmance?

Answer 4

An infant may choose to disaffirm a contract any time before (or shortly after) reaching the age of majority. That contract must be disaffirmed as a whole; it can’t be disaffirmed in part and affirmed in part.

If an infant chooses to disaffirm, they must return anything that they received under the contract that still remains at the time of disaffirmance. However, there is no obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed.

Question 5

How may an infant affirm a contract? What is the legal effect and consequence of affirmance?

Answer 5

An infant may affirm (i.e., choose to be bound by the contract as a whole) upon reaching majority. A minor affirms either expressly or by conduct, such as failing to disaffirm the contract within a reasonable time after reaching majority.

Question 6

Explain the incapacity to contract defense for mentally incapacitated people.

Answer 6

One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid or by a later appointed legal representative. They may likewise affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action.

A mentally incapacitated person has no ability to contract after a guardian has been appointed. Any attempted contracts by an incapacitated person who is under guardianship is void.

Question 7

Explain the incapacity capacity defense for intoxicated person.

Answer 7

One who is so intoxicated that they don’t understand the nature and significance of their promise may be held to have made only a voidable promise if the other party had reason to know of the intoxication.

The intoxicated person may affirm the contract after recovery.

Question 8

What are “necessaries” in the context of contracts with incapacitated persons? What is their legal significance?

Answer 8

“Necessaries” are items necessary for subsistence, health, or education (e.g., food, clothing, shelter, and medical care). An incapacitated person may disaffirm a contract for necessaries but will be liable in restitution for the value of benefits received (not what is due on the contract).

Question 9

What is the legal effect of duress and undue influence on contract formation?

Answer 9

Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed.

Question 10

True or false: Generally, taking advantage of another person’s economic needs is considered duress.

Answer 10

False.

Question 11

Withholding something someone wants or needs will constitute economic duress (and thus a voidable contract) if: (2 things)

Answer 11

(1) The party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
(2) There are no adequate means available to prevent the threatened loss

Question 12

Elements of undue influence that may render a contract voidable are: (2 things)

Answer 12

(1) Undue susceptibility to pressure by one party, and

(2) Excessive pressure by the other party

Question 13

True or false: Undue influence concerns may arise when the dominant party is in a confidential or caregiver relationship with the influenced party.Cont

Answer 13

True

Question 14

If a contract includes a term with at least two possible meanings, the result depends on _______.

Answer 14

the parties’ awareness of the ambiguity

Question 15

A contract contains ambiguous language. Neither party is aware of the ambiguity. Contract or no contract?

Answer 15

No contract unless both parties intended the same meaning

Question 16

A contract contains ambiguous language. Both parties are aware of the ambiguity. Contract or no contract?

Answer 16

No contract unless both parties intended the same meaning

Question 17

A contract contains ambiguous language. One party is aware of the ambiguity. Contract or no contract?

Answer 17

Binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous language.

Question 18

What happens when both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement?

Answer 18

The contract may be voidable by the adversely affected party

MUTUAL MISTAKE

Question 19

A contract may be voidable by the adversely affected party in a contract involving mutual mistake if: (3 elements)

Answer 19

(1) The mistake concerns a basic assumption on which the contract is made (e.g., the parties thing they are contracting for a sale of a diamond but in reality the stone is a cubic zirconia);
(2) The mistake has a material affect on the agreed-upon exchange (e.g., the cubic zirconia is worth only a hundredth of what a diamond is worth; AND
(3) The party seeking avoidance did not assume the risk of the mistake

Question 20

Mutual mistake is not a defense if the party asserting mistake as a defense _______ that the assumption was mistaken.

Answer 20

bore the risk

This commonly occurs when one party is in a position to better know the risks than the other party (e.g., contractor vs. homeowner) or where the parties knew that their assumption was doubtful (i.e., when the parties were consciously aware of their ignorance).

Question 21

True or false: If the parties to a contract make assumptions as to the value of the subject matter, mistakes in those assumptions will be remedied as mutual mistake.

Answer 21

False. Both parties usually assume the risk that their assumption as to value is wrong.

Question 22

What is the legal effect of a unilateral mistake on contract formation? Explain.

Answer 22

If only one of the parties is mistaken about facts relating to the agreement, the mistake will NOT prevent formation of a contract.

However, if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party. As with mutual mistake, the mistake must have a material affect on the agreed-upon exchange, and the mistaken party must not have borne the risk of the mistake.

Question 23

What is fraudulent misrepresentation? What is its legal effect on contract formation?

Answer 23

Fraudulent misrepresentation is the assertion of information one knows is untrue in inducing another to enter into a contract.

A contract entered into due to fraudulent misrepresentation is voidable by the innocent party if they justifiably relied on the fraudulent misrepresentation.

Question 24

What is a material misrepresentation? What is its legal effect on contract formation?

Answer 24

A misrepresentation is material if:
(1) It would induce a reasonable person to agree, or

(2) The maker knows that for some special reason it is likely to induce the particular person to agree, even if a reasonable person would not

A contract entered into on the basis of a material misrepresentation is voidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.

Question 25

What legal options does the innocent party to a contract based on either fraudulent or material misrepresentation have?

Answer 25

The innocent party may take affirmative action (i.e., they do not have to wait until they’re sued on the contract) in equity to rescind the agreement.

They may also pursue all remedies available for breach of contract.

Question 26

If the consideration or subject matter of a contract is illegal (e.g., a contract to commit a murder), the contract is _______.

Answer 26

void

Question 27

What are the three exceptions to the general rule regarding a contract defense of illegality?

Answer 27

(1) The plaintiff is unaware of the illegality while the defendant knows of the illegality;
(2) The parties are not in pari delicto (i.e., one party is not as culpable as the other;
(3) The illegality is the failure to obtain a license when the license is for revenue-raising purposes rather than for protection of the public

Question 28

If only the purpose behind a contract is illegal, the contract is _______ by a party who was: (2 things)

Answer 28

voidable

(1) Unaware of the purpose, or
(2) Aware but did not facilitate the purpose AND the purpose does not involve serious moral turpitude

Question 29

What is the basic test for unconscionability?

Answer 29

(1) Unfair surprise and
(2) Oppressive terms,
(3) At the time the contract was formed

Question 30

True or false: Unfair price alone is a ground for unconscionability.

Answer 30

False

Question 31

Courts have invalided risk-shifting provisions on the grounds of unconscionability when they are _______.

Answer 31

Inconspicuous or incomprehensible to the average person, even if brought to their actual attention

Question 32

In contracts of adhesion, courts will deem a clause unconscionable and unenforceable if _______.

Answer 32

the signer is unable to procure necessary goods (e.g., an automobile) from any seller without agreeing to a similar provision.

Question 33

An exculpatory clause releasing a contracting party from liability for their own intentional wrongful acts is usually _______.

Answer 33

found to be unconscionable because such a clause is against public policy in most states

Question 34

Exculpatory clauses for negligent acts may be found to be unconscionable if _______.

Answer 34

the clauses are inconspicuous

Question 35

Exculpatory clauses for negligent acts are commonly upheld if _______.

Answer 35

they are in contracts for activities that are known to be hazardous (e.g., a contract releasing a ski hill operator for liability for negligence)

Question 36

Unconscionability is determined by the circumstances as they existed _______.

Answer 36

at the time the contract was formed

Question 37

A contract that limits a party to a certain remedy and that remedy fails its essential purpose (e.g., the contract limits remedies to repair but the item cannot be repaired, the limitation [may / may not] be found unconscionable.

Answer 37

may

Courts will ignore any such provision.

Question 38

If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may: (3 things)

Answer 38

(1) Refuse to enforce the contract;
(2) Enforce the remainder of the contract without the unconscionable clause; or
(3) Limit the application of any clause so as to avoid an unconscionable result

Question 39

To satisfy the Statute of Frauds, certain agreements must be evidenced by _______.

Answer 39

a writing signed by the party sought to be bound

Question 40

What kinds of agreements are covered by the Statute of Frauds? (6 things)

Answer 40

(1) Promises in consideration of marriage
(2) Performance cannot be completed within one year from date of contract
(3) Contracts involving interest in land
(4) Executor or administrator agreements to personally pay estate debts
(5) Good priced at $500 or more
(6) Promises to pay debts of another (suretyship promises)

Question 41

A promise creating an interest in land must be evidenced by a writing, including:

Answer 41

(1) Sale of real property
(2) Leases for more than one year
(3) Easements of more than one year
(4) Mortgages and most other security liens
(5) Minerals (or the like) or structures if they are to be severed by the buyer

Question 42

True or false: A promise to “employ until I die” or “work until I die” is not within the Statute of Frauds. Explain.

Answer 42

True. Any lifetime contract is capable of performance within a year because a person can die at any time.

Question 43

What is the effect of noncompliance with the Statute of Frauds?

Answer 43

The contract is rendered unenforceable at the option of the party to be charged. In other words, the party being sued may raise the lack of a sufficient writing as an affirmative defense. If the Statute isn’t raised as a defense, it is waived.

Question 44

A written contract can be modified orally, but the modification must be in writing if _______.

Answer 44

the contract as modified falls within the Statute of Frauds

Question 45

True or false: Under the common law, if a written contract expressly provides that it may be modified only by a writing, the parties may not orally modify the contract.

Answer 45

False

Question 46

Under the UCC, if a contract explicitly provides that it may not be modified or rescinded except by a signed writing, that provision [is / is not] given effect.

Answer 46

is

Question 47

True or false: If a seller conveys property to a buyer (i.e., they fully perform and transfer title), the seller can enforce the buyer’s oral promise to pay.

Answer 47

True. The Statute of Frauds does not apply

Question 48

What is the doctrine of “past performance” in the context of land sale contracts? What is required to raise it as a defense against the Statute of Frauds?

Answer 48

Part performance that unequivocally indicates that the parties have contracted for the sale of land takes the contract out of the Statute of Frauds.

Most jurisdictions require at least 2 of the following:
(1) Payment (in whole or in part)

(2) Possession, and/or
(3) Valuable improvements to the land

Question 49

True or false: A purchaser of an interest in land may enforce an oral contract on the basis of past performance and be awarded damages.

Answer 49

False. They may only receive equitable relief (i.e., specific performance)

Question 50

True or false: An oral contract that cannot be completed within one year but has been fully performed by one party is enforceable.

Answer 50

True

Question 51

Part performance takes a sale of goods contract out of the State of Frauds when: (2 things)

Answer 51

(1) The goods have been specially manufactured, or
(2) The goods have been either paid for or accepted

If a sales contract is only partially paid for or accepted, the contract is enforceable only to the extent of the partial payment or acceptance.

Question 52

If a contract violates the Statute of Frauds, in almost all cases a party can sue for: (2 things)

Answer 52

(1) The reasonable value of the services or past performance rendered, OR
(2) The restitution of any other benefit that has been conferred

Question 53

In contracts between merchants, if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written communication of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: (2 things)

Answer 53

(1) They have reason to know of the confirmation’s contents; and
(2) They do not object to it in writing within 10 days of receipt