Contracts Defenses Flashcards
Types of Defenses
(1) Missing formation elements
(2) Formation elements negated (lack of capacity, mistake)
(3) Public Policy Defenses (illegality, SOF)
Statute of Frauds
Rule: A contract within the statute is not enforceable unless it is evidence by a writing signed by the party to be bound
Types of Contracts the fall under the SOF
MYLEGS
(1) Marriage - contracts in which the consideration is marriage
(2) Year - contracts that cannot be performed within a year
(3) Land - contracts for interests in land
(4) Executor - contracts by executors/administrators to personally pay the debt of an estate
(5) Goods - contracts for the sale of goods for $500 or more
(6) Suretyship - contracts to answer for the debt of another
3 most important - Goods, year, land
Sale of Goods SOF Exceptions
4 UCC exceptions - SWAP
(1) Specially manufactured goods
(2) Written confirmation by merchant
(3) Admissions
(4) Performance
Specially Manufactured Goods Exception
Rule: A contract for the sale of goods for $500 or more can be enforced without a writing if the goods are specially manufactured goods
Specially manufactured: goods that are made to order - custom made
*Once there’s been a substantial beginning of the making or obtaining of these specially manufactured goods, the contract can be enforced against the buyer even if there is no writing evidencing the terms of the contract
Written Confirmation by Merchant Exception (Merchant’s Confirmatory Memo Rule)
Only applies in contracts between merchants
Rule: In contracts between merchants, if one party, within a reasonable amount of time after an oral agreement has been made, sends the other party a written confirmation of the deal that is sufficient under the SOF to bind the sender, it’ll also bind the recipient as long as the recipient does not object to it in writing within 10 days of receiving it
Admission Exception
Rule: If you admit to having a contract in court (for example in the pleadings, in response to discovery, or in a deposition), you’re bound
Performance Exception
Rule: performance takes the contract out of the SOF to the extent of the performance accepted
Contracts that Cannot be Completed within One Year
Contracts that, by their terms, cannot possibly be performed within one year from the date the contract is made
if no matter, that contract performance will take beyond one year, it’s considered a long term contract and is within the SOF
Traps:
- an oral contract of relatively short duration but which, by the terms of the contract, cannot be completed within a year - within the SOF
- a contract to complete a task with no set date of performance - not within the SOF
Contracts for the Sale of Land
Typically talking about land sale contracts - BUT any contract that creates an interest in land for more than a year is also within the SOF
Traps:
- Contracts that sound like they involve an interest in land, but actually don’t (ex: construction contracts; real estate person hired to show property and find a buyer)
Exception: Performance
- Full performance by the seller will take the contract out of the SOF
- part performance that unequivocally indicates that the parties have contracted for the sale of land
Suretyship Contracts
Surety: a guarantor of the debt for another person
- ex: I promise to pay Arya’s loan if she does not; your parent when they co-signed to help you buy your first car
- This promise has to be evidenced by a writing signed by the surety, otherwise, the surety is not bound
What type of writing will satisfy the SOF?
The contract does not have to be in writing. Just need a writing containing the essential terms that is signed by the party being sued
Trap: the only essential term in a contract for the sale of goods is the quantity
- see example
*A check can serve as a writing; the writing does not have to be on one piece of paper; the signature requirement is easily satisfied (it can be any sort of mark that was intended to authenticate the writing - can be printed, written, or typed) - initials, or sending a letter on letterhead will suffice
Defenses - Absence of Mutual Assent
(1) Mistake
(2) Misunderstanding
(3) Misrepresentation
Mistake
Rule: a factual error regarding a fundamental matter than has a material effect on the agreed exchange (basically a mistake regarding a fact that goes to the heart of the deal rather than some ancillary matter)
Mutual Mistake: generally is a defense
Unilateral Mistake: generally is not a defense
Mutual Mistake: Effect of Assumption of Risk
Situations in which one or both parties might have assumed the risk about being wrong about a material fact
Rule: a party who assumed the risk of mistake can’t then use the mistake as a defense to enforcement of the contract
A party assumes the risk of mistake when:
- the parties know they don’t know a fact OR
- when a party is in a superior position to know a fact
Unilateral Mistake
Usually not a defense to a contract
Exception: if the mistake is so obvious that the nonmistaken party should know
ex: bids where the percentage difference is huge/obvious
Misrepresentation
An assertion of a fact that is untrue (can also be nondisclosure of a fact)
Misrepresentation is a defense when:
- untrue assertion of material fact AND
- induces the other party to justifiably rely on it
*the defense makes the contract voidable
Lack of Capacity - Infancy
Infancy - a contract made by a minor - someone under the age of majority - is voidable by the minor
Disaffirmance - the minor can cancel the contract because it’s voidable (the adult doesn’t have a choice - if the minor wants to enforce it, they can)
Exceptions:
- contracts for necessaries or necessities (things a minor needs to survive - food, clothing, shelter, medical care) - minor can still disaffirm, but they have to pay for the value of the benefits received, not the contract price
Other Capacity Rules
Lack of Mental Capacity - contract voidable if a person’s mental capacity is so deficient that they cannot understand the nature or significance of the agreement
Voluntary Intoxication - contract voidable if the other party had reason to know of the intoxication
Involuntary intoxication - contract voidable if the person could not understand the nature or significance of the agreement
Illegality
Subject matter or consideration is illegal
ex: betting, weed, etc.
Duress - 2 types
Physical Duress - involves threatening to do physical harm to the contracting party - renders a contract void
Economic Duress - involves taking advantage of the other party’s economic needs (usually not a defense in most cases)
Economic Duress is only a defense when:
(1) a party threatens a wrongful act that seriously threatens the other party’s property or finances, AND
(2) the other party has no other means to prevent the threatened loss other than agreeing to the contract
Undue Influence
Unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relationship between them is justified in assuming that that person will not act in a manner inconsistent with his welfare
Unconscionability
Allows the court to refuse to enforce unfair contracts or even unfair terms within a contract
Determined by the circumstances at the time the contract was formed
2 types:
(1) Unfair surprise - one party slips something unexpected into the contract
(2) Unequal bargaining power - one party holds all the cards and forces the other party into a bad deal
