Defenses

Question 1

Defenses based on lack of capacity - legal capacity - contracts of infants - generally

Answer 1

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 that adult.

Question 2

Defenses based on lack of capacity - legal capacity - contracts of infants - disaffirmance

Answer 2

An infant may choose to disaffirm a contract anytime before or shortly after reaching the age of majority. The contract must be disaffirmed as a whole, it can’t be affirmed in part and disaffirmed 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 3

Defenses based on lack of capacity - legal capacity - contracts of infants - exceptions

Answer 3

States have created a few statutory exceptions for student loans, insurance contracts, and agreements not to reveal an employers proprietary information.

Question 4

Defenses based on lack of capacity - legal capacity - contracts of infants - necessaries

Answer 4

Necessaries are items necessary for subsistence, health, or education, including food, shelter, clothing, and medical care. A minor may disaffirm a contract for necessaries but will be liable in restitution for the value of benefits received.

Question 5

Defenses based on lack of capacity - legal capacity - contracts of infants - affirmance upon attaining majority

Answer 5

A minor may affirm, that is, choose to be bound by the contract in whole upon reaching majority. A minor affirms either expressly or by conduct, such as by failing to disaffirm the contract within a reasonable time after reaching majority.

Question 6

Defenses based on lack of capacity - legal capacity - mental incapacity

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 an appointed legal representative. They may likewise affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action. In other words, the contract is voidable. Like minors, mentally incompetent persons are liable in quasi contract for necessaries. Note that a mental incompetent person has no ability to contract once a guardian has been appointed. Any attempted contract by an incapacitated person who is under a guardianship is void.

Question 7

Defenses based on lack of capacity - legal capacity - intoxicated persons

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 upon recovery. Once again, there may be quasi contractual recovery for necessaries furnished during the period of incapacity.

Question 8

Defenses based on lack of capacity - duress and undue influence - generally

Answer 8

Contracts induced by duress or undue influence are voidable and may be rescinded as long as they are not affirmed. The common type of duress occurs when a parties assent is procured by an improper threat.

Question 9

Defenses based on lack of capacity - duress and undue influence - economic duress

Answer 9

Generally, taking advantage of another person’s economic needs is not duress, but withholding something someone wants or needs will constitute economic duress if:

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 10

Defenses based on lack of capacity - duress and undue influence - undue influence

Answer 10

The elements of undue influence are:

1) undo susceptibility to pressure by one party

And

2) excessive pressure by the other party.

Undue influence concerns often arise when the dominant party is in a confidential or caregiver relationship with the influence party.

Question 11

Defenses based on absence of mutual assent - misunderstanding - ambiguous contract language

Answer 11

If the contract includes a term with at least two possible meetings, the result depends on the parties’ awareness of the ambiguity:

1) neither party was aware: than no contract unless both parties intended the same meaning

2) both parties are aware: than no contract unless both parties intended the same meaning

3) one party is aware: then there is a binding contract based on what the ignorant party reasonably believed to be the meaning of the ambiguous words.

Ambiguity is one area where subjective intent is taken into account.

Question 12

Defenses based on absence of mutual assent - mutual mistake as to existing facts - generally

Answer 12

If both parties entering into a contract are mistaken about existing facts, not future happenings, relating to the agreement, the contract may be avoidable by the adversely affected party if:

1) the mistake concerns a basic assumption on which the contract is made (both thought it was diamond, not cubic zirconia)

2) the mistake has a material effect on the agreed-upon exchange (cubic zirconia only worth 100th of a diamond)

And

3) the party seeking avoidance did not assume the risk of the mistake

Question 13

Defenses based on absence of mutual assent - mutual mistake as to existing facts - party bore the risk?

Answer 13

Mutual mistake is not a defense if the party asserting mistake as a defense bore the risk that the assumption was mistaken. This commonly occurs when one party is in a position to better know the risks than the other party like a contractor versus a homeowner or where the parties knew that their assumption was doubtful, meaning the parties were consciously aware of their ignorance.

Question 14

Defenses based on absence of mutual assent - mutual mistake as to existing facts - mistake in value?

Answer 14

If the parties to a contract make assumptions as to the value of the subject matter, mistakes as to those assumptions will generally not be remedied, even though the value of the subject matter is generally a basic assumption, and the mistake creates a material imbalance, because both parties usually assume the risk that they assumption as to value is wrong.

Question 15

Defenses based on absence of mutual assent - unilateral mistake

Answer 15

If only one of the parties is mistaken about facts related to the agreement, the mistake will not prevent formation of a contract. But if the non-mistaken party knew or had a 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 effect on the agreed-upon exchange, and the mistaken party must not have born the risk of the mistake.

Question 16

Defenses based on absence of mutual assent - mistake by the intermediary

Answer 16

When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message as transmitted is operative unless the other party knew or should’ve known if the mistake.

Question 17

Defenses based on absence of mutual assent- misrepresentation - fraudulent misrepresentation

Answer 17

If a party induces another to enter into a contract by using fraudulent misrepresentation, that is by asserting information they know is untrue, the contract is voidable by the innocent party if they justifiably relied on the fraudulent misrepresentation. This is fraud in the inducement.

Keep in mind that a fraudulent misrepresentation need not be spoken or written, it can be inferred from conduct. Concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact is the same as asserting the fact is not exist. However, nondisclosure of a fact is not misrepresentation unless it is material or fraudulent.

Question 18

Defenses based on absence of mutual assent - misrepresentation - material misrepresentation

Answer 18

Whether or not a misrepresentation is fraudulent, the contract is avoidable by the innocent party if the innocent party justifiably relied on the misrepresentation and the misrepresentation was material.

Misrepresentation is material if it would induce a reasonable person to agree, or 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.

Question 19

Defenses based on absence of mutual assent - misrepresentation - may an innocent party rescind?

Answer 19

Note that an innocent party does not have to wait until they’re sued on the contract but may take affirmative action in equity to rescind the agreement. They may pursue all remedies available for breach of contract. 

Question 20

Defenses based on absence of mutual assent - misrepresentation - justified reliance

Answer 20

A party is not entitled to relief if the reliance was unreasonable under the circumstances. However, just because a misrepresentation could have been revealed by the exercise of reasonable care does not mean the reliance was unjustified. Failure to read a contract or use care and reading it does not necessarily preclude a party from avoiding a contract for misrepresentation.

Question 21

Defense - absence of consideration

Answer 21

If the promises exchanged at the formation stage lack the elements of bargain or legal detriment, no contract exists. In the situation, one of the promises is always illusory.

Question 22

Defense - public policy defenses - consideration or subject matter of the contract

Answer 22

If the consideration or subject matter of a contract is illegal, the contract is void.

Exceptions :
1) the plaintiff is unaware of the illegality while the defendant know of the illegality

2) the parties are not in pari delicto (that is, one party is not as culpable as the other)

Or

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 23

Defense - public policy defenses - purpose behind the contract is illegal

Answer 23

If only the purpose behind the contract is illegal, the contract is voidable by a 1) party who was unaware of the purpose or 2) aware, but did not facilitate the purpose, and the purpose does not involve serious moral turpitude.

Question 24

Defense - Unconscionability - generally

Answer 24

The concept of unconscionability allows a court to modify or refuse to enforce an entire contract or a provision in it to avoid unfair terms, usually due to some unfairness in the bargaining process. Unfair price alone is not a ground for unconscionability.

Must be unconscionable at the time formation, not in hindsight.

Requires both substantive and procedural unconscionably (so unfair surprise and oppressive terms)

Question 25

Defense - Unconscionability - common instances of procedural unconscionability

Answer 25

1) inconspicuous risk-shifting provisions (courts have invalidated provisions that seek to shift a risk normally borne by one party to the other because they are often inconspicuous or incomprehensible to the average person, even if brought to their attention)

2) contracts of adhesion (unconscionable and unenforceable if the signer is unable to procure necessary goods, such as an automobile, from any seller without agreeing to a similar provision)

3) exculpatory clauses (Exculpatory clauses releasing a contracting party from liability for their own intentional, wrongful act is usually found to be unconscionable because it’s against public policy. Negligent acts may also be found to be unconscionable if the clauses are inconspicuous, but they are commonly upheld if they are in contracts for activities that are known to be hazardous)

4) limitations on remedies (a contractual clause limiting liability for damages to property generally will not be found unconscionable unless it is inconspicuous. But a contract that limits a party to a certain remedy, and that remedy fails of its essential purpose, the limitation may be found unconscionable.)

Question 26

Defense - Unconscionability - timing

Answer 26

Unconscionability is determined by the circumstances as they existed at the time the contract was formed.

Question 27

Defense - Unconscionability - effect if court finds unconscionable clause

Answer 27

If the court finds as a matter of law that the contract or any clause of the contract was unconscionable when made, the court may: 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 28

Defense - Statute of Frauds - generally

Answer 28

In most states, an oral contract is valid. However, certain agreements by statute must be evidenced by a writing, signed by the party sought to be bound.

If only one party signed the writing, first check to see if the signature is of the party being sued. If not, consider whether the merchants confirmatory memo rule applies. Be sure that the contract is between merchants because if not, that rule doesn’t apply in the signature of one cannot bind the other.

Question 29

Defense - Statute of Frauds - agreements covered (MYLEGS)

Answer 29

Promises in consideration of marriage

Performance not within one year from date of contract

Interest in land

Executor or administrator promises personally to pay estate debts

Goods priced at $500 or more

Suretyship - Promises to pay debt of another

Question 30

Defense - Statute of Frauds - agreements covered (MYLEGS) - promises in consideration of marriage

Answer 30

A promise, the consideration for which is marriage, must be evidenced by a writing. This applies to promises that induce marriage by offering something of value, other than a return promise to marry.

Question 31

Defense - Statute of Frauds - agreements covered (MYLEGS) - performance not within one year from date of contract

Answer 31

A promise that, by its terms, cannot be performed within one year is subject to the statute of frauds. Part Performance does not satisfy the statute of frauds in this case. The date runs from the date of the agreement and not from the date of performance. Note, even if the contract can’t be performed within a year, full performance by one party will remove it from the statute of fraud.

If it is theoretically possible that it could be completed within a year, it is not within the statute of frauds

Watch for a contract measured by a lifetime because a promise to work until I die is not within the statute because it’s capable of performance within a year because of person and died anytime.

Question 32

Defense - Statute of Frauds - agreements covered (MYLEGS) - interest in land

Answer 32

A promise creating an interest in land must be evidenced by a writing. This includes not only agreements for the sale of real property, but also: leases for more than a year, easements of more than one year, mortgages and most other security liens, fixtures, minerals or the like or structures if they are to be severed by the buyer.

Contracts to build a building or find a buyer for a seller do not create an interest in land.

Full performance by the seller will take the contract out of the statute of frauds. Part performance by the buyer may also remove the contract from the statue.

Question 33

Defense - Statute of Frauds - agreements covered (MYLEGS) - executor or administrator promises personally to pay estate debts

Answer 33

A promise by an executor or administrator to pay the estate’s debts out of their own funds, must be evidenced by writing.

Question 34

Defense - Statute of Frauds - agreements covered (MYLEGS) - goods priced at $500 or more

Answer 34

A contract for the sale of goods for a price of $500 or more is within the statute of frauds and generally must be evidenced by a signed writing to be enforceable. Note that a writing is sufficient even though it omits or incorrectly states a term, but the contract is not enforceable beyond the quantity of good shown in the writing.

Question 35

Defense - Statute of Frauds - agreements covered (MYLEGS) - Suretyship (promises to pay debt of another)

Answer 35

The promise may arise as a result of a tort or a contract, but it must be collateral to another person‘s promise to pay, and not a primary promise to pay. However, if the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is not within the statute of frauds, even though the effect is still to pay the debt of another.

Usually the wrong answer choice on the exam 

Question 36

Defense - Statute of Frauds - effect of noncompliance with the SOF

Answer 36

Noncompliance with the statute of frauds renders the contract unenforceable at the option of the party to be charged. Meaning the party being sued may raise the lack of a sufficient writing as an affirmative defense. If the defense is not raised, it is waived.

Question 37

Defense - Statute of Frauds - when a contract is removed from SOF - contract modifications - generally

Answer 37

Written contract can be modified orally, but the modification must be in writing if the contract as modified falls within the statute of frauds. (Think about goods then mod bringing it to $500 or more)

Question 38

Defense - Statute of Frauds - when a contract is removed from SOF - contract modifications - common law

Answer 38

The common law rule is that, even if a written contract expressly provides that it may be modified only in writing, the parties can orally modify the contract

Question 39

Defense - Statute of Frauds - when a contract is removed from SOF - contract modifications - UCC

Answer 39

Under the UCC, if a contract explicitly provides that it may not be modified or rescinded except by a signed writing, the provision is given effect. If the contract is between a merchant and a non-merchant, however, this provision requires the nonmerchant’s separate signature.

Question 40

Defense - Statute of Frauds - when a contract is removed from SOF - contract modifications - waiver

Answer 40

If the parties attempt to orally modify a contract that requires written modification, it is technically ineffective as a modification, but can operate as a waiver. A waiver will be found whenever the other party has changed position in reliance on the oral modification. However, a party who makes a waiver affecting an executory portion of the contract may retract the waiver if they notify the other party that strict performance of the wave term is required. The waiver may not be retracted if the other detrimentally relied on it.

Question 41

Defense - Statute of Frauds - when a contract is removed from SOF - Performance - land sale contracts

Answer 41

If a seller conveys property to the buyer, the seller can enforce the buyers oral promise to pay. Likewise, the buyer may seek to specifically enforce an oral land contract under the doctrine of part performance.

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 two of the following: payment in whole or part, possession, and/or valuable improvements.

A purchaser of an interest in land may enforce an oral contract in this manner only an equity, meaning they may only sue for specific performance and not for damages.

Question 42

Defense - Statute of Frauds - when a contract is removed from SOF - Performance - services contracts

Answer 42

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

Question 43

Defense - Statute of Frauds - when a contract is removed from SOF - Performance - sale of goods contracts

Answer 43

Part performance takes a sale of goods contract out of the statute of frauds when: 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. If the goods are either received and accepted or paid for, the contract is enforceable. However, the contract is not enforceable beyond the quantity of goods accepted or paid for. Thus, if only some of the good for the oral contractor accepted or paid for, the contract contract is only partially enforceable. If an invisible item is partially paid for, most courts hold that the statute of fraud is satisfied for the whole item.

Question 44

Defense - Statute of Frauds - when a contract is removed from SOF - when a writing is not required - 3 instances

Answer 44

Specially manufactured goods

Admissions in pleadings or court

Merchant’s confirmatory memo rule

Question 45

Defense - Statute of Frauds - when a contract is removed from SOF - when a writing is not required - specially manufactured goods

Answer 45

If goods are to be specially manufactured for the buyer and are not suitable for sale to others by the seller in the ordinary course of their business, the contract is enforceable if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made a substantial beginning in their manufacturer or commitments for their purchase before notice of repudiation is received

Question 46

Defense - Statute of Frauds - when a contract is removed from SOF - when a writing is not required - admissions in pleadings or court

Answer 46

If the party against whom enforcement is sought admits in pleadings, testimony, or otherwise in court that the contract for the sale was made, the contract is enforceable without a writing, but still cannot be enforced beyond the quantity of goods admitted.

Question 47

Defense - Statute of Frauds - when a contract is removed from SOF - when a writing is not required - merchants confirmatory memo rule

Answer 47

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 confirmation of the understanding that is sufficient under the statute of frauds to bind the sender, it will also bind the recipient if: 1) they have reason to know of the confirmations contents; and 2) they do not object to it in writing within 10 days of receipt.

Question 48

Defense - Statute of Frauds - when a contract is removed from SOF - equitable and promissory estoppel

Answer 48

Estoppel may be applied if it would be inequitable to allow the statute to defeat a meritorious claim. Examples include situations where the defendant falsely and intentionally tells the plaintiff that the contract is not within the statute or induces the plaintiff to change position in reliance on an oral agreement.

Question 49

Defense - Statute of Frauds - when a contract is removed from SOF - judicial admission

Answer 49

If a party admits in pleadings or testimony that there is an agreement, it’s treated the same as though the party signed a writing.

Question 50

Defense - Statute of Frauds - writing requirement - generally

Answer 50

SOF doesn’t require a formal written contract. Among other things, the writing can be a receipt, a letter, a check with details in the memo line, or a written offer that was accepted orally.

The statute requires only one or more writing that: 1) reasonably identify the subject matter of the contract, 2) indicate that a contract has been made between the parties, 3) and state with reasonable certainty, the essential terms.

The key is that there something in writing evidencing the essential terms, not every term must be in writing.

Question 51

Defense - Statute of Frauds - writing requirement - electronic record

Answer 51

If law requires a record to be in writing, an electronic record such as an email satisfies the law

Question 52

Defense - Statute of Frauds - writing requirement - essential or material terms

Answer 52

What is an essential term depends on the agreement its context and the subsequent conduct of the parties including that dispute that has arisen. evidence is admissible to explain the particulars, but evidence will not be admitted to add a missing term.

writing evidencing land sale contracts must contain a description of the land and the price

Writings for employment contracts must state the length of employment

Writings evidencing sales of goods contracts must indicate that a contract has been made and specify the quantity term.

Question 53

Defense - Statute of Frauds - signature requirement

Answer 53

The signature requirement is liberally construed by most courts, and just requires any mark or symbol made with the intention to authenticate the writing as that of the signer.

Question 54

Defense - Statute of Frauds - remedies if contract is within SOF

Answer 54

If a contract violates the statute of frauds, in almost all cases a party can sue for the reasonable value of the services or part performance rendered, or the restitution of any other benefit that has been conferred.