Defenses Against Contract Formation

Question 1

What groups are considered incapacitated for purposes of contract formation?

Answer 1

Individuals under age 18 and those who are mentally incompetent.

Question 2

As a general rule, what special defense do incapacitated individuals have to contract formation?

Answer 2

They can disaffirm contracts.

Question 3

Can a minor disaffirm a contract if he has lied about his age - stating that he’s older than 18?

Answer 3

Yes - only actual age matters.

Question 4

Can a minor enforce a contract against an adult with capacity?

Answer 4

Yes.

Question 5

Can an adult with capacity enforce a contract with a minor?

Answer 5

No.

Question 6

How can a minor affirm a contract?

Answer 6

After he turns 18 either explicitly or impliedly, by retaining the benefit (e.g. continuing to use the item) past turning 18.

Question 7

Can an incapacitated person disaffirm a contract for food, shelter, clothing, or medical care?

Answer 7

No. Incapacitated individuals are liable for the reasonable value of “necessities.”

So, in this example, he may only be forced to pay a reasonable value. The actual contract price is not relevant.

Question 8

What is the only fact pattern that will satisfy a defense of economic duress?

Answer 8

1. Buyer and Seller enter into a K for something.
2. S refuses to deliver the something unless B will pay him more money.
3. S is the only source for the something.
4. B needs the something immediately.
5. B agrees to pay $$ in order to get S to comply with the original K.

Question 9

If seller makes a material misrepresentation or fails to disclose a material fact, what result?

Answer 9

This is a fatal flaw in the agreement, and therefore the contract is unenforceable even if seller has bee honest (didn’t know he was misrepresenting anything).

Question 10

What result if the parties had different understandings of a material term, and neither had reason to know the other was thinking differently?

Answer 10

Unenforceable contract because no mutual assent.

Question 11

What result if two parties have different understandings of a material term, but one knows or has reason to know the other party’s understanding is different?

Answer 11

The term will take the meaning of the innocent party’s understanding.

Question 12

What result if parties are both wrong about a material term of the contract? (mutual mistake)

Answer 12

When neither party knew or should have known the truth, the contract will not be enforceable.

Note: a mistake as to value of an item is not considered material.

Question 13

What result if only one party is mistaken as to a material term of the contract?

Answer 13

The contract is still enforceable unless the other party knew or had reason to know about the other’s mistake.

Question 14

What result if the parties do not exchange consideration?

Answer 14

The contract is not enforceable.

Question 15

What result is a party says: “You were so kind to help me move last week, here’s $300 for your labor.”

Answer 15

Unenforceable as past consideration (not consideration at all!).

NY: past consideration IS consideration if:
(1) it is expressly stated, (2) in a signed writing, and (3) consideration was done or given can be proven.

Question 16

What if consideration is very imbalanced - e.g. woman pays painter $4 to paint her entire house?

Answer 16

Courts don’t care about the adequacy (aka relative value) of consideration, as long as there is a bargain.

Question 17

“I agree to buy as much as I want” is an example of …

Answer 17

an illusory promise, which will render a contract unenforceable.

Question 18

Can a person modify a contract by offering to do something they already have a legal obligation to do?

Answer 18

No - because of the pre-existing duty rule.

Question 19

What must a party do to modify a contract?

Answer 19

MBE: there must be new consideration to make it enforceable (writing or no writing)

NY: if the modification is in a signed writing, no new consideration is required.

Question 20

Is consideration required to modify a contract for sale of goods?

Answer 20

No. But - if the modification puts the contract within the statute of frauds, it must be written to be enforceable.

Question 21

If a person has a pre-existing duty to A, can they create a contract with B to receive payment for doing what they’ve contracted to do with A?

Answer 21

Yes. An offer by a third party to pay money not otherwise owed to that third party is consideration (the person did not owe a pre-existing to duty to the third party).

Question 22

When is partial payment of a debt NOT consideration?

Answer 22

When the debt is due and undisputed.

But IN NEW YORK: if the promise to forgive the debt is in a signed writing, no new consideration is required.

Question 23

What result is a person promises to pay a debt whose collection is time barred by the statute of limitation?

Answer 23

The promise is enforceable even without consideration if it is in writing.

Question 24

When is promissory estoppel permitted as a substitute for consideration?

Answer 24

When it is foreseeable that a party will rely on a promise even without consideration.

Note: don’t do a promissory estoppel analysis unless you’ve determined there was no consideration.

Question 25

What is the general approach to non-compete covenants?

Answer 25

Courts invalidate or narrow covenants that operate as a restraint on trade. 
Look at reasonableness based on:
1. uniqueness of the skill
2. geographic restriction
3. length of time

Question 26

Define substantive unconscionability. What result if it exists?

Answer 26

The terms of the contract are unfair (shocks the conscience). The contract is unenforceable.

Question 27

Define procedural unconscionability. What result if it exists?

Answer 27

The process of formation was unfair (shocks the conscience). The contract is unenforceable.