Defenses to Contract Formation

Question 1

defenses to k formation list

Answer 1

1. incapacity
2. SoFs
3. illegality
4. misrepresentation/fraud
5. duress
6. unconscionability
7. misunderstanding
8. mistake

Question 2

incapacity

Answer 2

infants and mentally incompetent persons lack capacity to k

right to disaffirm: may dissafirm K which voids K
- BUT can still enforce against adult (adult has capacity)

Question 3

infancy exceptions

Answer 3

Ks involving minors may still be enforced when:

1. implied affirmation (ratification): (retains benefits after capacity gained)
   elements:
   * agreement entered into before capacity
   * capacity has since been gained
   * benefits have been retained
2. infant liability for necessities: foods, clothes, medical care
   - No liability/breach but restitution
   - pays fair market value NOT k price

Question 4

intoxication

Answer 4

lacks capacity ONLY IF other party has reason to know of intoxication

Question 5

illegality

Answer 5

subject matter or purpose of K is illegal @ time of formation

illegal subject matter: K NOT enforceable
legal subject matter BUT illegal purpose: ONLY enforceable by one unaware of illegal purpose

to avoid frustrating public policy, k may be enforced if its terms violate a policy intended to benefit a party seeking relief

Question 6

misrepresentation (fraud)

Answer 6

K formed based upon fraud or misrepresentation of material fact is voidable if party detrimentally relies on misrepresentations
- false assertions
- concealments
- misstatements

Question 7

undue influence

Answer 7

k entered into under excessive pressure by someone unduly susceptible to pressue is voidable

Question 8

duress

Answer 8

wrongful act or threat that overcomes party’s free will (force/coercion)

physical duress: void
non-physical: voidable by victim
- includes economic duress
- no reasonable alternative so must agree

Question 9

unconscionability

Answer 9

unfair surprise + opressive terms when k formed

courts may refuse to enforce all or part of K that is unfair or oppressive to one party based on bargaining terms
- adhesion ks
- exculpatory clauses for intentional acts

ET: look for absence of meaningful choice by disadvantaged party

Question 10

misunderstanding

Answer 10

ambiguity concerning terms of k

1. neither or both aware of ambiguity: no K formed UNLESS both parties intended same meaning
2. one party aware of ambiguity: K formed
   - k enforced according to intention of unaware party

eg, if A knows B misunderstands but A remains silent, K is enforced according to B’s understanding

Question 11

mutual mistake

Answer 11

both parties mistaken about underlying factual assumption @ time of K formation

K is voidable by an adversely affected party if:
1. both parties are mistaken concerning basic assumption of fact,
2. mistake materially affects agreed-upon exchange, AND
3. adversely affected party did NOT assume risk of mistake

Question 12

mutual mistake ET

Answer 12

if mistake over existence - No K + grant relief

if mistake over value - enforce @ K price
- courts don’t inquire into adequacy of consideration

Question 13

unilateral mistake

Answer 13

one party makes mistake concerning facts of an agreement (usually computational errors)

does NOT prevent K formation
enforce @ k price

no relief UNLESS obvious mistake (eg construction bidding K)

Question 14

unilateral mistake exception

Answer 14

(obvious material mistake)
mistaken party may void K if mistake is material and non-mistaken party knew/should have known of mistake
- can’t commit fraud

eg construction bidding k