Defenses to Contract Formation Flashcards
There are six defenses to Contract formation; if established, a court may choose not to enforce an otherwise valid contract
- Incapacity
- SOF
- Illegality
- Misrepresentation/Fraud
- Duress
- Unconscionability
Incapacity Definition
Infants and mentally incompetent persons lack capacity to contract.
Intoxication: Intoxicated persons may lack capacity to contract if the other party has reason to know of intoxication.
Consequences of Incapacity (3)
- Right to disaffirm
- Implied Affirmation (ratification)
- Infant liability for necessities
Consequences of Incapacity
Right to disaffirm
Persons who lacked capacity to contract may disaffirm the contract, which renders it void.
Consequences of Incapacity
Implied Affirmation (ratification)
A contract can be enforced agaisnt an infant at the time of contract formation if she has since gained capacity and retained benefits of the contract.
Look for:
- Agreement entered into before capacity
- Capacity has since been gained
- Benefits have ben retained.
Consequences of Incapacity
Infant liability for Necessities
Infants are legally obligated to pay for necessities (food, clothing, medical care).
- Liability is based on quasi-contract, so infant cannot be sued for breach of contracr bc there is no contract.
Contract within The Statutue of Frauds Definition
If a contract is within the SOF, it must satisfy SOF requirements to be enforceable.
Contracts with SOF
- Marriage Contracts
- Promises made in consideration for marriage
- Services incapable of being completed within one year
- Land Related Contracts Executor Promises
- Guarentees
- Sales of Goods for $500 or more
SOF does not apply to lifelong contracts or contracts that say nothing about ____
time for performance– both are technically capable of being perfromed in one year.
Methods of Satisfying the SOF
Signed Writing
A writing containing the signature of the party asserting the SOF defense.
- UCC – signed writing is not required if:
- Both parties are merchants, and
- The party asserting the SOF defense received a signed writing memorializing the agreement and failed to resond within ten days.
Methods of Satisfying the SOF
Performance
Performance may satisfy SOF:
- Service contracts –only full performance satisfies the SOF
- Sale of Goods – delivery of goods satisfies SOF
- Custom made goods – once seller makes a substantial beginning toward perfromance
- Real Estate – part performance by the buyer satisfies SOF if buyer has done two of the following three:
- Full or part payment
- Possession of property
- Improvements to property
Illegality
Look for illegal subject matter or purpose for the contract.
- Illegal subject matter – contract not enforceable
- Legal subject matter but illegal purpose – contract only enforceable by one who did not know about its illegal purpose
- Legality is based on existing law at the time of contract formation.
Misrepresentation
Includes false assertions, concealment, or misstatements about a material fact before contract formation.
- Contract will be voidable if A induces B into a contract by misrepresentation and B relies on the misrepresentation.
Duress
Includes both economic and physical duress
- Contracts induced by physical duress are void
- Contracts induced by non-physical coercison or threats are voidable.
Unconscionability
Courts may refuse to enforce all or part of a contract that is unfair or oppressive to one party based on unfair bargaining and or unfair substantive terms.
Misunderstanding Definition
Ambiguity concerning terms of the contract
Misunderstanding
Neither Party Aware of Ambiguity
No contract formed unless both parties intedned the same meaning.
Misunderstanding
One Party Aware of Ambiguity
Contract formed and enforced according to the intention of the party unaware of the ambiguity.
- If A knows B misunderstands but remains silent, contract enforced according to B’s understanding.
Misunderstanding
Both Parties Aware of Ambiguity
No contract formed unless both parties intended the same meaning.
Mutual Mistake of Fact Definition
Both parties are mistaken about an underlying factual assumotion at the time of contract formation.
Mutual Mistake of Fact Elements
- Both parties are mistaken
- Mistake concerns a basic assumption of fact
- Mistake materially affects the agreed upon exchange
- Adversely affected party did not assume the risk of the mistake
Contract is voidable by an adversely affected party.
Unilaterial Mistake Definition
Once party makes a mistake concerning facts of an agreement; ususally with computational errors.
Unilateral mistake will not prevent contract formation, unless
Mistekn party may void contract if mistake is material and non-mistaken party knew/should have known of mistake.
