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.
