Defenses to Enforceability

Question 1

Incapacity

Answer 1

Must have the capacity in order to enter into a contract.

Lack of Capacity:

• minors – persons under 18yrs old; or
• lack of mental capacity – a person cannot understand the meaning and effect of a contract.

BUT, minors are bound to contracts for necessities (food, shelter, clothing), and the contract is voidable by the person who lacked capacity.

Question 2

Duress (2) types:

Answer 2

• Physical Compulsion
• Economic Duress

Question 3

Physical Compulsion

Answer 3

contract is void and occurs if a person physically compels another person to agree to a contract (i.e. physically forcing someone to sign or by gun-point).

Question 4

Economic Duress

Answer 4

the contract is voidable and occurs when:

1) an improper threat is made;
2) that induces a party;
3) who has no reasonable alternative;
4) to enter into a contract.

*A mere threat to breach a contract (without more) is generally insufficient.

Question 5

Undue Influence

Answer 5

1) 2)

Unfair persuasion of a person, Who is either:

a) under the domination of a person exercising influence; or
b) justified in assuming the other person will act in their interest / welfare because of the relationship between them (i.e. family).

*generally voidable by the victim

Question 6

Mistake – 2 types:

Answer 6

• Mutual Mistake
• Unilateral Mistake

Question 7

Mutual Mistake

Answer 7

contract is voidable (may be rescinded/reformed).

Elements:

(1) both parties are mistaken as to a basic assumption
(2) the mistake is material, AND
(3) the person asserting the mistake did not bear the risk of the mistake.

Question 8

Unilateral Mistake

Answer 8

generally NOT a valid defense
Elements:

(1) a mistake by one party
(2) that is unknown to the other party
(3) concerning a basic assumption
(4) that has a material effect.

BUT, a contract is voidable by the mistaken party if: (a) one party knew or had reason to believe of the mistake; OR (b) the mistake makes the contract unconscionable.

− A mistake as to price/value is NOT considered material.

Question 9

Misrepresentation (2) types:

Answer 9

• Fraudulent Misrepresentation
• Non-Fraudulent Misrepresentation

Question 10

Fraudulent Misrepresentation

Answer 10

Occurs when:

(1) D knowingly
(2) made a false representation
(3) of material fact, AND
(4) the other party reasonably relies on the misrepresentation to his detriment.

Question 11

Non-Fraudulent Misrepresentation

Answer 11

Occurs when:

(1) a party/agent
(2) makes a statement of material fact
(3) that is false (no wrongdoing required)
(4) inducing a contract, AND
(5) the other party reasonably relied on the misrepresentation to his detriment.

Question 12

Concealment

Answer 12

an affirmative act intended to keep another person from learning a fact.

− Concealment has been deemed a misrepresentation.

BUT, there is no duty to disclose unless:

a) A fiduciary relationship exists;
b) It’s necessary to correct an earlier mistake;
c) Active concealment occurs; OR
d) A seller of real property knows material facts

that affect the value of the property (that buyer is unaware of and cannot reasonably discover).

Question 13

Illegality & Public Policy

Answer 13

Courts will NOT enforce contracts that are illegal or contrary to public policy.

− Contract is void if the illegality existed at the time of contract formation.

− Performance is discharged if the contract subsequently became illegal.

− A contract with an illegal purpose is voidable by the party who did not know of the illegal purpose.

Question 14

Unconscionability

Answer 14

occurs when the contract/term shocks the consciousness of the court. If unconscionable, the court may a) enforce the contract without the unconscionable term; OR b) limit the application of the term. Usually need BOTH:

• Procedural Unconscionability
• Substantive Unconscionability

Question 15

Substantive Unconscionability

Answer 15

contract contains terms that are obviously unfair and one-sided in favor of the party with the superior bargaining power.

Question 16

Procedural Unconscionability

Answer 16

one party has a superior bargaining position over the other party and uses that power to its advantage.

Question 17

Statute of Frauds

Answer 17

The contract is not valid unless in a writing signed by the party to be charged.

Question 18

Statute of Frauds - Writing Requirement:

Answer 18

Writing must be:

(1) be signed by the party to charged
(2) reasonably identify the subject matter
(3) indicate a contract was made, AND
(4) state the essential terms.

Question 19

Contracts Subject to Statute of Frauds:

Answer 19

“MY LEGS”

1. Marriage contracts
2. Suretyship – a promise to pay the debt of another. Exception→no writing is required if the main purpose was to benefit the surety himself.
3. Contracts that cannot be fully performed within 1 year.
4. Sale of real property or creating an interest in land.
5. Promise to pay an estate’s debt from personal funds of the Executor or Administrator.
6. Sale of goods for $500 or more (contract must contain the parties, quantity, and nature of goods).

Question 20

Exceptions to Statute of Fraud:

Answer 20

• Merchant’s Confirmatory Memorandum – contract between two merchants, a writing signed only by the party enforcing it, and other party did not object promptly.
• Goods Accepted or Paid For – but only applies for those goods, not the whole contract.
• Custom Made Goods – seller made substantial start and the goods are not suitable for sale in the ordinary course of seller’s business.
• Admission During a Judicial Proceeding.