Defenses to Enforceability Flashcards
What is a “void contract”?
A “void contract” is a contract that has no legal effect and is therefore unenforceable
*distinguish a void contract from a VOIDABLE, which is a contract that MAY be voided by one of the parties
What is a voidable contract?
One that a party may render unenforceable for a number of legal reasons
*distinguish a voidable contract from a void contract - which is an unenforceable agreement
What are the 7 defenses to contract formation?
- lack of mutual assent due to misunderstanding or mistake
- misrepresentation or fraud
- duress or undue influence
- unconscionability
- statute of frauds
- lack of capacity to contract AND
- illegality
What are the five categories of “mistake” in K law?
- mutual mistake
- unilateral
- mistake in transcription
- misunderstanding
- mistake in transmission
What is “mutual mistake”?
On made by BOTH parties to a contract about an underlying factual assumption at the TIME of contract formation
**a contract w/ mutual mistake is VOIDABLE by an adversely affected party if:
1. both parties are mistake about a basic assumption of the K
- the mistake has a material effect on the deal AND
- the party seeking to avoid the K did not assume the risk of mistake
When is mutual mistake NOT a defense?
Modern Rule: mutual mistake is NOT. a defense when the adversely affected party took the risk that their assumption might be mistaken
What is a unilateral mistake?
Mistake made by ONE party to a K concerning a basic assumption on which the K was made
**unilateral mistake does not excuse the mistaken party’s contractual duty to perform UNELSS:
- the other party knew or had reason to know of the party’s mistake
- the mistake has a material effect on the deal AND
- the party seeking to avoid the contract did NOT assume the risk of mistake
HYPO:
If an intermediary makes a mistake when two parties are entering into an agreement, will it serve as a defense to contract formation?
NO.
Generally, a k communicated by intermediary will be valid unless the other party knew or should have known of the intermediary’s mistake
*an intermediary may be a bank or other financial institution enabling the agreement between contracting parties
HYPO:
If a party makes a fraudulent misrepresentation in an agreement, will the other party have the option to void the contract?
YES.
If a party has been the victim of fraud, duress, mistake, or breach by the other party, the victimized party may cancel the K
*some courts call this “unilateral rescission”
What is the legal standard for a minority’s capacity to enter into a contract?
A K made by a minor is VOIDABLE at the minor’s option any time b4 or immediately after reaching the age of majority
HOWEVER, a K may be ratified and enforced against someone who was a minor at the time of K’ing but has since gained capacity and retained the benefit of the K
Which 6 types of K’s fall w/in the Statute of Frauds?
MY LEGS:
M - marriage: K’s for marriage
Y - years: service k’s that cannot be performed w/in ONE YEAR
L - land: K’s for the sale of land
E - executor: contracts for an executor of an estate to pay debts from their own funds
G - goods: contracts for the sale of goods costing $500 OR MORE
S - surety: contracts to pay the debts of another person
Which 3 essential terms are normally required in a signed writing to satisfy stat of frauds?
The signed wiring must contain the:
- identity of parties
- description of the subject matter of the K; AND
- terms and conditions of the agreement
**these requirements are different for contracts for the sale of goods of $500 or more under UCC
What is unconscionability?
K is so unfair and one-sided in favor of one party that court will refuse to enforce PART or ALL of the K
-determined by considering the circumstances at the time of k formation
What is the “Land contract” provision of the statute of frauds?
a contract for the sale of land or of any interest therein must be in writing
What is the “one-year” provision of stat of frauds?
Requires a memorialized wiring for ANY contracts that, by their terms, cannot be performed w/in one year from their making
**the one-year begins at the date the contract is MADE, not when performance is promised
What is the “sale of goods” provision of the Stat of F’s?
a k for the sale of any goods for the price of 500 or more must be in writing
What is the effect of noncompliance w/ the stat of frauds?
in most states, failure to comply w/ stat of frauds renders a contract VOIDABLE
When will an oral contract normally falling w/in the stat of frauds nevertheless be enforceable under promissory estoppel?
Modern Rule: reliance by one party may prevent the other from asserting the Stat of frauds as a defense, even if the reliance does not amount to partial performance under Statute of Frauds
HYPO:
If a contract falling w/in the stat of frauds is not memorialized in writing and one party breaches, will the non-breaching party have a remedy?
YES.
Normally, a party who has conferred a benefit pursuant to a K that falls within the stat of frauds may recover RESTITUTION for the value of the benefit, even if the K is unenforceable
What is a “material” misrepresentation in K law?
A misrepresentation is material when:
- it would be likely to induce a reasonable person to manifest their assent; OR
- the maker knows that the misrepresentation would be likely to induce that specific recipient to assent
*if a party justifiably relies on a material misrepresentation made by other party, the K is voidable
What is fraudulent misrepresentation in K law?
A misrepresentation is fraudulent if the misrepresenting party made a false assertion of fact (verbally OR thru conduct) w/ the intent to cause the innocent party to enter into the K
*if a party justifiable relies on a fraudulent misrepresentation made by the other party, the contract is voidable
What are the three exceptions to the suretyship provision of the statute of frauds?
The Stat of Frauds suretyship provision does NOT apply if:
- the promise is made to the debtor
- the promisor promises to be primarily liable for a third person’s obligation; OR
- the promisor’s main purpose in guaranteeing the obligation of another was to secure a pecuniary benefit for themselves (ie, the Main Purpose Rule)
*an oral contract is valid if ANY of these exceptions applies
Which party’s signature must be on the signed writing to enforce a K under the statute of frauds?
The party to be held contractually liable must have signed the writing
*the other party DOES NOT need to have signed the K
What is an “illegal” K?
A K is illegal if either the consideration or the object of the K is illegal, either because they are expressly prohibited by a statute or because they violate public policy
*an illegal K is void
What are the 2 types of unconscionability?
- PROCEDURAL: involving a defect in the bargaining process
- SUBSTANTIVE: containing lopsided or unfair terms
What is a “misunderstanding” in K formation?
occurs when a piece of the K language has at least two possible different meanings which lead to different results
*generally, when there is a misunderstanding, the K is void because the parties never had a meeting of the minds
When will duress void a contract?
A K is voidable on ground of duress when consent was induced by wrongful or improper threats leaving no other reasonable alternative
Threats may include crimes, torts, criminal prosecution, or some other bad-faith process
What is “economic duress”?
Occurs when:
- a contracting party is treated w/ a wrongful act that would seriously impair their property or finances AND
- there is no adequate means to prevent the threatened loss
When may a K be unenforceable based on public policy reasons?
K’s can be found unenforceable on grounds of public policy not only to protect one of the parties involved, but also because what the contract represents could pose harm to society as a whole
What is the defense of incapacity to contract?
Individuals w/ mental incapacity (not being of sound mind) lack ability to contract
A person who lacked capacity may disaffirm the contract rendering it VOID
When a minor enters into a contract for necessities are they legally bound?
YES.
In most states, minors are legally obligated to pay for necessities based on a quasi-contract theory
*necessities generally include food, shelter, clothing, and medical care
When will a contract be unenforceable based on misunderstanding?
Whether a misunderstanding or ambiguity of the terms of the contract will prevent contract formation depends on the awareness and intent of the parties
Where BOTH parties were either aware or unaware of the ambiguity, there will be NO contract formation unless both parties intend the same meaning
Where only ONE party was aware of the ambiguity, a contract will be formed but enforce according to the intent and understanding of the party who was unaware of the ambiguity
In a sentence, state the general rule for the Statute of Frauds
Statute of Frauds requires that for a contract to be enforceable it must be in writing and singed by the party sought to be charged (ie, signed by the party against who enforcement is sought)
*only applies to specific types of k’s (MY LEGS)
What is a “mistake” in k formation?
Mistake is when a party or parties make a faulty assumption about the present circumstances, and thus enter into a K on that basis
*mistake may be either unilateral or mutual
To satisfy the stat of frauds, the written contract for the sale of goods %500 or more must include which one specific term?
QUANTITY
-no other terms are required
What is the “merchant’s confirmatory memo rule” and how does it affect the Stat of Frauds written requirement?
The UCC Stat of Frauds may be satisfied when two merchants enter an oral agreement and within a reasonable time one of them sends the other a written confirmation of the agreement
In such a circumstance, the Statute is satisfied against the recipient merchant if:
- they have reason to recognize the confirmation’s content AND
- fail to object to the confirmation within 10 days of receipt
What are the 3 exceptions to the Stat of Frauds for UCC contracts?
- specifically manufactured goods when the seller has made a substantial beginning in fulfilling the order
- admissions in pleadings or court by the party whom enforcement is sought against
- payment OR receipt and acceptance of goods
*ALL THREE are exceptions to the writing requirement for UCC contracts
