Defenses to enforcement

Question 1

Illegality

Answer 1

Illegal contracts are unenforceable, although contracts in furtherance of an illegal act that themselves are not illegal are enforceable.

The law generally will leave the parties to an illegal contract where they stand, although a modern trend allows less-guilty parties to recover restitution.

Question 2

Contracts against public policy

Answer 2

Contracts that are unenforceable because of a policy concern—e.g., one that violates state law.

But if the party seeking to enforce the contract benefits from the policy, and the contract violates the policy, the defendant cannot use public policy to avoid enforcement.

Question 3

Unconscionability

Answer 3

Some jurisdictions require both forms of unconscionability to be present before striking down a contract.

(1) Procedural unconscionability, i.e., a defect in the bargaining process, including a hidden term or an absence of meaningful choice;
(2) Substantive unconscionability, i.e., a rip-off in the terms of the contract.

Question 4

Misrepresentation

Answer 4

A misrepresentation can render a contract voidable by the adversely affected party if:

(i) the misrepresentation, whether affirmative, concealment, or a failure to disclose:
(a) is about a material present fact; or
(b) is fraudulent—i.e., a false assertion of fact made knowingly or recklessly without knowledge of its truth, and with the intent to mislead the other party;
(ii) the misrepresentation induced assent to the contract, and;
(iii) the adversely affected party justifiably relied on the misrepresentation.

Question 5

Misrepresentation: future events

Answer 5

A statement as to a future event is generally an opinion rather than a statement of fact.

But when a statement about a future event implies that it is based on facts unknown to the listener, the listener may be justified in believing:

• that the speaker knows of facts that justify the opinion, or
• at least that the speaker does not know of any facts that are incompatible with the opinion.

Question 6

Misrepresentation: justifiable reliance

Answer 6

A party’s reliance is unjustified only in the extreme case when, based on all of the facts and circumstances, the party has failed to act in good faith and in accordance with reasonable standards of fair dealing.

A party’s negligence with regard to learning about the falsity of the misrepresentation is not sufficient to prevent the party from avoiding the contract.

Question 7

Unconscionability: consumer contracts

Answer 7

It is prima facie unconscionable for a a consumer contract to limit personal damages for breach of the implied warranty of merchantability.

It is permissible to limit consequential damages.

Question 8

Illegality: torts

Answer 8

Generally, a contract for the commission of a tort is unenforceable as against public policy.

But a party to the contract can recover under the contract if:

(1) The party seeking recovery was unaware of the facts that made performance of the contract tortious; and
(2) The other party to the contract had knowledge of such facts.