Defenses to Formation or Enforcement

Question 1

When does mutual mistake occur?

Answer 1

Mutual mistake occurs when both parties enter into a contract based on the same mistake.

In such cases, the contract may be voidable by the adversely affected party if:

• the mistake relates to a basic assumption of the contract
• the mistake materially affects the agreed-upon exchange of performances (ie, the adversely affected party cannot fairly be required to carry it out) AND
• the adversely affected party did not assume the risk of the mistake.

Question 2

When does mutual mistake render a K voidable?

Answer 2

Mutual mistake renders a contract voidable by the adversely affected party when

(1) the mistake relates to a basic assumption of the contract,
(2) the mistake materially affects the agreed-upon exchange of performances, AND
(3) the adversely affected party did not assume the risk of the mistake.

Question 3

Undue Influence

Answer 3

A contract induced by undue influence is voidable by the assenting party. Undue influence arises when a party assents to a contract due to unfair or excessive persuasion by someone who dominates or holds a special relationship of trust and confidence with the assenting party.

Persuasion is unfair or excessive if it seriously impairs the assenting party’s ability to exercise free and competent judgment. The following factors are often considered in making this determination:

• unfairness of the resulting bargain (eg, sale of home worth $250,000 for $100,000)
• unavailability of independent advice (eg, attorney unavailable to discuss sale)
• susceptibility of the assenting party (eg, mental illness, under hospice care)

Question 4

What is the part-performance exception to the SOF contract for the sale of land?

Answer 4

The statute of frauds applies to contracts for the sale of land (eg, the ranch). It requires that the contract (1) be in writing, (2) be signed by the party against whom enforcement is sought, and (3) contain all essential terms.

However, a contract for the sale of land that violates this statute may still be enforceable if the part-performance exception applies.

This requires proof that the buyer has done at least two of the following:
- Taken possession of the property (as the stable manager did here)

• Made substantial improvements to the property (not seen here)
• Paid some or all of the purchase price (here, the stable manager made a small down payment)

The buyer can then bring an action in equity for specific performance. However, part performance will not support an ordinary action at law for money damages.

Question 5

What are the 8 defenses to K formation or enforcement?

Answer 5

1. Incapacity: one or both parties lack capacity to enter into a K.
2. SOF: Ks subject to SOF that fail to meet SOF requirements are invalid.
3. Illegality: subject matter or purpose of K is illegal.
4. Misrepresentation / Fraud: K that is formed based on fraud or misrepresentation.
5. Duress: K that is induced by force, coercion, or duress.
6. Unconscionability: K that is unfair or oppressive to one party.
7. Misunderstanding: Where there is ambiguity concerning terms of a K.
8. Mistake: Where one or both parties is mistaken concerning underlying facts of K.

Question 6

Incapacity: Infancy Exceptions

Answer 6

Ks involving minors may be enforced or otherwise recognized where:

1. Implied affirmation (ratification) - a K can be enforced against a one who was an infant at the time of K formation if she has since gained capacity and retained benefits of the K
   - Requirements:
2. Agreement was entered into before capacity;
3. Capacity has since been gained; and
4. Benefits have been retained
5. Infant liability for necessities: infants are legally obligated to pay for necessities (e.g., food, clothes, medical care)
   - liability based on quasi-K, so infant cannot be sue for breach b/c there is not an enforceable K.

Question 7

SOF - MYLEGS

Answer 7

• Marriage
• Year: a K that cannot be completed within one year.
• Land
• Executor: a K to pay an estate’s debt out of the executor’s personal funds
• Goods: $500+
• Suretyship: a K to answer for the debt or duty of another.

Question 8

SOF - UCC Merchants

Answer 8

Under the UCC, a transaction between merchants satisfies the statute of frauds as to both parties if:

(1) one party sends a written confirmation that satisfies the statute of frauds AND
(2) the other party does not object in writing within 10 days.

Question 9

When a party assumes the risk of mistake:

Answer 9

1. Express: Contract allocates risk to party
2. Conscious ignorance: Party enters contract despite conscious ignorance of facts related to mistake
3. Adjudication: Court allocates risk to party because reasonable under circumstances

Question 10

When does a misrepresentation render a K voidable by the adversely affected party?

Answer 10

Misrepresentation is an untrue assertion of fact made by words or conduct (eg, concealment—an act intended to prevent discovery of facts). When this occurs, a contract is voidable by the adversely affected party if:

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

(1) the misrepresentation was fraudulent or material,
(2) it induced assent to the contract, AND
(3) the adversely affected party justifiably relied on it.

Question 11

When does a misunderstanding occur?

Answer 11

A misunderstanding occurs when the parties to a contract attach different meanings to the same term.

If the misunderstanding involves a material term, most often there is no contract because there is no meeting of the minds.

BUT when one party to a contract knows or has reason to know that the other party attaches a different meaning to a material term, then the unknowing party’s meaning of the term will control.

Question 12

1-Year Provision of SOF

Answer 12

The one-year provision of the statute of frauds applies to a contract whose terms make it impossible for any party to fully perform within one year. However, the parties’ option to terminate the contract within a year does not remove it from the statute under the majority rule.

Question 13

Factors used to determine reasonable time to avoid contract

Answer 13

Extent to which:

1. delay enabled (or might have enabled) party with power of avoidance to speculate at other party’s risk
2. delay resulted (or might have resulted) in justifiable reliance by other party or third party
3. ground for avoidance was result of either party’s fault
4. other party’s conduct contributed to delay

Question 14

Time frame for avoiding K due to fraudulent misrepresentation

Answer 14

To avoid a contract for fraudulent misrepresentation, the adversely affected party must seek this remedy within a reasonable time after learning of the misrepresentation.

Question 15

As with mutual mistake, the doctrine of impossibility does not apply where…

Answer 15

Where the adversely affected party assumed the risk of the event that rendered performance impossible or severely impracticable.

Question 16

Illegal K Recovery Exception: Substantial Performance

Answer 16

An illegal contract arises when one or both parties’ purpose, formation, or performance is against the law. These contracts are usually void, and there is no recovery for breach.

However, an exception arises if one party lacked an illegal purpose and substantially performed under the contract.

• That party may recover expectation damages for breach—even if he/she knew of the other party’s illegal purpose.* This is true unless:
  a. the performing party took action to further the other party’s illegal purpose OR
  b. the illegal purpose involves grave social harm (eg, threat to human life).

Question 17

When is a K unconscionable?

Answer 17

A contract is unconscionable when it is so unfair to one party that no reasonable person in that party’s position would have agreed to it.

A court may modify or refuse to enforce a contract on the ground that it is unconscionable.

Question 18

Procedural Unconscionability

Answer 18

Party induced to enter contract without meaningful choice due to deception, compulsion, or significantly unequal bargaining power—eg:

• boilerplate contract provisions that are inconspicuous, hidden, or difficult to understand
• contract of adhesion (ie, take-it-or-leave-it contract) when parties have greatly unequal bargaining power

Question 19

Substantive Unconscionability

Answer 19

Substance of contract itself is duly unfair—eg:

• one-sided terms
• gross disparity in value of consideration exchanged

Question 20

Mutual Mistake - Assumption of Risk - Voidability

Answer 20

A mutual mistake may render a contract voidable by the adversely affected party.

But a party assumes the risk of the mistake—and cannot void the contract—if the party knew at the time of the contract that he/she had limited knowledge of the facts and accepted this knowledge as sufficient.

Question 21

Suretyship Agreements - SOF

Answer 21

Suretyship is a three-party contract, wherein:

• one party (the surety) promises a second party (the obligee) that the surety will be responsible for any debt or other obligation of a third party (the principal) resulting from the principal’s failure to pay as agreed.
  
  • Surety = promisor of suretyship (uncle of college student)
  • Obligee = (Car dealership)
  • Principal = College Student

A promise to answer for the debt of another must generally be in writing to be enforceable.

Question 22

1. What can the winning bidder of an item at auction do if the auctioneer knowingly accepts a bid by the seller or on her behalf, or procures such a bid to drive up the price of the goods?
2. What are the two exceptions to this rule?

Answer 22

1. The winning bidder may avoid the sale OR, at her option, take the goods at the price of the last good-faith bid prior to the end of the auction.
2. There are two exceptions to this rule, which are that
   (i) a seller may bid at a forced sale AND
   (ii) a seller may bid if she specifically gives notice that she reserves the right to bid.

Question 23

Promissory Estoppel - Charitable Subscriptions (i.e., a written promise)

Answer 23

Courts often apply the doctrine of promissory estoppel to enforce charitable subscriptions.

In some cases, they presume that the charity detrimentally relied on the promised contribution.

A charitable subscription (i.e., a written promise) is enforceable under the doctrine of promissory estoppel without proof that the charity relied on the promise.

Question 24

A promise to perform a preexisting duty is generally unenforceable for lack of consideration.

But under a long-established exception to this rule, a debtor’s renewed promise to pay all or part of a preexisting debt is enforceable if:

Answer 24

(1) the debtor renewed the promise despite the existence of a technical defense to recovery of the original debt (eg, statute of limitations, bankruptcy)

AND

(2) the renewed promise was made in writing or partially performed.

Question 25

The occurrence of an unexpected or extraordinary event results in the rescission (ie, cancellation) of a contract if:

Answer 25

• that event (1) makes it impossible or impracticable for one or both parties to perform their duties or (2) frustrates the purpose of the contract
• the contract was formed under a basic assumption that the event would not occur AND
• neither party was at fault in causing the event to occur.

Rescission discharges both parties’ duties, so they cannot sue on the contract (eg, for breach). However, a party can still recover inquasi-contract for the value of any work done prior to rescission.

Question 26

Can either parties sue for breach if rescission of a K has occurred?

Answer 26

NO.

Rescission discharges both parties’ duties, so they cannot sue on the contract (eg, for breach). However, a party can still recover in quasi-contract for the value of any work done prior to rescission.

Question 27

Duress

Does the threat of criminal prosecution constitute an improper threat, even if the person threatened was actually guilty of the crime?

Answer 27

YES.

The threat of criminal prosecution constitutes an improper threat, even if the person threatened was actually guilty of the crime.