Defenses to Formation or Enforcement Flashcards
Defenses to Contract Formation (8)
- Incapacity: One or both parties lack capacity to enter into a K
- Statute of Frauds: Ks subject to SoF that fail to meet SoF requirements are invalid
- Illegality: Subject matter or purpose of K is illegal
- Misrepresentation/Fraud: K that is based by fraud or misrepresentation
- Duress: K that is induced force, coercion, or duress
- Unconscionability: K that is unfair or oppressive to one party
- Misunderstanding: Where there is ambiguity concerning terms of a K
- Mistake: Where one or both parties is mistaken concerning underlying facts of a K
Incapacity - Definition
Infants and mentality incompetent persons lack capacity to contract
Incapacity - Intoxication
Intoxicated persons may lack capacity to contract if the other party has reason to know of intoxication
Incapacity - Right to Disaffirm
Person who lacked capacity to contract (e.g. infant) may disaffirm the K, which renders it void
Incapacity - Infancy Exceptions (2)
Ks involving minors may may be enforced or otherwise recognized where:
1) Implied Affirmation (Ratification)
2) Infant liability for Necessities
Incapacity - Infancy Exceptions (Implied Affirmation - Definition and Requirements [3])
A K can be enforced against one who was an infant at the time of K formation if she has since gained capacity and retained benefits of the K
Requirements:
1) Agreement entered into before capacity
2) Capacity has since been gained; and
3) Benefits have been retained
Incapacity - Infant Liability for Necessities
Infants are legally obligated to pay for necessities (e.g. food, clothes, medical care)
- Liability is based on quasi-K, so infant cannot be sued for breach (b/c there is not an enforceable K)
Statute of Frauds - Definition
Contracts subject to the SoF require special proof of their existence
- Failure to satisfy SoF requirements may result in an invalid K
Statute of Frauds - Methods of Satisfying the SoF (2)
1) Signed Writing
2) Performance
Statute of Frauds - Methods of Satisfying the SoF (Signed Writing)
A writing containing the signature of the party to be charged (i.e. the party asserting the SoF defense)
Statute of Frauds - Methods of Satisfying the SoF (Signed Writing - UCC Exception)
Signed writing not required if:
i) Both parties are merchants; and
ii) The party asserting SoF defense received it signed writing memorializing the agreement and its essential terms and failed to respond within 10 days of receipt
Statute of Frauds - Methods of Satisfying the SoF (Performance - Service K)
Only full performance satisfies SoF
Statute of Frauds - Methods of Satisfying the SoF (Performance - Sale of Goods)
Delivery and acceptance of goods satisfies SoF
Statute of Frauds - Methods of Satisfying the SoF (Performance - Sale of Goods; Custom-made Goods exception)
SoF satisfied once seller makes a substantial beginning toward performance
Statute of Frauds - Methods of Satisfying the SoF (Performance - Real Estate)
Part performance by the buyer satisifies SoF if buyer has done two of the following three:
1) Full or part payment
2) Possession of property
3) Improvements to property
Contracts within the SoF (7)
MY LEGS
M - Marriage Ks: Promises made in consideration of Marriage
Y - Years: Service Ks incapable of being performed within 1 year
L - Land-related Ks: transfers of property interests, including leases for terms greater than one year
E - Executor promises: Promises by executors/administrators to personally answer for the debts of the decedent’s estate
G - Goods: Sale of Goods of $500 or more
S - Surieties (Guarantees): Promises to pay the debt of another
Contracts within the SoF - Service K Exceptions
SoF does not apply to “lifelong” deals or Ks that say nothing about time performance – both are technically capable of performance within one year
Illegality
Look for an illegal subject matter or purpose for the K:
- Illegal subject matter: K is not enforceable
- Legal subject matter but illegal purpose: K only enforceable by one who did not know about illegal purpose
- Legality is based on existing law at the time of K formation
- To avoid frustrating public policy, a K may be enforced if its terms violate a policy intended to benefit a party seeking relief
Misrepresentation / Fraud
False assertions, concealment, or misstatements about a material fact before K formation or performance
- K is voidable if a party detrimentally relies on the misrepresentation
Undue Influence
K entered into under excessive pressure by someone unduly susceptible to pressure is voidable
Duress
Wrongful act or threat that overcomes a party’s free will
Physical: Ks induced by physical duress are void
Non-physical: Voidable by the coerced or threatened party
Unconscionability
Courts may refuse to enforce all or part of a K that is unfair or oppressive to one party based on bargaining or terms
- Arises with adhesion Ks, exculpatory clauses for intentional acts, etc.
- Look for an absence of meaningful choice by the disadvantaged part
Misunderstanding and Mistake - Definition
A K may be unenforceable or void/voidable where there was a significant misunderstanding or mistake during K formation
Misunderstanding - Neither Party Aware of Ambiguity
No K formed unless both parties intended the same meaning
Misunderstanding - One Party Aware of the Ambiguity
K is formed
- K enforced according to the intention of the unaware party
-e.g., If A knows B misunderstands but A remains silent, K enforced according to B’s understanding
Misunderstanding - Both Parties Aware of Ambiguity
No K formed unless both parties intended the same meaning
Mutual Mistake
Both parties are mistaken about an underlying factual assumption at the time of K formation
K is voidable by an adversely affected party if:
1) Both parties are mistaken concerning a basic assumption of fact;
2) Mistake materially affects the agreed-upon exchange; and
3) Adversely affected party did not assume risk of the mistake
Unilateral Mistake
One party makes a mistake concerning facts of an agreement; usually arises with computational errors
Unilateral mistake will NOT prevent K formation
Unilateral Mistake Exception
Mistaken party may void K if mistake is material and non-mistaken party knew/should have known of mistake
Parol Evidence Rule - Definition
Under the PER, evidence that is extrinsic to a written K is inadmissible to supplement or contradict the written K
Applies if K is a complete integration: Parties must intend the K to express their final agreement; existence of merger clause can be a factor in showing an agreement is integrated, nut is not dispositive
PER Bars Evidence of . . .
Negotiations and agreements before K becomes integrated
PER Bars Evidence of . . . (Exceptions)
Extrinsic Evidence may be allowed if either:
A) K was only partially integrated, or
B) Additional terms would ordinarily be in a separate agreement
