Defenses to Formation or Enforcement

Question 1

Defenses to Contract Formation (8)

Answer 1

1. Incapacity: One or both parties lack capacity to enter into a K
2. Statute of Frauds: 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 based by fraud or misrepresentation
5. Duress: K that is induced 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 a K

Question 2

Incapacity - Definition

Answer 2

Infants and mentality incompetent persons lack capacity to contract

Question 3

Incapacity - Intoxication

Answer 3

Intoxicated persons may lack capacity to contract if the other party has reason to know of intoxication

Question 4

Incapacity - Right to Disaffirm

Answer 4

Person who lacked capacity to contract (e.g. infant) may disaffirm the K, which renders it void

Question 5

Incapacity - Infancy Exceptions (2)

Answer 5

Ks involving minors may may be enforced or otherwise recognized where:

1) Implied Affirmation (Ratification)

2) Infant liability for Necessities

Question 6

Incapacity - Infancy Exceptions (Implied Affirmation - Definition and Requirements [3])

Answer 6

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

Question 7

Incapacity - Infant Liability for Necessities

Answer 7

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)

Question 8

Statute of Frauds - Definition

Answer 8

Contracts subject to the SoF require special proof of their existence

• Failure to satisfy SoF requirements may result in an invalid K

Question 9

Statute of Frauds - Methods of Satisfying the SoF (2)

Answer 9

1) Signed Writing

2) Performance

Question 10

Statute of Frauds - Methods of Satisfying the SoF (Signed Writing)

Answer 10

A writing containing the signature of the party to be charged (i.e. the party asserting the SoF defense)

Question 11

Statute of Frauds - Methods of Satisfying the SoF (Signed Writing - UCC Exception)

Answer 11

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

Question 12

Statute of Frauds - Methods of Satisfying the SoF (Performance - Service K)

Answer 12

Only full performance satisfies SoF

Question 13

Statute of Frauds - Methods of Satisfying the SoF (Performance - Sale of Goods)

Answer 13

Delivery and acceptance of goods satisfies SoF

Question 14

Statute of Frauds - Methods of Satisfying the SoF (Performance - Sale of Goods; Custom-made Goods exception)

Answer 14

SoF satisfied once seller makes a substantial beginning toward performance

Question 15

Statute of Frauds - Methods of Satisfying the SoF (Performance - Real Estate)

Answer 15

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

Question 16

Contracts within the SoF (7)

Answer 16

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

Question 17

Contracts within the SoF - Service K Exceptions

Answer 17

SoF does not apply to “lifelong” deals or Ks that say nothing about time performance – both are technically capable of performance within one year

Question 18

Illegality

Answer 18

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

Question 19

Misrepresentation / Fraud

Answer 19

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

Question 20

Undue Influence

Answer 20

K entered into under excessive pressure by someone unduly susceptible to pressure is voidable

Question 21

Duress

Answer 21

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

Question 22

Unconscionability

Answer 22

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

Question 23

Misunderstanding and Mistake - Definition

Answer 23

A K may be unenforceable or void/voidable where there was a significant misunderstanding or mistake during K formation

Question 24

Misunderstanding - Neither Party Aware of Ambiguity

Answer 24

No K formed unless both parties intended the same meaning

Question 25

Misunderstanding - One Party Aware of the Ambiguity

Answer 25

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

Question 26

Misunderstanding - Both Parties Aware of Ambiguity

Answer 26

No K formed unless both parties intended the same meaning

Question 27

Mutual Mistake

Answer 27

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

Question 28

Unilateral Mistake

Answer 28

One party makes a mistake concerning facts of an agreement; usually arises with computational errors

Unilateral mistake will NOT prevent K formation

Question 29

Unilateral Mistake Exception

Answer 29

Mistaken party may void K if mistake is material and non-mistaken party knew/should have known of mistake

Question 30

Parol Evidence Rule - Definition

Answer 30

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

Question 31

PER Bars Evidence of . . .

Answer 31

Negotiations and agreements before K becomes integrated

Question 32

PER Bars Evidence of . . . (Exceptions)

Answer 32

Extrinsic Evidence may be allowed if either:

A) K was only partially integrated, or

B) Additional terms would ordinarily be in a separate agreement