Enforceability Defenses Flashcards
Overview of Enforceability Defenses
At Time of Formation:
1) Legal Incapacity
2) Mental Incapacity
3) Duress and Undue Influence
4) Ambiguity
5) Mistake
6) Misrepresentation
7) Unconscionability
8) Statute of Frauds
During Performance:
1) Impossibility
2) Impracticability
3) Acts of God
4) Frustration of Purpose
Legal Incapacity (Infants)
Minors (below the age of 18) generally lack capacity to enter into a contract binding on themselves. However, a contractual promise of an adult to a minor is binding on the adult.
GA DISTINCTION
– A minor may be emancipated by court order
– GA recognizes some statutory exceptions that do not allow a minor to disaffirm a contract (student loans, business and professional contracts)
Disaffirmance by Minor
A minor may choose to disaffirm a contract at any time before reaching the age of majority, or within a reasonable time after reaching the age of majority.
If the minor disaffirms, they must return anything they received under the contract that still remains at the time of disaffirmance.
However, there is no obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed.
Minors and Necessities
If an infant disaffirms a contract for necessities, they will be held liable in restitution for the reasonable value of the benefit received by the minor (not the contract price)
Affirmance Upon Age of Majority
A minor may affirm a contract upon reaching majority either expressly or by failing to disaffirm within a reasonable time after reaching the age of majority.
Mental Incapacity
One whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract may disaffirm when lucid or by a later appointed legal representative (voidable contract)
Necessities - follows the same rule as infancy
NOTE: A mentally incompetent person has no ability to contract once a guardian is appointed - any attempted contracts by the incapacitated person are void
Intoxication
One who is so intoxicated that they don’t understand the nature and significance of their promise may disaffirm the contract if the other party had reason to know of the intoxication. (must disaffirm as soon as the incapacity subsides)
Necessities - follows same rule as infancy
Duress in General
Duress is the wrongful coercion by one person to compel another to perform or carry out an act that they would not have done voluntarily. Contracts induced by duress are voidable and may be rescinded as long as they are not affirmed.
The types of duress are
1) physical
2) Economic
3) Duress of Goods
4) Undue Influence
Economic Duress
Generally, taking advantage of another’s economic needs will not constitute duress.
But, withholding something someone wants or needs will constitute economic duress if:
1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and
2) there are no adequate means available to prevent the threatened loss
Undue Influence
Undue Influence exists if (1) a party is unduly susceptible to pressure by the other party and (2) excessive pressure by the other party.
Look for a dominant party in a confidential relationship
Ambiguous Language
If the contract includes a term with at least two possible meanings, the result depends on the parties’ awareness of the ambiguity
Neither Party Aware - No contract unless both parties intended the same meaning
Both Parties Aware - No contract unless both parties intended the same meaning
One Party Aware - Binding contract based on what the ignorant party believed to be the meaning of the ambiguous term
Mutual Mistake
If both parties are mistaken about existing facts relating to the agreement, the contract may be avoided by the adversely affected party if:
1) the mistake concerns a basic assumption of the contract;
2) the mistake has a material effect on the agreed upon exchange; and
3) the party seeking avoidance did not assume the risk of the mistake
Mistake in Value - if the parties make assumptions as to value of the subject matter, mistakes in those assumptions generally will not be remedied (bore the risk of the mistake)
Unilateral Mistake
If only one party is mistaken about the facts relating to the agreement, mistake will not prevent formation of the contract.
However, if the non-mistaken party knew or had reason to know of the mistake made by the other party, the contract is voidable by the mistaken party if it satisfies the requirements of mutual mistake.
Watch for subcontractor’s bid that is much lower than the others
Mistake by Intermediary
When there is a mistake in the transmission of an offer or acceptance by an intermediary, the prevailing view is that the message transmitted is operative unless the other party knew or should have known of the mistake.
Misrepresentation
A misrepresentation is a (1) false statement of past or existing fact (2) that is material to the contract (3) which was justifiably relied upon by the plaintiff (4) and reasonably relied upon to the plaintiff’s detriment (5) which amounts to an injury.
If these elements are satisfied, the contract is voidable by the injured party.
HOWEVER - if fraud in execution exists, the contract is void
When is a misrepresentation material
1) when it would induce a reasonable person to agree to the contract; or
2) the makes knows that for some special reason it is likely to induce the particular person to agree, even if a reasonable person would not.
Illegality
If the consideration or subject matter of the contract is illegal, the contract is void
Exceptions:
1) the plaintiff is unaware of the illegality while the defendant knows of it
2) one party is not as culpable as the other
3) the illegality is a failure to obtain a license when the license is for revenue raising purposes rather than for protection of the public
If only the purpose behind the contract is illegal, the contract is voidable by the party who was (1) unaware of the purpose or (2) aware but did not facilitate the purpose and the purpose does not involve serious moral turpitude.
Unconscionability
The concept of unconscionability allows a court to modify or refuse to enforce an entire contract or provision to avoid unfair terms.
Unconscionability is something that shocks the conscious of the court or violates norms and traditions.
To prove, the plaintiff must show both procedural and substantive unconscionability
Procedural - some defect in the bargaining process
Substantive - resulting contract contains oppressive terms
NOTE: Unconscionability is determined at the time of formation
Common Instances of Procedural Unconsconability:
1) Inconspicuous risk shifting provisions
2) contracts of adhesion
3) Exculpatory clauses
4) Limitations on remedies (fail essential purpose)
Statute of Frauds
The statute of frauds requires certain contracts to be evidenced by a writing and signed by the party against whom enforcement is sought to be enforceable.
If it does come within the SOF, the writing must (1) reasonably identify the subject matter of the contract, (2) be sufficient to indicate a contract has been made, and (3) state with a reasonable certainty the essential terms of the contract.
Marriage - Contracts made in consideration of marriage
Year - Contracts that cannot be performed within one year
Land - Contracts creating an interest in land
Executor - A promise by an executor to pay the estate’s debts from own funds
Goods - contracts for the sale of goods for $500 or more
Surety - Promise to answer for the debts of another
GA Statute of Frauds Distinction
Lending - in GA a commitment to lend money must be in writing
Equal Dignities Rule - The authority of an agent to execute a contract required by law to be in writing must also be in writing. The authority of an agent executing a contract within the SOF must be a writing as well.
SOF One Year
A promise that by its terms cannot be performed within one year is subject to the statute of frauds (date runs from the date of the agreement)
However, a contract without a stated time (indefinite duration) and a lifetime contract is not subject to the SOF under this category because they could be performed tomorrow
Land SOF
A promise creating an interest in land must be evidenced by a writing which includes
– leases for more than one year
– easements for more than one year
– mortgages and other security interests
– fixtures
– minerals or structures if they are to be severed by the buyer
NOTE: contracts to build a building or to find a buyer for the seller do not come within this category
UCC SOF
A contract for the sale of goods for $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made and signed by the party against whom enforcement is sought. A writing is not insufficient because it incorrectly states a term, but the contract is not enforceable beyond the quantity stated in such writing.
