Enforceability Defenses

Question 1

Overview of Enforceability Defenses

Answer 1

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

Question 2

Legal Incapacity (Infants)

Answer 2

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)

Question 3

Disaffirmance by Minor

Answer 3

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.

Question 4

Minors and Necessities

Answer 4

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)

Question 5

Affirmance Upon Age of Majority

Answer 5

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.

Question 6

Mental Incapacity

Answer 6

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

Question 7

Intoxication

Answer 7

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

Question 8

Duress in General

Answer 8

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

Question 9

Economic Duress

Answer 9

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

Question 10

Undue Influence

Answer 10

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

Question 11

Ambiguous Language

Answer 11

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

Question 12

Mutual Mistake

Answer 12

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)

Question 13

Unilateral Mistake

Answer 13

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

Question 14

Mistake by Intermediary

Answer 14

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.

Question 15

Misrepresentation

Answer 15

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

Question 16

When is a misrepresentation material

Answer 16

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.

Question 17

Illegality

Answer 17

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.

Question 18

Unconscionability

Answer 18

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

Answer 19

Common Instances of Procedural Unconsconability:

1) Inconspicuous risk shifting provisions
2) contracts of adhesion
3) Exculpatory clauses
4) Limitations on remedies (fail essential purpose)

Question 20

Statute of Frauds

Answer 20

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

Question 21

GA Statute of Frauds Distinction

Answer 21

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.

Question 22

SOF One Year

Answer 22

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

Question 23

Land SOF

Answer 23

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

Question 24

UCC SOF

Answer 24

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.

Question 25

Contract Modification and SOF

Answer 25

A written contract may be modified orally, but the modification must be in writing if ti contract as modified falls within the SOF

Common law - even if the contract expressly provides that it may be modified only by a writing, the parties can orally modify the contract

UCC - if the contract explicitly states it may not be modified except by a writing, that provision is given effect

NOTE: if the parties attempt to orally modify a contract that requires a writing, the modification is ineffective but it can operate as a waiver if the other party has changed position in reliance on the oral modification.

Question 26

Performance Exception to SOF

Answer 26

If the seller conveys the property to the buyer (fully perform), the seller can enforce the buyer’s oral promise to pay.

Part Performance - The buyer may seek specific performance or an oral land sale contract if the buyer’s conduct unequivocally indicates that the parties have contracted for the sale of land.

2/3 of the following elements must be present for part performance:

1) payment in whole or in party;
2) Possession by buyer;
3) valuable improvements

Question 27

GA Part Performance Exception

Answer 27

Part performance of a land sale contract in GA requires:
1) full payment accepted by the vendor; or
2) possession of the property plus partial payment; or
3) possession of the property plus valuable improvements

Question 28

One Year Contract SOF Exception

Answer 28

An oral contract that cannot be performed within one year but has been fully performed by one party is enforceable (must be full performance)

Question 29

Merchant Confirmatory Memorandum

Answer 29

Between merchants, if within a reasonable time, a writing in confirmation of the contract and sufficient against the sender is received and the other party receiving has reason to know of its contents, it satisfies the requirements of the statute of frauds against such party unless written notification of objection to its contents is given within ten days after it is received.

Question 30

Specially Manufactured Goods

Answer 30

If the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation and under circumstances which reasonably indicate the goods are for the buyer, has made either a substantial beginning in the manufacture or procurements, then the contract is enforceable.

Question 31

Judicial Admissions (UCC)

Answer 31

If the party against whom enforcement is sought admits in his pleadings, testimony or otherwise in court that a contract for sale was made, the contract is enforceable, but only to the quantity which was admitted.

Question 32

Part Performance (UCC)

Answer 32

A contract that does not satisfy the statute of frauds is enforceable with respect to goods for which payment has been made and accepted or which goods have been received and accepted.

NOTE - this applies to common law contracts as well

Question 33

Equitable and Promissory Estoppel

Answer 33

Estoppel may be applied if it would be inequitable to allow the SOF to defeat a meritorious claim such as

1) when the defendant falsely claims the contract is not within the SOF

2) when the defendant induces the plaintiff to change position in reliance on an oral contract

Question 34

Remedies if within SOF

Answer 34

If a contract violates the SOF, in almost all cases a party can sue for the reasonable value of services or part performance rendered, or the restitution or any other benefit it has conferred