Formation of Contracts - Defenses to Enforcement

Question 1

Defense to Enforcement

Answer 1

A party can assert that the nature of the agreement or manner in which it arrives at should prevent enforcement

Question 2

What are the defenses to enforcement ?

Answer 2

1. Illegality
2. Unconscionability
3. Public Policy

Question 3

Illegality

Answer 3

If the consideration or Perf. that’s to occur under the K is illegal, the K itself is illegal & unenforceable

• If K contemplates illegal conduct = Void
• If contract becomes illegal after it is formed - duty to perf. is discharged

Question 4

What is the effect of illegality

Answer 4

• Illegal transaction are not recognized or enforceable
• Restitution is not awarded for consideration
• No remedy is avail. for partial perf.

Question 5

Illegality Defense - Exceptions

Answer 5

1. Ignorance of Illegality
2. Lack of Illegal purpose
3. Divisible contracts
4. Licensing Violation

Question 6

Ignorance of Illegality

Answer 6

A party may recover if:

1. the party is justifiably ignorant of the facts making the K illegal AND
2. the other party had knowledge of the illegality

Question 7

What is the effect if a contract doesn’t involve illegal consideration or performance and the party is unaware of the illegal purpose the other party intends to make use of the performance?

Answer 7

A party who subst. perf. may recover if she is unaware of the illegal purpose

Question 8

Divisible Contracts

Answer 8

If a K can be easily seperated into legal and illegal parts, then recovery may be available on the legal parts

Question 9

Licensing Violation

Answer 9

When a party fails to comply with licensing and is prohibited from perf. an act, the K will still be enforceable if:

1. the policy grounds are economic AND
2. Public Policy for the requirement doesn’t outweigh the interest in enforcing the promise

Question 10

Illegality - Availability of Restitution

Answer 10

Not in pari delicto - when parties aren’t equally at fault

• The less guilty party may be able to recover restitutionary damages

Withdrawal - If party withdraws b/f improper purp. achieved

• May be entitled to restitution for a perf. that the party has rendered when party hasn’t engaged in serious condcut

Question 11

Unconscionability

Answer 11

When the K is so unfair to one party that no reas. pers. in the position of the parties would have agreed to it

• Court may modify or refuse to enforce a K or part of K

Question 12

When can public policy be raised as a defense to the enforcement of a contract?

Answer 12

When the K violates a significant public policy

• K in restraint of marriage
• K for commission of a tort
• K that unreas. restrains trade

BUT when the K violates policy that was intended for the benefit of the party seeking relief, it may still be enforceable to avoid frustrating the purp. behind the policy

Question 13

What is the effect if a contract doesn’t involve illegal consideration or performance and the party is aware of the illegal purpose the other party intends to make use of the performance?

Answer 13

If the party subst. perf., they can recover even if they know of the illegal purpose, Unless:

• perf. party acted for the purp. of furthering the illegal use OR
• The use involves grave social harm