Is the Agreement Legally Enforceable? Flashcards
What are the defenses against formation of a contract? (i.e. is the contract legally enforceable)
(9)
- Lack of Capacity (minors, intoxicated, mentally incompetent)
- Economic Duress
- Misrepresentation/Non-Disclosure of a Material Fact
- Ambiguity/Misunderstanding
- Mistake about a Material Fact (rules for mutual mistake and unilateral mistake)
- No Consideration
- Public Policy
- Unconscionability
- Statute of Frauds
When is lack of capacity a defense to contract formation?
What are exceptions?
Categories: Minor, Intoxication, Mental Incompetency
General Rule: An incapacitated defendant may disaffirm the contract. (i.e., up to the incapacitated party whether they want to enforce the contract).
Exception: Implied Affirmation occurs when the defendant retains the benefit after regaining capacity. (Ex.: Harry turns 18 and keeps using a motorcycle he contracted to purchase prior to 18. He is then bound).
Exception: Necessaries: An incapacitated party is liable for necessaries but only for their reasonable value, not the contract price. (food, shelter, clothing, medical care)
What are necessaries?
Why do they matter?
Food, shelter, clothing, medical care.
They matter because an incapacitated party is liable for their reasonable price (not their contract price).
When is economic duress a defense to contract formation?
Rarely. Need a situation where there is:
1) Threat to break existing contract
2) Only reason buyer agreed to 2nd deal was to get the 1st deal done.
3) Buyer had no reasonable alternative.
Example: Forcing buyer to make another contract to enforce the first one, when buyer has no real option.
When is misrepresentation/non-disclosure of a material fact a defense to contract formation?
This is categorical.
A misrepresentation or non-disclosure of a material fact is a fatal flaw in the agreement process, even if the misrepresentation is honest!
Example: S is selling house. S tells B his house has no foundation problems. S has no idea, but the house actually does have foundation problems.
Answer: B is NOT BOUND to contract because of misrepresentation of a material fact.
When is ambiguity/misunderstanding a defense to contract formation?
Ambiguity/misunderstanding is when the parties are on different wavelengths (contrast with mutual mistake doctrine, where parties are on same (incorrect) wavelength).
Two scenarios:
1) When BOTH parties have no reason to know of misunderstanding:
* Example: Parties contract for goods to be shipped on the Peerless, and neither parties knows there are 2 Peerless’ coming at 2 different times. There is then no contract.
2) When one party has reason to know the truth about the misunderstanding/ambiguity, then _the innocent parties’ meaning prevails_.
* Example: If the buyer knows there are 2 Peerless ships and the seller does not, then the contract term will be the ship the seller thought was the correct Peerless.
When is a mistake about a material fact a defense to contract formation?
Examples?
Two scenarios:
1) Mutual Mistake: When both parties have made a mutual mistake about something central to the contract, the contract will not be enforced.
* Example*: a) the painting B+S are contracting to exchange is was destroyed by fire two days before agreement. b) Both parties think the painting is by Warhol, but it was really by another artist.
Watch out: Mutual mistake in value is generally NOT considered material.
2) Unilateral Mistake (rarely tested): One party’s mutual mistake is usually not a defense to formation unless the other party knew or had reason to know about it.
* Example:* Madonna agreed to sell Scalia a print. Scalia believed it was by Warhol, and Madonna did not.
Answer: NOT A DEFENSE TO FORMATION unless she knew of his mistake.
What is consideration?
What does it do in contract doctrine?
1) Consideration is a bargained for legal detriment/benefit.
Can include, a promise, performance, or a forbearance!
2) Lack of consideration can be a defense to formation.
Is past consideration valid consideration?
MBE: Past consideration is no consideration at all!
New York: Past consideration IS consideration IF:
1) Expressly stated in a signed writing and can be proven.
Ex: John helped Jim move. Jim then signed a letter saying I promise to pay you $300 for helping me move. In NY, this is sufficient past consideration as long as John can prove he helped Jim move.
Do we care about the adequacy of consideration?
No.
What is an illusory promise?
Why does it matter?
Is it a defense to formation?
An illusory promise is unenforceable.
An illusory promise poses a consideration problem. If gives a party an option of not facing any detriment.
Example: We agree that I can buy as many widgets as I wish for $100 each. This is illusory because I can choose to purchase no widgets.
Contrast this with a requirements K, because there he has given up the right to buy widgets elsewhere.
3) It is a defense to formation based on consideration issues.
Is new consideration required to modify an existing contract?
Common Law: New consideration IS required to modify an existing contract. (performing a pre-existing duty is not enough).
New York: In NEW YORK, don’t need consideration if the modification is in a signed writing.
NOTE: a Third party cannot use pre-existing duty ruly as a defense to formation [if a third-party offers to pay you for something you are already contracted to do for someone else, the new agreement is still enforceable].
Article 2: Consideration is NOT required to modifiy a contract, but you must show good faith.
Do you need new consideration to modify a contract under Article 2?
No, only good faith.
Example:
John offers Miley $20,000 to sing at his party. Later, Tim offers Miley an extra $5,000 to sing at the same party. Can Miley enforce Tim’s promise?
Answer: Yes, a third-party cannot assert the pre-existing duty rule as a defense to contract formation.
Is the partial payment of a debt and the release of the remainder of the debt obligation consideration?
Depends if the debt is due and undisputed.
1) If the _debt is due and undispute_d, then an agreement where Visa allows you to pay $2,000 of your $2,500 credit card bill is not enforceable bc there is no new consideration.
New York: If the agreement is in a signed writing, then in New York no new consideration is necessary
2) If the debt is not due, or it is disputed, then the new agreement is enforceable because it is either a settlement, or an early payment, respectively.
