Is the deal enforceable by courts? Flashcards
Consideration
Bargained-for legal value
What is consideration in bilateral contract?
Promise for promise
What is consideration in unilateral contract?
Promise for act or forbearance
What are four types of invalid consideration?
- Nominal consideration
- Past consideration
- Illusory promise
- Pre-existing legal duty
What are two types of nominal consideration?
- Gift promise
2. Conditional gift
Material benefit rule
Promise made in recognition of benefit previous received is binding to extent necessary to prevent injustice unless
- Promisor had not been unjustly enriched/conferred benefit as a gift OR
- Promise’s value is disproportionate to its benefits
Illusory promise
Promise that by its terms makes performance entirely optional for the promisor
Pre-existing legal duty
Modified contract with no new consideration
When is pre-existing legal duty not invalid consideration?
- New or different consideration
- Honest dispute over what consideration actually was
- Unforeseen circumstances
When is charitable subscription valid consideration?
Binding with proof that promisee induced action or forbearance
When is marriage settlement valid consideration?
Binding with proof that promisee induced action or forbearance
When is loan commitment (lend money/extend credit) valid consideration (binding)?
If promise is in writing or signed by lender
Under UCC, when is unspecified buyer’s requirements/seller’s output binding?
Actual output/requirement as may occur in good faith
UNLESS quantity is unreasonably disproportionate to
1. Any stated estimate
2. If no stated estimate, any normal or comparable prior output
Under UCC, when is unspecified buyer’s requirement/seller’s output not binding?
Quantity is unreasonably disproportionate to
- Any stated estimate or
- If no stated estimate, any normal or comparable prior output
Is inadequate consideration invalid?
No, courts cannot consider inadequacy
When is exclusive agency valid consideration?
Valid in good faith with best efforts
When is promissory estoppel a valid substitute for consideration?
- Promise that promisor should reasonably expect to induce action or forbearance on part of promisee and
- Which does induce such action or forbearance
- Is binding if injustice can only be avoided by enforcement of promise
Promissory estoppel
- Promise that promisor should reasonably expect to induce action or forbearance on part of the promisee and
- Which does induce such action or forbearance
- Is binding if injustice can only be avoided by enforcement of promise
When is promise for past material benefit a valid consideration substitute?
Promise to repay past material benefit is binding unless
- Promisee conferred benefit as gift or promisor has not been unjustly enriched or
- To the extent that its value is disproportionate to the benefit
What are the defenses against enforcing a contract?
- Statute of frauds
- Mistake/misunderstanding
- Fraud
- Duress
- Undue Influence
- Unconscionability
- Incapacity
- Illegality
Statute of frauds acronym
MYLEGS
How is the statute of frauds satisfied?
- Contract is in writing
- With signature of charged party and
- Including subject matter and
- Material terms of the contract
What is subject to statute of frauds?
- Marriage as consideration
- Year-long+ (cannot be performed in one year)
- Land
- Executor/administrator
- Goods of 500+
- Suretyship
Marriage as consideration
Promise for which all or part of consideration is marriage or promise to marry
Exception to SOF for marriage as consideration
Agreement which consists only of mutual promises of two people to marry each other
Exceptions to SOF for year-long+
- Lifetime commitments
2. Tasks that do not note specific-years+ dates
Exception to SOF for land
Short-term leases
Exception to SOF for goods of $500+
- Omitted/incorrectly stated term
2. Seller’s output/buyer’s requirement
When a term is ommitted/incorrectly stated, to what extent is it enforced?
Not beyond quantity shown in writing
Suretyship
Promise of credit to answer for debt of another
Exception to SOF for suretyship
Primary purpose of promise was to benefit surety
What are exceptions to SOF?
- Merchant’s exception
- Admission
- Performance
- Promissory estoppel
Merchant’s exception
- Both parties are merchants
- Buyer sends confirmation of sale
- Seller receives memo
- Seller has reason to know its contents
- Seller doesn’t respond in 10 days
Admission (exception to SOF)
Charged party admits in court that contract was made
To what extent is admission enforceable?
Not beyond quantity of goods admitted
Under common law, when is performance an exception to SOF? (2 elements)
Contract for transfer of land is enforceable if:
- Buyer makes full payment and either
a. Takes possession of land or
b. Makes substantial improvement theron
In what types of contracts is performance an exception to SOF?
- Transfer of land (common law)
2. Specially manufactured goods for $500+ (UCC)
Under UCC, when is performance an exception to SOF? (5 elements)
Contract for specially manufactured goods is enforceable if
- Goods are specially manufactured for buyer and
- Not suitable for sale to others and
- Before notice of repudiation
- Under circumstances reasonably indicated goods are for buyer
- Seller has made either
a. Substantial beginning of manufacture or
b. Commitments for their procurement or
c. Goods have been accepted, received, and paid for
Under UCC, in what type of contract is performance an exception to SOF?
Specially manufactured goods for $500+
Under common law, in what type of contract is performance an exception to SOF?
Transfer of land
When is promissory estoppel an exception to SOF?
Non-written contract is enforceable if
- Promisor could reasonably expect promise to induce performance
- Promise does induce such performance
- Injustice can only be avoided by enforcement to the extent that promisee detrimentally relied
To what extent is the contract enforced under promissory estoppel?
To the extent that the promisee detrimentally relied
What are the 5 formation defects?
- Mistake/misunderstanding
- Fraud
- Duress
- Undue influence
- Unconscionability
What are the elements of mistake/misunderstanding?
- Factual error
- Regarding fundamental matter
- That has material effect on material element of contract
What are the two types of mistakes?
- Mutual
2. Unilateral
Mutual mistake
Both parties attach materially different meanings to manifestation of assent and
- Neither party knows or has reason to know of meaning attached by other OR
- Each party knows or each party has reason to know of meaning attached by other
Unilateral mistake
One party attaches materially different meaning to manifestation of assent and
- That party does not know of any different meaning attached by other and other party knows meaning of first
- That party has no reason to know of any different meaning attached by other party and other party has reason to know meaning of first
What is the effect of a mutual mistake?
- Voidable
- By adversely affected party
- Unless he bears risk of mistake
Is a contract based on mutual mistake voidable?
Yes
Who can void a contract based on mutual mistake?
Adversely affected party unless he bears risk of mistake
When can an adversely affected party not void a contract based on mutual mistake?
When he bears risk of mistake
What is the effect of a unilateral mistake?
- Voidable
- By adversely affected party
- Unless he bears risk of mistake AND
a. Mistake makes contract enforcement unconscionable OR
b. Other party had reason to know of mistake or caused mistake
Is a contract based on unilateral mistake voidable?
Yes
Who can void a contract based on unilateral mistake?
Adversely affected party unless he bears risk of mistake AND
- Mistake makes contract enforcement unconscionable OR
- Other party had reason to know of mistake or caused mistake
What three ways are risk of mistake allocated?
- By agreement of parties
- Party is aware, at time of contracting, that he only has limited knowledge of facts to which his mistake related but treats his limited knowledge as sufficient
- By court because reasonable under circumstances
Other than allocated by court or agreement of parties, when does a party bear risk of mistake?
- When party is aware, at time of contracting,
- That he only has limited knowledge of facts to which his mistake relates
- But treats his limited knowledge as sufficient
What are the four types of fraud?
- Affirmative fraud (misrepresentation)
- Promissory fraud
- Concealment
- Non-disclosure
What are the two types of misrepresentation (affirmative fraud)?
- Fraudulent misrepresentation
2. Material misrepresentation
Misrepresentation (elements)
- Induced by either a fraudulent or material misrepresentation by other party
- Upon which recipient is justified in relying
Fraudulent misrepresentation (elements)
If maker intends assertions to induce a party to manifest his assent and
- Knows or believes that assertion is not in accordance with facts OR
- Does not have confidence that he states or implies in assertion’s truth OR
- Know that he does not have basis that he states or implies in assertion’s truth
Material misrepresentation (elements)
- Likelihood of inducing a reasonable person to manifest his assent OR
- Knowledge of likelihood of inducing particular recipient to manifest his assent
Promissory fraud
- Promise was made
- with intent not to perform
- future action
Concealment
- Action is intended or known to be likely
- to prevent another
- from learning a fact
In what four situations is a non-disclosure of fact fraudulent?
Where he knows that disclosure of fact
- Is necessary to prevent previous assertion from being fraudulent or material misrepresentation
- Would correct mistake of other party’s basic assumption upon which that party is making the contract (failure to act in good faith)
- Would correct a mistake of other party as to contents or effect of a written agreement
- Is entitled to be known to other person because of relation of trust and confidence between them
What are the two types of duress?
- Physical
2. Economic
Physical duress (elements)
- One party involuntarily accepting terms of another
2. Under physical force or restraint
How can contract made under physical duress be avoided?
- Voidable
2. By party under duress
Economic duress (elements)
- One party involuntarily accepting terms of another
- Where circumstances permitted no other reasonable alternative and
- Such circumstances were result of coercive acts of the other party
How can a contract made under economic duress be avoided?
- Voidable
2. By party under duress
Undue influence (elements)
Unfair persuasion of party who
- Is under domination of person exercising the persuasion
- By virtue of relationship between them is justified in assuming that person will not act in a manner inconsistent with his welfare
How can a contract made under undue influence be avoided?
- Voidable
2. By victim
What are two types of unconscionability?
- Procedural
2. Substantive
Procedural unconscionability
Concerns contract formation process
Substantive unconscionability
Concerns content of contract
Examples of procedural unconscionability
- High pressure commercial tactics
- Inequality of bargaining power
- Adhesion contracts
- Imbalance in understanding and acumen of parties
What are ways contract can be substantively unconscionable?
- One-sided or overly harsh
- Shocking to the conscience
- Exceedingly inequitable
Examples of substantive unconscionability
- Inflated prices
- Unfair termination clauses
- Unfair limitation on consequential damages
How can unconscionable contracts be avoided?
Court may
- Refuse to enforce contract or
- Enforce remainder of contract without unconscionable term or
- Limit application of any unconscionable term to avoid any unconscionable result
What are types of incapacity?
- Minor
- Incompetency/insanity
- Intoxication
How can a contract including a minor be avoided?
- Voidable
2. By minor
When are contracts made by minors upheld (exceptions)?
- Necessity
2. Ratified after reaching age of majority
When is incompetency a defense against enforcement of contract?
- Property is under guardianship by reason of adjudicated of mental illness/defect and
- Other party has reason to know of his condition and incompetent party is either
a. Unable to understand in reasonable manner nature of transaction or
b. Unable to act in reasonable manner in relation to transaction
How can a contract with an incompetent/insane person be avoided?
- Voidable
2. By incompetent person
What are the two exceptions to an incompetent/insane defense against enforceability?
- If guardian dies/is removed and no successor is appointed or
- Ward resumes full control of property without interference over substantial period of time
Intoxication (elements)
If the other party has reason to know that intoxicated person is unable to
- Understand in reasonable manner the nature of transaction or
- Act in reasonable manner in relation to transaction
How can a contract with an intoxicated person be avoided?
- Voidable
2. By intoxicated person
Illegality (elements)
Agreement is unenforceable on grounds of public policy if
- Legislation provides it is unenforceable or
- Interest in its enforcement is clearly outweighed by a public policy against the enforcement
How can an illegal contract be avoided?
Void, not voidable
When is reformation used as a remedy?
Where a writing that embodies agreement in whole or part
- Fails to express the agreement as proven by clear and convincing evidence
- Because of mistake of both parties as to contents of writing
How does court use reformation as a remedy?
Court may reform writing to express agreement
- At request of parties
- Except to the extent that the rights of third parties, such as good faith purchasers, will be unfairly affected
