Requirement that No Defenses Exist

Question 1

Requirement of No Defenses

Answer 1

• Even if an agreement is supported by valuable consideration/sub, K rights may still be unenforceable b/c there is a defect in capacity, b/c there is a defense to K formation, or b/c a defense to enforcement of certain terms exists

Question 2

Defenses Based on Lack of Capacity: Ks of Infants (Minors) & Disaffirmance

Answer 2

• Infants generally lack capacity to enter into a K binding on themselves.
• Contractual promises of an adult made to an infant are binding on the adult.
• An infant (minor) may choose to disaffirm a K any time before (or shortly after) reaching majority age.
• K must be disaffirmed as a whole
• If an infant chooses to disaffirm, they must return anything that they received under K that still remains
• No obligation to return any part of the consideration that has been squandered, wasted, or negligently destroyed.

Question 3

K of Minors: Exceptions

Answer 3

• States have created a few statutory exceptions for student loans, insurance Ks, and agreements not to reveal an employer’s proprietary info

Question 4

K of Minors: Necessaries

Answer 4

• “Necessaries”: items necessary for subsistence, health, or education
• Minor may disaffirm a K for necessaries but will be liable in restitution for value of benefits received.

Question 5

Affirmance Upon Attaining Majority

Answer 5

• A minor may affirm, (choose to be bound by the K in whole) upon reaching majority.
• Done either expressly/by conduct (such as by failing to disaffirm the K within a reasonable time after reaching majority).

Question 6

Mental Incapacity

Answer 6

• One whose mental capacity is so deficient making them incapable of understanding the nature & significance of a K may disaffirm when lucid/by a later appointed legal rep.
• May affirm during a lucid interval/upon complete recovery
• Liable in quasi-K for necessaries.
• No ability to K once a guardian has been appointed (K void if attempted)

Question 7

Intoxicated Persons

Answer 7

• One who is so intoxicated that they don’t understand the nature & significance of their promise may have made only a voidable promise if other party had reason to know of the intoxication.
• May affirm K upon recovery.
• Liable in quasi-K for necessaries.

Question 8

Duress & Undue Influence

Answer 8

• Ks induced by duress/undue influence are
  voidable & may be rescinded if they are not affirmed.
• Duress occurs when a party’s assent is obtained by an improper threat
• Taking advantage of a person’s economic needs is not duress, but withholding something someone wants/needs will constitute economic duress if:
  (1) party threatens to commit a wrongful act that would seriously threaten the other party’s property/finances; and
  (2) no adequate means to prevent threatened loss.

Elements of undue influence are:
(1) undue susceptibility to pressure by one party, and
(2) excessive pressure by the other party.

Question 9

Absence of Mutual Assent: Misunderstanding - Ambiguous K Language

Answer 9

• If K includes a term with 2/more possible meanings, the result depends on parties’ awareness of the ambiguity:
  (1) Neither party aware—no K unless both parties intended the same meaning;
  (2) Both parties aware—no K unless both parties intended the same meaning; or
  (3) One party aware—binding K based on what the unaware party reasonably believed to be the meaning of ambiguous words.

Question 10

Mutual Mistake as to Existing Facts

Answer 10

• If both parties are mistaken about existing facts (not future happenings) relating to the agreement, K may be voidable by adversely affected party if:
  (1) The mistake concerns a basic assumption on which the K is made (ex.the parties think they are buying a diamond but the stone is a CZ);
  (2) The mistake has a material effect on the agreed-upon exchange (ex. CZ is worth way less of what a diamond is worth); AND
  (3) Party seeking avoidance did not assume the risk of the mistake.

Question 11

Compare - Unilateral Mistake

Answer 11

• If only one of the parties is mistaken about facts relating to the agreement, mistake will not prevent K formation.
• But, if nonmistaken party knew/had reason to know of mistake made by other party, K is voidable by mistaken party.
• Mistake must have a ME on the AUE, and mistaken party must not have assumed the risk of mistake

Question 12

Tip:

Answer 12

Uni mistakes arise most commonly when one party makes a mechanical error in computation. Whenever you see facts in which a subcontractor’s bid was wrong or acreage in a land sale K was miscalculated, consider whether the K may be avoided due to unilateral mistake

Question 13

Mistake by the Intermediary (Transmission)

Answer 13

• Mistake in transmission of offer/acceptance by an intermediary, message as transmitted is operative unless other party knew/should have known of mistake.

Question 14

Misrepresentation

Answer 14

(1) Fraudulent Misrep (Fraud in the Inducement):
- If party induces another to enter into a K by using fraudulent misrep (asserting info they know is untrue), K is voidable by innocent party if they justifiably relied on the FM

(2) Material Misrep:
- Whether/not misrep is fraudulent, K is voidable by innocent party if innocent party justifiably relied on misrep & misrep was material.

• A misrep is material if:
  (1) it would induce a RP to agree, or
  (2) maker knows that for some special reason it is likely to induce the particular person to agree, even if RP would not.

Question 15

Tip

Answer 15

Keep in mind that a FM need not be spoken/written; it can be inferred from conduct. Concealing a fact, frustrating investigation of a fact, or falsely denying knowledge of a fact is the same as asserting the fact does not exist. However, nondisclosure of a fact is not misrep unless it is material/fraudulent (ex. false denial of knowledge of a material fact).

Question 16

Misrep: Justified Reliance

Answer 16

• Reliance cannot be unreasonable under the circumstances.
• Even if misrep could have been revealed by use of reasonable care does not mean reliance was unjustified.
• Failure to read K/use care in reading does not prevent party from avoiding K for misrep

Question 17

Misrep: Innocent Party May Rescind Agreement & Recover Damages

Answer 17

• Innocent party doesn’t have to wait until they’re sued on K but may take affirmative action in equity to rescind agreement.
• May pursue all available BOK remedies

Question 18

Absence of Consideration

Answer 18

• If promises exchanged at formation stage lack elements of bargain/legal detriment, no K exists.
• In this situation, one of the promises is always illusory.

Question 19

Public Policy Defenses - Illegality

Answer 19

• If consideration/SM of a K is illegal, K is void.
• Exceptions:
  (1) P is unaware of illegality & D knows of illegality;
  (2) parties are not in pari delicto (one party is not as culpable as the other); or
  (3) illegality is failure to obtain license when license is for revenue-raising purposes rather than protection of the public.
• If only purpose behind K is illegal, K is voidable by a party who was
  (1) unaware of purpose; or
  (2) aware but did not facilitate purpose & purpose does not involve serious moral turpitude.

Question 20

Unconscionability

Answer 20

• Unconscionability allows a ct to modify/refuse to enforce entire K/provision to avoid “unfair” terms
• Unfair price alone is not enough for unconscionability.

Question 21

Procedural Unconscionability: Inconspicuous Risk-Shifting Provisions

Answer 21

• Standardized printed form Ks often contain a material provision that shifts a risk normally carried by one party to the other.
• Typically, these clauses are found in fine print (“boilerplate”)
• Cts have invalidated these provisions; inconspicuous/incomprehensible to average person, even if brought to attention.

Question 22

Pro Unconscion: Ks of Adhesion - Take It or Leave It

Answer 22

• Cts will deem a clause unconscionable & unenforceable if signer is unable to procure necessary goods, such as a car, from any seller w/o agreeing to a similar provision

Question 23

Pro Unconscion: Exculpatory Clauses

Answer 23

• Exculpatory clauses releasing contracting party from liability for their own intentional wrongful acts is usually found to be unconscionable.
• Exculpatory clauses for negligent acts may be found to be unconscionable if they are inconspicuous, unless they are in Ks for activities that are known to be hazardous (ex. K releasing a ski hill operator for liability for negligence often will be upheld).

Question 24

Pro Unconscion: Limitations on Remedies

Answer 24

• A contractual clause limiting liability for damages to property generally will not be found unconscionable unless it is inconspicuous.
• But, a K that limits a party to a certain remedy & that remedy fails of its essential purpose (ex. K limits remedies to repair & item cannot be repaired), limitation may be found unconscionable & cts will ignore it.

Question 25

Unconscion: Timing

Answer 25

-Unconscionability is determined by circumstances as they existed at time of K formation.

Question 26

Effect if Court Finds Unconscionable Clause

Answer 26

• If a ct finds a K/any clause unconscionable when made, ct may:
  (1) refuse enforcement of K;
  (2) enforce remainder of K w/o unconscionable clause; or
  (3) limit application of any clause to avoid unconscionable results

Question 27

Tip:

Answer 27

Unconscionability is seldom a good defense on MBE. That a K turned out badly for one party is insufficient in itself to give rise to unconscionability. Look for great differences in bargaining power (ex. big company vs. average consumer) before finding a K/clause is unconscionable.

Question 28

SOF

Answer 28

• In most instances, an oral K is valid.
• Some Ks must be evidenced by a writing signed by party sought to be bound.

Question 29

SOF: Promises in Consideration of Marriage

Answer 29

• Marriages must be evidenced by a writing.
• This applies to promises that induce marriage by offering something of value (other than a return
  promise to marry—ex. “if you marry my son, I will
  give the 2 of you a house”).

Question 30

SOF: Performance Not Within One Year From Date of K

Answer 30

• A promise that cannot be performed w/in 1 year is subject to SOF.
• Part performance does not satisfy SOF in this case.
• Date runs from date of the agreement; not from date of performance.
• Even if K can’t be performed within a year, full performance by 1 party will remove it from SOF

Question 31

TIP

Answer 31

Watch for K measured by a lifetime. A promise to “employ until I die” or “work until I die” is not within SOF b/c it is capable of performance within a year—people can die at any time.

Question 32

SOF: Interest in Land

Answer 32

• A promise creating an interest in land must be in writing
• Includes not only agreements for sale of real property, but also:
  (1) Leases for > 1 year
  (2) Easements > 1 year
  (3) Mortgages & most other security liens
  (4) Fixtures
  (5) Minerals (or the like)/structures if are to be severed by buyer
• Ks to build buildings/to find buyers for sellers (ex. a broker’s K) do not create an interest in land.
• Full performance by seller will take K out of SOF.
• Part performance by buyer may also remove K from SOF

Question 33

SOF: Executor/Administrator Promises Personally to Pay Estate Debts

Answer 33

• A promise by executor/administrator to pay estate’s debts out of their own funds must be in writing

Question 34

Goods Priced at $500/More

Answer 34

• A SOGK for a price of $500/more must be evidenced by a signed writing
• A writing is sufficient even though it omits/ incorrectly states a term, but K is not enforceable beyond quantity of goods shown in writing.

Question 35

Tip:

Answer 35

To determine whether SOF is satisfied, look carefully for a writing signed by party to be sued. If only one party signed writing, first check to see if signature is of party being sued. If not, consider whether merchants’ confirmatory memo rule applies. Be sure that K is between merchants; if not, that rule doesn’t apply, and signature of one party cannot bind the other.

Question 36

Tip:

Answer 36

A mnemonic for remembering when a writing
signed by party to be sued is not required for SOG, even if for $500/more, is SWAP: Specially made goods, Written confirmation by merchant, Admission in ct, or Performance. These facts take K out of SOF

Question 37

SOF: Promises to Pay Debt of Another (Suretyship Promises)

Answer 37

• A promise to answer for debt/default of another must be in writing
• Promise may arise as a result of a tort/K, but it must be collateral to another person’s promise to pay, and not a primary promise to pay.
• However, if main purpose/leading object of promisor is to serve a pecuniary interest of his own, K is not within SOF even though effect is still to pay debt of another
  -(ex. homeowner promises to pay contractor’s debt to building supplier if contractor does not pay, so contractor can obtain supplies to work on homeowner’s house)

Question 38

Tip:

Answer 38

SOF issues are often raised in MBE questions. Remember that SOF does not apply to all Ks. You must check facts to see whether K falls w/in any of covered areas. Agreements covered by SOF is MY LEGS:

Marriage
(Within one) Year
Land
Executor (or Administrator)
Goods (for $500 or more)
Surety

Question 39

Effect of Noncompliances with the Statute

Answer 39

• Noncompliance w/ SOF renders K unenforceable at the option of party to be sued.
• Party being sued may raise lack of a sufficient writing as an affirmative defense.
• If SOF isn’t raised as a defense, it is waived.

Question 40

When K is Removed from SOF: K Mod

Answer 40

• A written K can be modified orally, but mod must be in writing if K as modified falls w/in SOF
• So, for SOGK, if K as modified is for $500/more, it must in writing; if K as modified is for less than $500, no writing is necessary.

Question 41

CL: Provisions Prohibiting Oral Mods Not Effective

Answer 41

• The CLR is that even if a written K expressly provides that it may be modified only by a writing, the parties can orally modify the K.

Question 42

UCC: No Modification Clauses Effective

Answer 42

• If a K explicitly provides that it may not be modified/rescinded except by a signed writing, that provision is given effect.
• If K is between a merchant & nonmerchant, provision requires nonmerchant’s separate signature

Question 43

Mods: Waiver

Answer 43

• If parties attempt to orally modify a K that requires written mod (either b/c of a K clause/SOF), it is technically ineffective as a mod but can operate as a waiver.
• A waiver will be found whenever other party
  has changed position in reliance on oral mod.
• However, a party who makes a waiver affecting an
  executory (not yet performed) portion of the K
  may retract the waiver if they notify the other party that strict performance of the waived terms is required.
• The waiver may not be retracted if the other party detrimentally relied on it.

Question 44

When K is Removed from SOF: Performance - Land Sale Ks

Answer 44

• If seller conveys property to buyer (they fully perform), seller can enforce buyer’s oral promise to pay.
• Buyer may seek to specifically enforce an oral land sale K under doctrine of part performance.
• Most jurisdictions require 2/more of the following:
  (1) payment (in whole/in part),
  (2) possession, and/or
  (3) valuable improvements.
• A purchaser of an interest in land may enforce an oral K in this manner only in equity (meaning, they
  may sue only for specific performance, not damages).

Question 45

K Removed from SOF: Performance - Services Ks - Full Performance Required

Answer 45

• An oral K that cannot be completed w/in 1 year but has been fully performed by 1 party is enforceable.

Question 46

K Removed from SOF: Performance - SOGK

Answer 46

• Part performance takes a SOGK out of SOF when:
  (1) goods have been specially manufactured, or
  (2) goods have been either paid for/accepted.
• If sales K is only partially paid for/accepted, K is enforceable only to extent of partial payment/ acceptance.
• If goods are either received & accepted/paid for, K is enforceable.
• K is not enforceable beyond quantity of goods accepted/paid for.
• If only some goods called for in oral K are accepted/ paid for, K is only partially enforceable.
• If an indivisible item is partially paid for, most cts hold SOF satisfied for whole item

Question 47

K Removed from SOF: When Writing is Not Required

Answer 47

There are three situations in which Ks are enforceable w/ writing:
(1) Specially Manufactured Goods
(2) Admissions in Pleadings/Court
(3) Merchants - Confirmatory Memo Rule

Question 48

Specially Manufactured Goods: Writing Not Required

Answer 48

• If goods are to be specially manufactured for buyer and are not suitable for sale to others by seller in the ordinary course of their business, K is enforceable if seller has made a substantial beginning in their manufacture/commitments for their purchase before notice of repudiation is received.

Question 49

Admissions in Pleadings/Court: Writing Not Required

Answer 49

• If party against whom enforcement is sought admits in pleadings, testimony, or otherwise in ct that K for sale was made, K is enforceable w/o writing (but in such a case K is not enforced beyond quantity of goods admitted).

Question 50

Merchants - Confirmatory Memo Rule: Writing Not Required

Answer 50

• In Ks between merchants, if one party, w/in
  a reasonable time after oral agreement, sends to other party written confirmation that is sufficient to bind sender, it will also bind recipient if:
  (1) they have reason to know of confirmation’s
  contents; and
  (2) they do not object to it in writing w/in 10 days of receipt.

Tip:
Typically, 2 merchants agree on the phone & one sends written confirmation to the other. Art 2 lets 1 use its own confirmation to satisfy SOF against another merchant.

Question 51

K Removed from SOF: Equitable & Promissory Estoppel

Answer 51

• Estoppel may be applied if it would be inequitable to allow SOF to defeat a meritorious claim.
• Examples include situations where D falsely & intentionally tells P that K is not w/in SOF/induces P to change position in reliance on oral agreement

Question 52

K Removed From SOF: Judicial Admission

Answer 52

• If a party admits in pleadings/testimony that there is an agreement, it’s treated the same as though the party signed a writing.

Question 53

Writing Requirement

Answer 53

• SOF doesn’t require a formal written K
• Writing can be a receipt, letter, check with details in the memo line, or written offer that was accepted orally.
• SOF requires only 1/more writings that:
  (1) reasonably identify SM,
  (2) indicate K has been made between parties, and
  (3) state essential terms w/ reasonable certainty .

Question 54

Writing Requirement: Electronic Record Satisfies

Answer 54

• If a law requires a record to be in writing, an electronic record (such as an email) satisfies

Question 55

Writing Requirement: Essential/Material Terms

Answer 55

• There must be enough in the writing to enable a ct to
  enforce K.
• If an essential term is contained in the writing, evidence is admissible to explain particulars, but evidence will not be admitted to add a missing term.
• Exs of essential terms include: identity of parties, SM description, & terms necessary to make K definite.
• Writings evidencing land sale Ks must contain a description of land & price
• Employment Ks must state length of employment.
• For SOG, UCC requires only some signed writing indicating that a K has been made & specifying quantity term.

Question 56

TIP:

Answer 56

To be sufficient under SOF, writing need not be a full-fledged K, nor need it even be 1 piece of paper. Thus, several pieces of correspondence (including electronic correspondence) between parties could be sufficient memo of agreement; an email/memo written on a napkin also could suffice. The key is that there be something in writing evidencing the essential
terms.

Question 57

Signature Requirement

Answer 57

• Liberally construed.
• Signature is any mark/symbol made w/ intention to authenticate the writing as the signer.
• Need not be handwritten; can be printed/typed.
• UCC, a party’s initials/letterhead may also be sufficient.
• Electronic signature is also sufficient.

Question 58

Tip:

Answer 58

The memo need not be signed by both parties. Only party to be sued must sign. Thus, in a suit by buyer against seller, an otherwise sufficient writing that is signed by seller but not buyer satisfies SOF. However, if seller were suing buyer, writing would not be sufficient. (There is an exception in SOGKs in the case of a merchant’s confirmatory memo.)