Sub-Formation: Non-SOF Reasons Not to Enforce Agreements

Question 1

Aside from SOF, what are eight other reasons for not enforcing a contract?

(I PUN’D MAM)

Answer 1

1. Illegality
2. Public policy
3. Unconscionability
4. Nondisclosure
5. Duress or undue influence
6. Mistake of fact existing at time of contract
7. Ambiguity in words of agreement
8. Misrepresentation

Question 2

What is illegality w/r/t non-enforcement of a contract?

Answer 2

Contract could be illegal subject matter or have an illegal purpose:

1. IF illegal subject matter, agreement is not enforceable. (e.g., A pays B $5k to injure C. If B does not, A can’t recover from B. Ks for illegal acts are unenforceable.)
2. IF illegal purpse, but the subject matter is legal, agreement is enforceable IF P does not have reason to know of D’s illegal purpose. (e.g., If B books a flight to get to C, but B doesn’t pay for the ticket, the airline CAN recover from B for breach. Airline doesn’t know why B is going to his destination.)

Question 3

What is the difference between illegal subject matter and illegal purpose?

Answer 3

Subject matter is what the agreement is for (e.g., agreement to harm somebody)

Purpose is what D plans to do having created the agreement (e.g., flight to go harm somebody)

Question 4

When is illegality a bar to enforcement of agreement? (2 times)

Answer 4

1. When the subject matter is illegal; OR
2. If P had reason to know of D’s illegal purpose

Question 5

What are two common examples of agreements not enforced under public policy?

Answer 5

1. Exculpatory agreements for recklessness (i.e., Agreements to exempt someone from liability for intentional or reckless conduct)
2. Covenants not to compete that (i) are not reasonably necessary OR (ii) do not have reasonable time and place limitations.

Question 6

What is an exculpatory agreement?

Answer 6

A contract provision that eliminates liability

Question 7

When are exculpatory agreements not enforceable?

Answer 7

For intentional or recklessness conduct

Question 8

What are the three requirements for a non-compete agreement (NCA) to be valid?

Answer 8

1. Reasonable need;
2. Reasonable time limits; AND
3. Reasonable geographical limits.

Question 9

When does a misrepresentation prevent enforcement of an agreement? (5 elements)

Answer 9

Look for the following facts:

(i) A statement of “fact” before the agreement, (ii) made by one of the contracting parties or her agent, (iii) that is false, (iv) that is fraudulent OR material (innocence and honesty are irrelevant), and which (v) induces the contract.

(This is a good answer choice)

Question 10

Generally, a person making a contract has no duty to disclose what he knows.

BUT when will nondisclosure prevent enforcement of an agreement?

Answer 10

Nondisclosure of fact by a contracting party will prevent enforcement of the contract IF:

1. There is a fiduciary-like relationship between the parties; OR
2. There is concealment.

Question 11

What is the difference between nondisclosure and concealment?

Answer 11

Concealment involves affirmative steps to prevent another party from discovering information

Question 12

What are the three kinds of duress that can make a contract unenforceable?

Answer 12

1. Physical duress (self-explanatory)
2. Economic duress (“bad guys” and “vulnerable guys”)
3. Undue influence (Generally, a special relationship between the parties and improper persuasion of the weaker by the stronger)

Question 13

What are the elements of economic duress?

Answer 13

There must be:

1. A “bad guy” (someone who makes an improper threat, usually to breach existing contract); AND
2. A “vulnerable guy” (someone with no reasonable alternative).
   (e. g., A and B had an agreement for the sale of 1,000 lbs of specialty chocolate for $2,000. A refuses to perform unless B pays $2,500. B has no other source of the chocolate and needs it, so agrees in writing to pay the additional $500. A delivers the chocolate. B can get out of paying the extra cash due to duress.)

Question 14

What are the elements of undue influence?

Answer 14

1. Special relationship between the parties AND
2. Improper persuasion of the weaker party

Question 15

What is the doctrine of unconscionability?

What are the two types?

(What is required in NY?)

Answer 15

Unconscionability empowers a court to refuse to enforce all or part of an agreement IF:

1. There was unfair surprise (procedural test) OR oppressive terms (substantive test)
2. At the time the contract was made
3. As tested by the court.

(NY: requires both unfair surprise and oppressive terms)

Question 16

What happens if a term is found unconscionable?

Answer 16

The court can refuse to enforce all or part of the agreement

Question 17

When does ambiguity prevent enforcement of an agreement? (3 elements)

(Raffles v. Wichelhaus - Peerless case)

Answer 17

1. Parties use a material term that is open to at least two reasonable interpretations;
2. Each party attaches different meaning to the term; AND
3. Neither party knows or has reason to know the term is open to at least two reasonable interpretations

Question 18

What happens if one party knows of an ambiguity in an agreement?

Answer 18

The contract will be enforced as understood by the party in ignorance

Question 19

What distinguishes mistake contract cases from misrepresentation contract cases?

Answer 19

If one person does anything that causes the other to get the wrong idea, it’s misrepresentation

If both arrive at the wrong idea on their own, it’s a mistake

Question 20

What is the general rule on misrepresentation vs. mistake fact patterns?

Answer 20

Generally, there will be relief for misrepresentation but NOT for mistakes.

There will be relief for MUTUAL mistakes, but only if both parties are indeed mistaken (and not just uncertain) about an existing, MATERIAL fact (i.e., not something that might occur in the future AND something that is important).

(Upshot: Generally, mistakes don’t matter!)

Question 21

When does mistake of fact prevent enforcement of an agreement?

Answer 21

Mistake of fact will void an agreement IF:

1. The mistake of fact was mutual;
2. The mistake of fact existed at the time of agreement;
3. Both parties were indeed mistaken (not merely uncertain); AND
4. The mistake was material.

(N.B. Person seeking relief does not bear the risk of mistake)

(N.B. Look for an answer that says mistakes don’t matter)

Question 22

What other factors should be considered when a fact pattern presents a mistake of fact?

Answer 22

1. Misrepresentation
2. Concealment
3. Nondisclosure

Question 23

When does a party bear the risk of a mistake in an agreement?

Answer 23

When he could have found out more, but chose not to

Question 24

When do courts grant relief for unilateral mistakes?

Answer 24

When the other party had reason to know of the mistake

Question 25

What is the difference between a void and a voidable contract?

Answer 25

A void contract is never enforceable

A voidable contract is unenforceable against the disadvantaged party