Defenses to Formation & Enforcement

Question 1

Mutual mistake

Answer 1

Mutual mistake when both parties are mistaken as to basic assumption on which agreement is made. The adversely affected party may rescind if: (1) there is a mistake of fact existing at time contract was formed; (2) mistake relates to basic assumption of contract; and (3) the impacted party did not assume risk of mistake.

Question 2

Unilateral mistake

Answer 2

Unilateral mistake applies when only one party is mistaken to an essential element of contract. The mistaken party can rescind contract if: (1) mistake would make enforcement of contract unconscionable; or (2) non-mistaken party failed to disclose mistake or caused mistake.

Question 3

Fraudulent misrepresentation

Answer 3

Fraudulent misrepresentation is an intentional misrepresentation of a fact that the innocent party justifiably relies on. Misrepresentation can be affirmative or through non-disclosure.

Question 4

Fraud in the factum

Answer 4

Fraudulent misrepresentation prevents a party from knowing the character or essential terms of transaction, apparent contract is void.

Question 5

Fraud in the inducement

Answer 5

If fraudulent misrepresentation is used to induce another to enter into contract, the contract is voidable by adversely affected party if she justifiably relied on misrepresentation in entering into agreement.

Question 6

Undue Influence

Answer 6

Undue influence occurs when a party unfairly persuades other party to assent to a
contract.

Question 7

Duress

Answer 7

Duress occurs when a party is improperly threatened and feels he has no meaningful choice but to agree to contract. When party’s agreement to enter into contract is physically compelled by duress (e.g., a threat to inflict physical harm), contract is void. When party is induced to enter into contract due to other duress (e.g., a threat of pursuing a civil action in bad faith), contract is voidable.

Question 8

Capacity

Answer 8

Certain parties are considered to be incompetent to enter into contract (e.g., due to infancy, mental illness, or intoxication).

Question 9

Statute of Frauds - Contracts applies to

Answer 9

The SOF applies to contracts involving:
1) Marriage
2) Suretyship
3) Contracts that cannot be performed within one year of making
4) Sale of goods for $500 or more
5) Real property

Question 10

Statute of Frauds - Requirements

Answer 10

A writing will satisfy the statute of frauds if writing: (1) signed by party against whom enforcement is sought; (2) shows that contract was formed; and (3) includes requisite terms.

Question 11

Statute of Frauds - Satisfaction by performance (one year provision)

Answer 11

Under common law, full performance of a services contract by either side satisfies the statute of frauds. Part performance does not satisfy.

Question 12

Statute of Frauds - Satisfaction by performance (sale of land)

Answer 12

Real estate contracts can satisfy the statute if seller fully performs (ie, conveys land) or buyer performs two of following actions: (1) takes possession of property, (2) makes payment in full or in part; and/or (3) buyer makes substantial improvements to land.

Question 13

Statute of Frauds - Satisfaction by Performance (written confirmation between merchants)

Answer 13

Under the UCC, statute of frauds can be satisfied if after an oral agreement between merchants, either party sends a signed, written confirmation of oral contract and written confirmation is received by other merchant, unless the party receiving written confirmation gives written notice of objection within 10 days of receipt.

Question 14

Statute of Frauds - Satisfaction by Performance (specially manufactured goods)

Answer 14

Under the UCC, statute of frauds is satisfied when seller makes a “substantial beginning” towards manufacturing of custom goods that are to be specially made for sale for buyer and not suitable for sale to others in ordinary course of business.

Question 15

Statute of Frauds - Satisfaction by Performance (specially manufactured goods)

Answer 15

Under the UCC, statute of frauds is satisfied when seller makes a “substantial beginning” towards manufacturing of custom goods that are to be specially made for sale for buyer and not suitable for sale to others in ordinary course of business.

Question 16

Unconscionability

Answer 16

If contract is so unfair or oppressive to one party that it shocks conscious of court, court may find it unconscionable. Court may refuse to enforce entire contract, strike unconscionable portion of contract, or limit unconscionable terms.

Question 17

Unconscionability - Types

Answer 17

Two types of unconscionability that courts consider. Procedural unconscionability occurs when there is a defect in bargaining process, and substantive unconscionability occurs when terms of deal are grossly unfair and one-sided to one party’s favor.

Question 18

Warranties in sale of goods contracts - Express warranty

Answer 18

Any promise or description that’s part of basis of bargain is an express warranty, unless it is merely seller’s opinion of value of goods.

Question 19

Warranties in sale of goods contracts - Implied warranty of merchantability

Answer 19

Warranty of merchantability is implied whenever seller is merchant. The goods must be fit for their ordinary purpose and pass without objection in trade under contract description. Warranty can be disclaimed through clear, written “as is” statement or oral statement that uses term “merchantability”.

Question 20

Warranties in sale of goods contracts - Implied warranty of fitness for a particular purpose

Answer 20

Warranty that goods are fit for particular purpose is implied if seller has reason to know that buyer has particular use for goods and buyer is relying upon seller’s skill to select goods. Seller need not be a merchant for implied warranty to apply. Warranty can be disclaimed by general language such as “as is” but disclaimer but be in writing and conspicuous.