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Flashcards in Defenses to Contract Formation Deck (23)
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1

There are six defenses to Contract formation; if established, a court may choose not to enforce an otherwise valid contract

  1. Incapacity
  2. SOF
  3. Illegality 
  4. Misrepresentation/Fraud
  5. Duress
  6. Unconscionability 

2

Incapacity Definition

Infants and mentally incompetent persons lack capacity to contract. 

Intoxication: Intoxicated persons may lack capacity to contract if the other party has reason to know of intoxication. 

3

Consequences of Incapacity (3)

  • Right to disaffirm
  • Implied Affirmation (ratification)
  • Infant liability for necessities

4

Consequences of Incapacity 

Right to disaffirm

Persons who lacked capacity to contract may disaffirm the contract, which renders it void. 

5

Consequences of Incapacity 

Implied Affirmation (ratification)

A contract can be enforced agaisnt an infant at the time of contract formation if she has since gained capacity and retained benefits of the contract. 

Look for:

  1. Agreement entered into before capacity
  2. Capacity has since been gained 
  3. Benefits have ben retained. 

6

Consequences of Incapacity 

Infant liability for Necessities

Infants are legally obligated to pay for necessities (food, clothing, medical care). 

  • Liability is based on quasi-contract, so infant cannot be sued for breach of contracr bc there is no contract. 

7

Contract within The Statutue of Frauds Definition 

If a contract is within the SOF, it must satisfy SOF requirements to be enforceable. 

8

Contracts with SOF

  1. Marriage Contracts
    1. Promises made in consideration for marriage
  2. Services incapable of being completed within one year
  3. Land Related Contracts Executor Promises 
  4. Guarentees 
  5. Sales of Goods for $500 or more

9

SOF does not apply to lifelong contracts or contracts that say nothing about ____

time for performance– both are technically capable of being perfromed in one year. 

10

Methods of Satisfying the SOF

Signed Writing 

A writing containing the signature of the party asserting the SOF defense. 

  • UCC – signed writing is not required if:
    • Both parties are merchants, and 
    • The party asserting the SOF defense received a signed writing memorializing the agreement and failed to resond within ten days.

11

Methods of Satisfying the SOF

Performance  

Performance may satisfy SOF:

  • Service contracts –only full performance satisfies the SOF 
  • Sale of Goods – delivery of goods satisfies SOF
    • Custom made goods – once seller makes a substantial beginning toward perfromance
  • Real Estate – part performance by the buyer satisfies SOF if buyer has done two of the following three:
    • Full or part payment 
    • Possession of property 
    • Improvements to property

12

Illegality

Look for illegal subject matter or purpose for the contract.

  • Illegal subject matter – contract not enforceable
  • Legal subject matter but illegal purpose – contract only enforceable by one who did not know about its illegal purpose
  • Legality is based on existing law at the time of contract formation. 

13

Misrepresentation 

Includes false assertions, concealment, or misstatements about a material fact before contract formation. 

  • Contract will be voidable if A induces B into a contract by misrepresentation and B relies on the misrepresentation. 

14

Duress

Includes both economic and physical duress

  1. Contracts induced by physical duress are void
  2. Contracts induced by non-physical coercison or threats are voidable. 

 

15

Unconscionability 

Courts may refuse to enforce all or part of a contract that is unfair or oppressive to one party based on unfair bargaining and or unfair substantive terms. 

16

Misunderstanding Definition 

Ambiguity concerning terms of the contract

17

Misunderstanding 

Neither Party Aware of Ambiguity 

No contract formed unless both parties intedned the same meaning. 

18

Misunderstanding 

One Party Aware of Ambiguity 

Contract formed and enforced according to the intention of the party unaware of the ambiguity. 

  • If A knows B misunderstands but remains silent, contract enforced according to B's understanding. 

19

Misunderstanding 

Both Parties Aware of Ambiguity 

No contract formed unless both parties intended the same meaning. 

20

Mutual Mistake of Fact Definition 

Both parties are mistaken about an underlying factual assumotion at the time of contract formation. 

21

Mutual Mistake of Fact Elements 

  1. Both parties are mistaken
  2. Mistake concerns a basic assumption of fact
  3. Mistake materially affects the agreed upon exchange
  4. Adversely affected party did not assume the risk of the mistake 

Contract is voidable by an adversely affected party.

22

Unilaterial Mistake Definition

Once party makes a mistake concerning facts of an agreement; ususally with computational errors. 

23

Unilateral mistake will not prevent contract formation, unless

Mistekn party may void contract if mistake is material and non-mistaken party knew/should have known of mistake.