Defenses to Enforceability

Question 1

What is a “void contract”?

Answer 1

A “void contract” is a contract that has no legal effect and is therefore unenforceable

*distinguish a void contract from a VOIDABLE, which is a contract that MAY be voided by one of the parties

Question 2

What is a voidable contract?

Answer 2

One that a party may render unenforceable for a number of legal reasons

*distinguish a voidable contract from a void contract - which is an unenforceable agreement

Question 3

What are the 7 defenses to contract formation?

Answer 3

1. lack of mutual assent due to misunderstanding or mistake
2. misrepresentation or fraud
3. duress or undue influence
4. unconscionability
5. statute of frauds
6. lack of capacity to contract AND
7. illegality

Question 4

What are the five categories of “mistake” in K law?

Answer 4

1. mutual mistake
2. unilateral
3. mistake in transcription
4. misunderstanding
5. mistake in transmission

Question 5

What is “mutual mistake”?

Answer 5

On made by BOTH parties to a contract about an underlying factual assumption at the TIME of contract formation

**a contract w/ mutual mistake is VOIDABLE by an adversely affected party if:
1. both parties are mistake about a basic assumption of the K

2. the mistake has a material effect on the deal AND
3. the party seeking to avoid the K did not assume the risk of mistake

Question 6

When is mutual mistake NOT a defense?

Answer 6

Modern Rule: mutual mistake is NOT. a defense when the adversely affected party took the risk that their assumption might be mistaken

Question 7

What is a unilateral mistake?

Answer 7

Mistake made by ONE party to a K concerning a basic assumption on which the K was made

**unilateral mistake does not excuse the mistaken party’s contractual duty to perform UNELSS:

1. the other party knew or had reason to know of the party’s mistake
2. the mistake has a material effect on the deal AND
3. the party seeking to avoid the contract did NOT assume the risk of mistake

Question 8

HYPO:

If an intermediary makes a mistake when two parties are entering into an agreement, will it serve as a defense to contract formation?

Answer 8

NO.

Generally, a k communicated by intermediary will be valid unless the other party knew or should have known of the intermediary’s mistake

*an intermediary may be a bank or other financial institution enabling the agreement between contracting parties

Question 9

HYPO:

If a party makes a fraudulent misrepresentation in an agreement, will the other party have the option to void the contract?

Answer 9

YES.

If a party has been the victim of fraud, duress, mistake, or breach by the other party, the victimized party may cancel the K

*some courts call this “unilateral rescission”

Question 10

What is the legal standard for a minority’s capacity to enter into a contract?

Answer 10

A K made by a minor is VOIDABLE at the minor’s option any time b4 or immediately after reaching the age of majority

HOWEVER, a K may be ratified and enforced against someone who was a minor at the time of K’ing but has since gained capacity and retained the benefit of the K

Question 11

Which 6 types of K’s fall w/in the Statute of Frauds?

Answer 11

MY LEGS:

M - marriage: K’s for marriage

Y - years: service k’s that cannot be performed w/in ONE YEAR

L - land: K’s for the sale of land

E - executor: contracts for an executor of an estate to pay debts from their own funds

G - goods: contracts for the sale of goods costing $500 OR MORE

S - surety: contracts to pay the debts of another person

Question 12

Which 3 essential terms are normally required in a signed writing to satisfy stat of frauds?

Answer 12

The signed wiring must contain the:

1. identity of parties
2. description of the subject matter of the K; AND
3. terms and conditions of the agreement

**these requirements are different for contracts for the sale of goods of $500 or more under UCC

Question 13

What is unconscionability?

Answer 13

K is so unfair and one-sided in favor of one party that court will refuse to enforce PART or ALL of the K

-determined by considering the circumstances at the time of k formation

Question 14

What is the “Land contract” provision of the statute of frauds?

Answer 14

a contract for the sale of land or of any interest therein must be in writing

Question 15

What is the “one-year” provision of stat of frauds?

Answer 15

Requires a memorialized wiring for ANY contracts that, by their terms, cannot be performed w/in one year from their making

**the one-year begins at the date the contract is MADE, not when performance is promised

Question 16

What is the “sale of goods” provision of the Stat of F’s?

Answer 16

a k for the sale of any goods for the price of 500 or more must be in writing

Question 17

What is the effect of noncompliance w/ the stat of frauds?

Answer 17

in most states, failure to comply w/ stat of frauds renders a contract VOIDABLE

Question 18

When will an oral contract normally falling w/in the stat of frauds nevertheless be enforceable under promissory estoppel?

Answer 18

Modern Rule: reliance by one party may prevent the other from asserting the Stat of frauds as a defense, even if the reliance does not amount to partial performance under Statute of Frauds

Question 19

HYPO:

If a contract falling w/in the stat of frauds is not memorialized in writing and one party breaches, will the non-breaching party have a remedy?

Answer 19

YES.

Normally, a party who has conferred a benefit pursuant to a K that falls within the stat of frauds may recover RESTITUTION for the value of the benefit, even if the K is unenforceable

Question 20

What is a “material” misrepresentation in K law?

Answer 20

A misrepresentation is material when:

1. it would be likely to induce a reasonable person to manifest their assent; OR
2. the maker knows that the misrepresentation would be likely to induce that specific recipient to assent

*if a party justifiably relies on a material misrepresentation made by other party, the K is voidable

Question 21

What is fraudulent misrepresentation in K law?

Answer 21

A misrepresentation is fraudulent if the misrepresenting party made a false assertion of fact (verbally OR thru conduct) w/ the intent to cause the innocent party to enter into the K

*if a party justifiable relies on a fraudulent misrepresentation made by the other party, the contract is voidable

Question 22

What are the three exceptions to the suretyship provision of the statute of frauds?

Answer 22

The Stat of Frauds suretyship provision does NOT apply if:

1. the promise is made to the debtor
2. the promisor promises to be primarily liable for a third person’s obligation; OR
3. the promisor’s main purpose in guaranteeing the obligation of another was to secure a pecuniary benefit for themselves (ie, the Main Purpose Rule)

*an oral contract is valid if ANY of these exceptions applies

Question 23

Which party’s signature must be on the signed writing to enforce a K under the statute of frauds?

Answer 23

The party to be held contractually liable must have signed the writing

*the other party DOES NOT need to have signed the K

Question 24

What is an “illegal” K?

Answer 24

A K is illegal if either the consideration or the object of the K is illegal, either because they are expressly prohibited by a statute or because they violate public policy

*an illegal K is void

Question 25

What are the 2 types of unconscionability?

Answer 25

1. PROCEDURAL: involving a defect in the bargaining process 2. SUBSTANTIVE: containing lopsided or unfair terms

Question 26

What is a "misunderstanding" in K formation?

Answer 26

occurs when a piece of the K language has at least two possible different meanings which lead to different results *generally, when there is a misunderstanding, the K is void because the parties never had a meeting of the minds

Question 27

When will duress void a contract?

Answer 27

A K is voidable on ground of duress when consent was induced by wrongful or improper threats leaving no other reasonable alternative Threats may include crimes, torts, criminal prosecution, or some other bad-faith process

Question 28

What is "economic duress"?

Answer 28

Occurs when: 1. a contracting party is treated w/ a wrongful act that would seriously impair their property or finances AND 2. there is no adequate means to prevent the threatened loss

Question 29

When may a K be unenforceable based on public policy reasons?

Answer 29

K's can be found unenforceable on grounds of public policy not only to protect one of the parties involved, but also because what the contract represents could pose harm to society as a whole

Question 30

What is the defense of incapacity to contract?

Answer 30

Individuals w/ mental incapacity (not being of sound mind) lack ability to contract A person who lacked capacity may disaffirm the contract rendering it VOID

Question 31

When a minor enters into a contract for necessities are they legally bound?

Answer 31

YES. In most states, minors are legally obligated to pay for necessities based on a quasi-contract theory *necessities generally include food, shelter, clothing, and medical care

Question 32

When will a contract be unenforceable based on misunderstanding?

Answer 32

Whether a misunderstanding or ambiguity of the terms of the contract will prevent contract formation depends on the awareness and intent of the parties Where BOTH parties were either aware or unaware of the ambiguity, there will be NO contract formation unless both parties intend the same meaning Where only ONE party was aware of the ambiguity, a contract will be formed but enforce according to the intent and understanding of the party who was unaware of the ambiguity

Question 33

In a sentence, state the general rule for the Statute of Frauds

Answer 33

Statute of Frauds requires that for a contract to be enforceable it must be in writing and singed by the party sought to be charged (ie, signed by the party against who enforcement is sought) *only applies to specific types of k's (MY LEGS)

Question 34

What is a "mistake" in k formation?

Answer 34

Mistake is when a party or parties make a faulty assumption about the present circumstances, and thus enter into a K on that basis *mistake may be either unilateral or mutual

Question 35

To satisfy the stat of frauds, the written contract for the sale of goods %500 or more must include which one specific term?

Answer 35

QUANTITY -no other terms are required

Question 36

What is the "merchant's confirmatory memo rule" and how does it affect the Stat of Frauds written requirement?

Answer 36

The UCC Stat of Frauds may be satisfied when two merchants enter an oral agreement and within a reasonable time one of them sends the other a written confirmation of the agreement In such a circumstance, the Statute is satisfied against the recipient merchant if: 1. they have reason to recognize the confirmation's content AND 2. fail to object to the confirmation within 10 days of receipt

Question 37

What are the 3 exceptions to the Stat of Frauds for UCC contracts?

Answer 37

1. specifically manufactured goods when the seller has made a substantial beginning in fulfilling the order 2. admissions in pleadings or court by the party whom enforcement is sought against 3. payment OR receipt and acceptance of goods *ALL THREE are exceptions to the writing requirement for UCC contracts