Defenses to Formation / Enforceability

Question 1

incapacity

Answer 1

must have capacity to enter into a K
- K is voidable by the person who lacked capacity

lack of capacity: either
1. lack of mental capacity
2. minor

Question 2

lack of mental capacity

Answer 2

person CANNOT understand the k’s meaning & effect
- Intoxication: may be deemed a lack of capacity ONLY if other person has reason to know of intoxication

Question 3

minors

Answer 3

persons under 18 years old
- Exception 1: necessities - minors are bound on Ks for necessities (food, shelter, clothing, medical care)
- Exception 2: implied affirmation - contract can be enforced if minor:
1. lacked capacity @ time of K,
2. gains capacity later, AND
3. retains benefit of K w/out complaint

Question 4

duress

Answer 4

is a wrongful act or threat that overcomes the free will of a person
- Physical Compulsion: K is VOID - occurs if a person phsyically compels another person to agree to a K (eg, by gun-point)

Question 5

non-physical / economic duress

Answer 5

K is VOIDABLE by V. Occurs when:
1. an improper threat is made,
2. that induces a party,
3. who has NO reasonable alternative,
4. to enter into a K

NOTE: a mere threat to breach a K (without more) is generally NOT sufficient

Question 6

undue influence

Answer 6

K is VOIDABLE by V. Requires:
1. unfair persuasion of a person (eg, overbearing pressure), AND
2. who is either:
- under the domination of the person exercising influence, OR
- in a sufficiently close relationship to justify believing that the other person will act in their interest or welfare (eg, family, fiduciary relationship)

Question 7

mistake

Answer 7

2 types:
1. mutual mistake
2. unilateral mistake

Question 8

mutual mistake

Answer 8

K is VOIDABLE if:
1. both parties are mistaken,
2. as to a basic assumption of fact,
3. the mistake is material, AND
4. the person asserting the mistake did NOT bear the risk of the mistake

NOTE: a mistake as to price/value is NOT considered material

Question 9

unilateral mistake

Answer 9

generally NOT a valid defense. occurs when:
1. a mistake by one party,
2. that is unknown to the other party,
3. concerning a basic assumption,
4. has a material effect

BUT: a K is VOIDABLE by mistaken party if:
1. one party knew or had reason to believe of the other’s mistake, OR
2. the mistake makes the K unconscionable
Eg, construction bid

Question 10

misunderstanding (ambiguity as to K term)

Answer 10

a K is NOT formed when:
1. a K term is material & ambiguous,
2. the parties have different subjective meanings of a K term, AND
3. neither party is aware of the ambiguity

• If one party is aware of meaning understood by other party –> K is formed according to the understanding of the unaware party
• if parties have same incorrect subjective meaning –> a K is formed according to that meaning

no meeting of the minds

Question 11

fraudulent misrepresentation

Answer 11

K is VOIDABLE by injured party. Occurs when:
1. D knowingly,
2. made a false representation,
3. of material fact, AND
4. the other party reasonably relies on the misrepresentation to their detriment

Question 12

non-fraudelent misrepresentation

Answer 12

K is VOIDABLE by injured party. Occurs when:
1. a party/agent,
2. makes a mistake of material fact,
3. that is false (no wrongdoing required)
4. inducing a K, AND
5. the other party reasonably relied on the misrepresentation to their detriment

Question 13

non-disclosure

Answer 13

there is no duty to disclose UNLESS:
1. active concealment occurs,
2. a fiduciary relationship exists,
3. it’s necessary to correct an earlier mistake, OR
4. failure to correct a past statement from being misleading

NOTE: failure to disclose when required is deemed a misrepresentation

Question 14

concealment

Answer 14

an affirmative act intended to keep another person from learning a fact
- concealment is deemed a misrepresentation

Question 15

illegality

Answer 15

courts will NOT enforce illegal Ks
- Illegal subject matter: K is VOID
- Illegal purpose: K is VOIDABLE by the party who did NOT know of the illegal purpose

NOTE: performance is discharged if the K subsequently became illegal

Question 16

public policy

Answer 16

courts will NOT enforce Ks that are contrary to public policy

Question 17

restrictive covenant

Answer 17

is ENFORCEABLE if reasonable in:
1. time,
2. geographic area, AND
3. scope of activity limited

• if found unreasonable, most courts will enforce a restrictive covenant up to its reasonable limits

Question 18

unconscionability

Answer 18

occurs when the contract/term shocks the conscious of the court

Usually need BOTH:
1. Procedural unconscionability: unfair bargaining - one party has a suprioer bargaining position over the other party and uses that power to their advantage
2. substantive unconscionability: unfair terms - K contains terms that are obviously unfair and one-sided in favor of the party w/ superior bargaining power

Question 19

unconscionability discretion

Answer 19

if unconscionable, the court MAY
1. refuse to enforce the K,
2. enforce the K w/out the unconscionable term, OR
3. limit the application of the term

Question 20

statute of fraud (SOF)

Answer 20

Ks subject to SOF are NOT VALID UNLESS in writing

Writing Requirement: writing must:
1. be signed by the party to be charged,
2. reasonably identify the subject matter,
3. indicate a contract was made, AND
4. state the essential terms

Question 21

Ks subject to SOF

Answer 21

1. Marriage Ks: promise in consideration of marriage
2. Contracts that cannot by fully performed w/in 1 year: performance w/in 1 year MUST be impossible (think Superman)
3. Land contracts: sale of land or crating an interest in land (eg, lease > 1 year)
4. Executor/Administrator Promise: a promise to pay an estate’s debt from personal funds of the executor/administrator
5. Sale of goods for $500+
6. Suretyship: a promise to pay the debt of another
   - Main Purpose Exception: NO writing is required if the main purpose was to benefit the surety

Question 22

UCC SOF exceptions

Answer 22

1. Merchant’s Confirmatory Memorandum: K between two merchants, a writing signed ONLY by the party enforcing it, AND other party did not promptly object w/in 10 days
2. Goods accepted OR paid for: but ONLY applies for those goods, NOT whole K
3. Custom Made Goods: seller made substantial start AND the goods are NOT suitable for sale in the ordinary course of seller’s business
4. Judicial Admission/Acknowledgement: an admission during a judicial proceeding

Question 23

CL SOF exceptions

Answer 23

1. Full performance
2. Judicial acknowledgement: party admits to K in pleadings or testimony
3. Estoppel: reasonable & foreseeable detrimental reliance (some jxs)
4. Partial performance in land contracts: need two of the following:
   - made payment for land,
   - took posession of land, and/or
   - made valuable improvements to land