contracts - 3. defenses.txt
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- 1) Statute of Frauds
- 2) Mistake
- 3) Illegality
- 4) Incapacity
- 5) Unconscionability
- 6) Duress
- 7) Fraud
Who has incapacity to contract?
- 1) children under 18
- 2) insanity (mental incompetents, lack ability to understand agreement)
- 3) intoxication (if other party has reason to know)
What are the rights of someone who enters into a contract without capacity?
- 1) contract is VOIDABLE by person without capacity! cannot be enforced against someone without capacity
- 2) But if P lacks capacity, he can enforce the contract against D, who had capacity
- a) Implied affirmation by retaining benefits after later gaining capacity
- b) Quasi-Contract Liability for Necessaries/Necessities
- A person who does not have capacity is legally obligated to pay for things that are necessary such as food, clothing, medical care or shelter, but that liability is based on quasi-contract law, not contract law. (only asked to pay FMV)
Duress as a defense?
- Physical or economic duress voids K
- 1) Bad guy makes improper threat (usually threat to breach existing K); AND
- 2) vulnerable guy no reasonable alternative
- 1) special relationship between the parties, and
- 2) improper persuasion of the weaker by the stronger
Misrepresentation/Fraud as a defense?
- 1) Intentional misrepresentation of a material fact
- 2) that induces the K (reliance on the misreprentation required)
- 3) Remedy: recission of K (voidable)
- 4) If party seeks money damages and there was intent/negligence, apply torts
Nondisclosure of material fact as a defense?
- Generally, no contract law duty to disclose.
- Must be wrongful for it to be reason for nonenforcement (usually more a concealment issue).
- Look for fiduciary-like relationship or concealment.
Unconscionability as a defense?
- Unconscionability makes K or provision unenforceable where unequal bargaining power exists
- Tested at time the agreement was made
- Ex: adhesion contracts or inconspicuous provisions
- 1) Procedural unconscionability (unfair surprise - tiny print)
- 2) Substantive unconscionability (harsh/oppressive terms)
- 1) subject matter illegal? K void
- 2) Consideration is illegal? K void
- 3) K entered into for the PURPOSE of doing something illegal, but the subject matter itself is legal? valid K
- If the subject matter is legal, the agreement is enforceable if the plaintiff did not have reason to know of the defendants illegal purpose.
Void against public policy K?
- Courts can refuse to enforce an agreement because of public policy.
- Look for:
- 1) an exculpatory agreement that exempts intentional or reckless conduct from liability, or
- 2) a covenant not to compete without a reasonable need or reasonable time and place limits
Statute of Frauds applies to what types of contracts?
- Statute of Frauds designed to make it harder to make a false claim that there is a contract, by requiring special proof a K exists (generally performance or writing).
- If K falls w/i SoF, p needs to provide more than just oral testimony to show there was a K.
- Does the K fall within the SoF? MYLEGS
- 1) Marriage (prenuptial or postnuptial agmt)
- 2) Service K that cannot be performed in < 1 Year
- 3) Land (includes easements, and leases > 1 year)
- 4) Executor (promise to personally pay one's own money to satisfy an obligation of the estate)
- 5) Goods over $500
- 6) Surety (promise to pay if someone else does not pay)
- Surety exception: if alleged guarantor was the beneficiary of K, then he cant claim SoF as a defense (dont need writing to hold him liable)
- Concern is P is making up this agreement. But if the debt on goods is used for Ds house, seems more likely that D might have promised to pay if T did not.
How is statute of frauds satisfied?
- If SoF applies, then the requirements of SoF must be met for the agmt to be enforceable. If the SoF requirements are not met, then D has a SoF defense, and there is no enforceable agmt, and no K liability.
- Satisfied by:
- 1) Writing
- 2) Performance (real-estate, service K's, sale of goods)
Statute of Frauds requirements for a writing?
- 1) Non-goods: writing must contain all material terms (parties & what) and must be signed by person asserting SoF defense (defendant)
- 2) Goods (UCC): quantity & D's signature (initials or letterhead OK)
- Merchant exception: if both parties are merchants, merchant would've objected if there was a fraud
- a) person who is in breach received a letter signed non-breaching party, and
- b) failed to respond w/i 10 days
Signed writing not required for SoF when?
- 1) Specially made goods
- 2) Written confirmation by merchant (if both merchants)
- 3) Admission in court (D, under oath, admits there was an agreement)
- 5) Performance
Performance satisfying SoF for Real Estate Transfers?
- SoF satisfied if buyer has partially performed. Must have done 2 of 3:
- 1) payment,
- 2) improvements,
- 3) possession
Performance satisfying SoF for Services Contracts?
- 1) Full performance by either party satisfies the statute of frauds.
- 2) Part performance of a services contract does not satisfy the statute of frauds. No recovery under contract law [look to quasi-contract!]
Performance satsifying SoF for Sale of Goods Contracts?
- 1) Delivered goods: if dispute over delivered goods, SoF satisfied
- 2) Non-delivered goods: if dispute over undelivered goods, SoF applies
- 3) Specially manufactured goods: SoF satisfied once seller has made substantial beginning
Equal dignity rule
Authorization to enter into a K for someone else must be in writing if K itself is within SoF (if not in SoF, no writing auth needed)
Modification of a K, does SoF apply?
if new deal w/alleged changes falls w/i SoF, modification must be in writing (only look at purported new deal to decide whether w/i SoF)
If K provision requires all Modifications be in writing, enforceable?
- CL: a K provision requiring modifications in writing has no effect (ignore)
- UCC: K provision requiring written modification is effective unless waived
Ambiguity in Words (Misunderstanding)
- There will be no K if:
- 1) Parties use material term open to 2 reasonable interpretations,
- 2) Each party attaches different meanings,
- 3) Neither party knows/has reason to know term is open to at least 2 reasonable interpretations
- If both are aware of ambiguity, no K unless both intended same meaning.
- If only one party is aware of the ambiguity, there is a contract, as understood by the unknowing party
Mutual mistake to a K?
- voids K if
- 1) basic assumption of fact that
- 2) materially effects the agreed upon exchange (NOT price or value)
Unilateral Mistake to a K?
Generally no relief unless non-mistaken party knows or should have known mistaken party was operating under mistake
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