Contracts 2B

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Contracts 2B
2010-06-10 19:36:39
Defenses Against Formation

Contracts 2B -Defenses against Formation
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  1. How can a party challenge (defend against) the FORMATION of a K?
    • Lack of legal capacity (voidable, but not for necessities or if ∆ enjoys benefits of K)
    • Economic duration (rarely successful)
    • Misrepresentation or Non-Disclosure of a Material Fact (even if innocent)
    • Ambiguity or Misunderstanding (unless one party knows or has reason to know of other party's misunderstanding, then the innocent party's understanding will govern)
    • Mutual Mistake regarding a Material Fact
    • Lack of Consideration (see separate cards)
    • Public Policy
    • K is Unconscionable
  2. When is a promise supported by CONSIDERTATION?
    When its been "bargained-for" in exchange for a legal detriment or benefit.

    A person can bargain for a promise (usually the case), performance, or even forbearance. Whether consideration is adequate (e.g., $500 for a rubber pencil topper) is irrelevant—the law does not care about actual value, and will presume adequacy if there has been bargaining.
  3. Can past performance support a present promise?
    • MBE: No. Past consideration is not consideration at all.
    • NYBE: Past consideration is consideration IF (i) its expressly stated in a signed writing, and (ii) can be proven.
  4. Can a K be modified without new consideration? (hint: common law vs. Article 2)
    • Common Law: NO. Performance of a pre-existing duty is not enough to make a K modification enforceable. To be enforceable, the modification must be supported by new consideration (e.g., additional money, extra performance, etc.)
    • Sale of Goods (Art. 2): YES. New consideration is not required to make a K modification enforceable, but the proponent of the modification must show good faith.
  5. Can PARTIAL PAYMENT of a DEBT be consideration that supports FORGIVENESS of the debt's balance?
    Depends on whether the debt is in dispute.

    If the debt is undisputed, partial payment is not sufficient consideration to support a promise to forgive the balance, because payment of the balance is treated as a pre-existing duty. NY Distinction: If the agreement to forgive was reduced to a signed writing.

    If the debt is disputed, acceptance of a partial payment on the debt is sufficient to forgive the balance.
  6. If a debtor gives his creditor a signed promise to pay an outstanding debt, can the creditor enforce that promise even if it is made after the S/L on collection has run?

    A signed and written promise to pay a debt, collection of which is barred by the statute of limitations, is enforceable even without consideration
  7. Can foreseeable reliance on a promise make that promise enforceable even without consideration?
    YES, because of PROMISSORY ESSTOPPEL. for example . . .

    Facts: T's lease expires next month. L promises to renew T's lease. In reliance on L's promise, T paints the apartment. L now refuses to renew T's lease.

    Result: Even though there was no consideration given by T for L's promise to renew, T can enforce L's promise based on promissory estoppel because it was foreseeable that T would rely on L's promise to T's detriment.
  8. A court will invalidate or narrow a COVENANT NOT TO COMPETE that operates as a "restraint of trade." When factors should be considered when deciding whether a covenant acts in "restraint of trade"?
    • Scope of the Covenant: consider duration and geography, and whether it is reasonable
    • Need for the Covenant: consider the uniqueness of the activities restricted, and whether it is reasonably necessary to protect a legitimate interest of the benefitted party.
  9. To what extent may an EXCULPATORY CLAUSE limit tort liability?
    An exculpatory clause can limit liability for ordinary negligence, but cannot limit liability for gross negligence or an intentional tort
  10. Notes on UNCONSCIONABLE Ks
    • Weak defense: Usually not a valid defense against K enforcement, but if it is advanced consider the following
    • Substantive unconscionability: do the K terms themselves "shock the conscience"?
    • Procedural unconscionability: does the process of formation itself "shock the conscience"? (e.g., extremely small print, imbalance of power)