Glossary of Contracts - Enforceability
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- Ks to which the Statute of Frauds applies.
- Marriage, Ks in consideration of
Year, Ks which cannot be performed within
Land, Ks for conveyance of an interest in
Executor's promise to pay debt of an estate
Goods, Ks for the Sale of Personal Property >$5000
Suretyship, Guaranty clause (Special, Secondary, or Collateral Promises)
- Challenges to Enforceability of K
- Statute of Frauds
Economic Inadequacy of Consideration
- Elements of a Surety relationship under the SoF
- Duty: PD (Principal Debtor) must have a duty to the creditor.
Secondary: Relationship between S and PD: S must be secondarily liable for PD’s debt.
Knowledge: The C must know that S is only secondarily (not jointly) liable for PD’s debt.
Promise: The S must make the promise directly to the C. (Exception: "main purpose" or "leading object")
- Methods of satisfying the SoF (Common Law and UCC)
- Common Law: A writing. It may incorporate other documents (better if by reference), and may use futuristic language.
UCC 2-201(1) - Must have:
1) Quantity Term
2) Signature of D
3) Past tense language that K has been entered into
UCC 2-201(2) - Or, if between MERCHANTS must have:
1) Signature of P only
2) Past tense language that K has been entered into
3) No objection from D within 10 days makes the writing sufficient
UCC 2-201(3)(c) - Or, if not meeting 2-201(1):
1) Goods: Receipt and Acceptance, Part Payment, or Admission
2) One Year: Part Performance
3) Land: Part Performance
- What are the criticisms of the SoF?
- Causes more fraud than it prevents.
Arbitrary inclusion of types of K. (personal services contracts are not included, one-year clause comes into play in very inconsistent situations.)
not even-handed (p141 note 1d)
- What are the effects of non-compliance with the SoF?
- If the K has been executed, then the SoF has no effect.
If it has not been executed, then it is unenforceable, voidable, or void.
MAJORITY - Unenforceable: May or may not be K; cannot be enforced prima facie. In this case, D must plead a SoF violation in his initial answer to the suit.
MINORITY - Unprovable: SoF is merely a rule of evidence against K.
MINORITY - Void: There is no K whatsoever.
- What are the mitigating doctrines that can allow a K to be enforceable even though it has failed to comply with the SoF?
- Specific Restitution
- What must be shown, and by whom, to show Quasi-Contractual Liability?
What is the recovery, if shown?
- P conferred material benefit upon D.
P did so with the expectation of payment.
P was not acting officiously (as an intermeddler.)
P did not default on the K (D breached.)
The value of the benefit is recovered (restitution of value.)
- What is granted, and to whom, when Specific Restitution is awarded despite the fact that the SoF has not been complied with?
What must be shown, and by whom, for SR to be awarded?
- Specific restitution is an equity decree forcing D to return property in kind, not just the monetary value.
P must usually show that D used fraud, duress, or undue influence to induce P to make the conveyance.
- What must P show to equitably estop D's breach, even where the SoF has been violated?
What is the recovery, if shown?
- D misrepresented the fact that he had signed the document.
The P then proceeded to performance.
The P has detrimentally changed position based on D’s misrepresentation of fact.
Recovery can include restitition, reliance, and expectation interests.
- What must P show to enforce the K on grounds of Promissory Estoppel, even where the SoF has been violated?
What is the recovery, if shown?
- P must show that there was a detriment OTHER THAN THE BENEFIT OF THE BARGAIN.
The part performance doctrines under realty and one-year Ks are variants on this.
However, a minority of courts have begun to take Promissory Estoppel further, finding it in cases where only the benefit of the bargin has been lost, when P has suffered "unconscionable injury"
- State the four elements that D must show to breach the "contract" on the grounds of the SoF. For each, state P's possible rebuttals.
- 1) D: K is of a type governed by the SoF.
P: no, it's not.
2) D: We did not comply with the SoF.
P: We complied by writing a memorandum. Or, we complied with part performance, acceptance of goods, or an admission that the K was made.
3) D: I made the right procedural moves in stating my case RE: SoF.
P: No, you did not plead a violation of the SoF in your initial answer.
4) D: There are no applicable mitigating doctrines.
P: There is an estoppel (promissory, equitable) that lifts the bar on the statute. Or, I'm entitled to restitutional recovery of some sort (specific restitution, quasi-K liability.)
- Who is a minor, in modern law?
- In most Jxs, anyone below the age of 18
- Give examples of Ks that are valid, voidable, or void when one party is a minor.
- valid: Bail bonds
voidable: Most Ks
void: complex surety agreements
- What are the ways in which a party dealing with a minor might circumvent the minority rule?
- Not a minor.
Ratification: express or implied.
Disaffirmance was illegal.
Tort (for fraud.)
- What are the conditions under which a minor ratifies a contract?
- First, minor must reach adulthood. Then:
- Express Ratification
- Implied Ratification (voluntarily obtains new benefit from K, e.g. taking car in for scheduled maintenance.)
- Extreme Delay
- What are the conditions under which a minor disaffirms a K?
What must a minor do when he disaffirms?
- K must not yet have been ratified.
MAJORITY: Minor must return any fruits of the K that are in his possession. The condition of those items does not matter (business dealt with him at their peril.)
MINORITY: Minor must restore the other party to the status quo.
- What are the ramifactions on an agreement of a court finding one party insane?
- The K is voidable.
If, however, the party had been assigned a general guardian prior to the purported K, then the K is void.
- How is a K disaffirmed by an insane party?
What must the insane party do for the opposite party?
How is it ratified?
- Disaffirmation: can be done at any time before ratification. Unlike with Minority, however, the opposite party must be restored to the status quo.
Ratification: my be done once the party is no longer laboring under the mental illness. Or, the guardian may ratify the contract.
- How are the terms of the K and the testimony of expert witnesses considered in determining whether a party was insane at the time of K?
- If expert witnesses agree that the party was insane at the time of K, then the trier of fact will set aside the K irrespective of the terms of the K.
If expert witnesses disagree, then bizarre terms may be circumstantial evidence of insanity.
- Compare the effect of Insanity and Intoxication on the enforceability of a K.
- Intoxication is similar to Insanity. It is found using either the volitional or cognitive tests.
However, notice of either is required to establish it, while Insanity requires notice only for the volitional test.
- Why, historically, has there been a need for a stronger duress doctrine?
- Consideration doctrines have progressively been relaxed, allowing Ks to be found in more and more situations that they historically would have been found inadequate. Some of these situations include ones where one party is being coerced to enter the bargain. A strong duress doctrine picks up the slack from the other end.
- What elements must be found for Physical Duress?
- Physical duress can be found in any situation where a criminal or tortuous act has been perpetrated.
Modernly, Libel is longer grounds for physical duress.
The coerced party need not have acted reasonably in resisting the duress.
- What are the types of Duress?
- Physical and Economic Duress.
- What elements must be satisfied to find Economic Duress?
- Dire Economic Situation: D is desparate because of situation created by P.
Illegal: P's act was illegal.
Knowledge: P knows of the desperate situation, and takes advantage by making an improper demand.
Assent: D yields due to the demand.
Reasonable: D is reasonable in capitulating to P's demand. D had no alternative.
- What are the legal consequences to a K that is found to have been formed under duress?
- Voidable. Restitution Interest is possible.
- What are the different types of Mistrepresentation?
- Material Breach of an Express Warranty
Fraud in the Factum or Execution
Fraud in the Inducement
- What is Fraud in the Factum or Execution?
What are the consequences on the K?
- - A misrepresentation as to the character of the document being signed.
- An interference with the reading of the document.
Note that there is no need for innocent party's belief to be reasonable: "pure heart, empty head."
K is void as a result.
- What are the elements of Fraud in the Inducement?
What are the legal consequences of FitI?
- Statment: X made statement before formation of K. Must be statement or misleading half-truth (non-disclosure is no good.)
False: Statement was false.
Knowledge: X knew or believed the statement was false.
Deception: X intended to deceive Y.
Inducement: Y would not have entered the K but for the statement.
Reasonable: Y's reliance on the misrepresentation was reasonable.
K is voidable by Y. Restitution recovery or can be used as a defense.
- What elements must be shown by D to establish that there was an Innocent Misrepresentation?
What are the consequences of an Innocent Misrepresentation?
- False: Statement by X was false.
Material: Statement was material.
Reliance: Y would not have entered into the agreement but for the statement.
Reasonable: Y's reliance must have been reasonable.
The K is voidable by Y. Restitution recovery, or can be used as a defense.
- What are the ways in which an express warranty is made part of a K?
- UCC 2-313(1)
Promise or Affirmation made by X relating to the goods.
Description of the goods.
Sample of the goods.
If any of the above, and Y relies on it (would not have entered the K but for the above), then there is an express warranty.
- What are the legal consequences of the breach of an express warranty?
- If X making the warranty knew the warranty was false, Y can avoid on the ground of fraud in the inducement.
If the warranty related to a material part of the bargain, Y may avoid on the ground of innocent misrepresentation
Y (innocent) can get recission/restitution, or the absence of K can be used as a defense.
- In what types of Misrepresentation must the innocent party's reliance be reasonable?
- Fraud in the Inducement and Innocent Misrepresentation.
Fraud in the Factum and Material Breach of Warranty do not require the reliance to be reasonable.
- Of the four types of Misrepresentation one has a different legal consequence than the others. What is the difference?
- Fraud in the Factum/Execution: K is void.
All others (Fraud in the Inducement, Innocent Misrepresentation, Material Breach of an Express Warranty): K is voidable.
- Why would a client want to show Economic Duress as opposed to a Pre-existing Duty to invalidate a K?
- Damages. Showing that that there was a PED will allow the client to void the K. But no damages will be awarded. To recover in restitution, the client needs to show Economic Duress.
- What is the general rule for Unilateral and Mutual, Material Mistakes?
- Generally, X can challenge the enforceability of a K on the grounds of Unilateral Mistake only if:
- Y induced the mistake, or
- Y knew or had reason to know of the mistake.
A Mutual Mistake between X and Y renders the K void or voidable by either party, unless one party "assumed the risk of the mistake." The mistake must be RE: a material term.
- Go over the legal consequences for Unilateral and Mutual Mistake in the following situations:
1) Hearer's inattention
2) Speaker's poor enunciation
3) Typo on the document
4) Typo on document, but other party had reason to know of
- 1) It was the hearer's unilateral mistake, but not induced by the speaker. K holds.
2) It was the hearer's unilateral mistake, induced by the speaker's conduct. K is voidable by the hearer.
3) It was the typer's unilateral mistake, but not induced by anyone else. K holds.
4) Other party has reason to know, so K is voidable by typer.
5) This is a mutual mistake. Voidable by either party.
6) Depends on court's opinion of whether the intermediary is an agent of the offeror. The majority hold that it is, meaning that it is a unilateral mistake by the offeror. The minority will hold that it is a mutual mistake. Again, legal ramifications vary with conduct of other party and materiality of the mistaken term.
- How do you determine which party has made the mistake?
- The mistake is made by whichever party has a different subjective understanding of a term than its objective expression.
Note that there are mutual mistakes that arise from a term not having a clear objective expression.
- What is the difference between an Intrinsic Mistake and an Extrinsic mistake?
- Intrinsic mistakes are mistakes about a term in the K. A communication diconnect between the parties, or an ambiguity in meaning.
Extrinsic mistakes are mistakes about some external fact related to the bargain. Mistakes as to the true value of the item, for example.
- What happens when there is a mutual, extrinsic mistake?
What is the exception?
- If it's RE: a material term, then generally it is voidable by either party.
However, if one party "assumed the risk" of making the mistake, then it is not voidable by that party.
- What is the rule regarding a Mistake in a collateral assuption of fact?
- Example: computational errors in documents.
Most courts will not allow the mistaken party to rescind/defend against enforcement, unless that party would be unduly prejudiced by enforcement of the K.
A minority of courts will allow recovery for the party unilaterally making the mistake, even if the other party did not induce or have reason to know about the mistake. Elements that must be shown, in this case:
Mistake: party seeking recission made a mistake in a collateral assumption of fact.
Innocent: the mistake was relatively innocent (no gross negligence)
Material: mistake was material.
Prompt: party seeking recission promptly notified other party of mistake.
Status Quo: the other party does not suffer any prejudice (can be returned to the Status Quo)
- When will courts grant relief for a unilateral mistake as to economic value?
- - When the parties have a fiduciary relationship
- When the other party held himself out as an exper in economic valuation
- What is the situation in which Economic Inadequacy of Consideration arises?
What must each party show?
- EIoC is a special defense to P's attempt to obtain a remedy in equity, such as a specific performance decree or a prohibitory injunciton.
P must show that any remedy at law would be inadequate.
D's defense would be that P's consideration is economically inadequate.
- In what kinds of situations do courts typically find that a remedy at law would be inadequate?
- Subject matter that is difficult to value (one-of-a-kind artwork)
Inability to cover, or enter into a substitute transaction (waiting list for a Mazda Miata)
- What is the major criticism of the Economic Inadequacy of Consideration doctrine?
- The valuation of what is "economically inadequate" is unclear. The courts rulings to date have been ipso dixit (unsupported statements.) There is no objective framework, currently, for the determination.
- Which types of misrepresentation must be material in nature?
- Material Breach of Express Warranty
- What is the reason for the lax minority view when there is a Mistake in a Collateral Assumption of Fact?
- There is a paper trail with these cases, so courts are more sure that a mistake was actually made.
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