FYLSX - Baby Bar Defenses to Contract Enforceability Questions and Answers — Questions and Answers
Question 1: A homeowner, anxious to sell his house, tells a potential buyer that the roof is 'in perfect condition' and was fully replaced last year. In reality, the homeowner only had a few shingles replaced and knows the roof has a significant leak. The buyer, relying on this statement, purchases the house and discovers the leak after the first major rainstorm. Which of the following defenses is the buyer most likely to successfully raise to rescind the contract?
- Unilateral Mistake
- Fraudulent Misrepresentation (Correct answer)
- Duress
- Statute of Frauds
Correct answer: Fraudulent Misrepresentation
Fraudulent misrepresentation occurs when a party knowingly makes a false statement of material fact, intending to induce the other party to enter the contract, and the other party justifiably relies on that statement to their detriment. [14, 15] Here, the homeowner knowingly lied about the roof's condition (a material fact), intending for the buyer to rely on it, which the buyer did, resulting in damages. Unilateral mistake is incorrect because the buyer's error was induced by the seller's false statement, not a simple mistake on the buyer's part. [8, 10] Duress is inapplicable as there was no threat or coercion. [2, 3] The Statute of Frauds is irrelevant because a contract for the sale of land is in writing.
Question 2: An elderly woman, who is physically frail and completely dependent on her in-home caregiver for all her daily needs, is persuaded by the caregiver to sell her valuable antique car to him for a fraction of its market value. The caregiver had repeatedly told her that if she didn't sell him the car, he might not be able to continue providing care. The contract is in writing and signed. What is the woman's strongest defense to the enforceability of this contract?
- Undue Influence (Correct answer)
- Economic Duress
- Incapacity
- Mutual Mistake
Correct answer: Undue Influence
Undue influence occurs when a dominant party in a confidential or dependent relationship uses excessive pressure to overcome the will of the weaker party. [7, 17] The relationship between the elderly woman and her sole caregiver creates a presumption of undue influence, and the unfair terms of the deal further support this defense. Economic duress typically involves an improper threat to a person's financial interests, which is less fitting than undue influence here. [3] Incapacity would require showing she lacked the mental ability to understand the contract, which isn't the primary issue described. Mutual mistake is incorrect as there was no shared, mistaken belief about a fundamental fact. [28]
Question 3: A building contractor submits a bid for a large construction project. Due to a clerical error in adding up the costs of subcontractors, the contractor's bid is $100,000 lower than intended. The property owner, who had received other bids that were all at least $90,000 higher, immediately accepts the contractor's bid. If the contractor seeks to void the contract, which defense would be most applicable?
- Fraudulent Misrepresentation
- Mutual Mistake
- Unilateral Mistake (Correct answer)
- Procedural Unconscionability
Correct answer: Unilateral Mistake
A unilateral mistake can be a basis for rescission if the non-mistaken party knew or should have known of the other party's mistake and sought to take advantage of it. [10, 20] Here, the significant difference between the contractor's bid and all other bids should have alerted the property owner to the likelihood of a material error. This knowledge prevents the owner from snapping up the offer. Mutual mistake is incorrect because only one party was mistaken. [8] Fraudulent misrepresentation requires a false statement of fact, which did not occur. [4, 5] Unconscionability focuses on oppressive terms and unequal bargaining power at the time of formation, which is less precise than the doctrine of unilateral mistake in this scenario. [18]
Question 4: Which of the following oral agreements would be unenforceable under the Statute of Frauds?
- An agreement to landscape a garden, with work to begin next week and expected to take three months.
- An agreement for a one-year lease of an apartment, starting on the first day of the following month.
- An agreement to purchase a custom-built computer for $450.
- An agreement to act as a consultant for a company for a term of 18 months. (Correct answer)
Correct answer: An agreement to act as a consultant for a company for a term of 18 months.
The Statute of Frauds requires certain types of contracts to be in writing to be enforceable. One such category is contracts that, by their terms, cannot be performed within one year from the date of their making. [30, 31, 34] An 18-month consulting agreement cannot be completed within one year, so it must be in writing. The landscaping contract can be completed within a year. The one-year lease is performable within one year from its start date, and the rule measures from the date of making, but many jurisdictions have a specific rule for one-year leases. However, the 18-month service contract is squarely within the one-year provision. The computer sale is for goods under $500, so the UCC Statute of Frauds does not apply.
Question 5: A contract will be rendered void, rather than merely voidable, if it is entered into under which of the following circumstances?
- Fraud in the inducement
- Economic duress
- Physical compulsion duress (Correct answer)
- Undue influence
Correct answer: Physical compulsion duress
While most defenses to formation (like fraud, economic duress, and undue influence) make a contract voidable at the option of the wronged party, a contract entered into under physical compulsion duress is considered void from its inception. [11, 17] This is because there is no true assent; the person signing is treated as a 'mere mechanical instrument.' Fraud in the inducement, economic duress, and undue influence all involve some level of assent, even if improperly obtained, making the resulting contracts voidable. [7, 14, 32]
Question 6: A consumer signs a standard form contract to purchase a used car 'as is.' Buried in the fine print on the back of the agreement is a clause stating that the dealership is not liable for any repairs whatsoever, and another clause that waives all of the consumer's rights to sue the dealership in court for any reason, requiring all disputes to be settled by an arbitrator chosen and paid for by the dealership. A court might refuse to enforce these clauses based on what defense?
- Statute of Frauds
- Mistake of Law
- Unconscionability (Correct answer)
- Misrepresentation
Correct answer: Unconscionability
Unconscionability is a defense used when a contract is so one-sided and unfair that it 'shocks the conscience' of the court. It has two components: procedural (unfair surprise, unequal bargaining power) and substantive (oppressive terms). [12, 13, 18] The hidden, fine-print clauses represent procedural unconscionability, while the oppressive terms (waiving all rights to sue, biased arbitration) represent substantive unconscionability. The combination makes a strong case for this defense. The Statute of Frauds is irrelevant as the contract is in writing. Mistake and misrepresentation do not fit the facts as presented.
FYLSX - Baby Bar Defenses to Contract Enforceability Questions and Answers
A homeowner, anxious to sell his house, tells a potential buyer that the roof is 'in perfect condition' and was fully replaced last year.
In reality, the homeowner only had a few shingles replaced and knows the roof has a significant leak.
The buyer, relying on this statement, purchases the house and discovers the leak after the first major rainstorm.
Which of the following defenses is the buyer most likely to successfully raise to rescind the contract?