2nd SEMESTER – CONTRACTS OUTLINE
Chapter 7
Avoiding Enforcement: Incapacity, Bargaining Misconduct, Unconscionability, and Public Policy
Minority and Mental Incapacity
Dodson v. Shrader
· Even if a minor’s K is rescinded, the merchant may keep an amount equal to the decrease in value of the items returned rather than refund the full purchase price.
· Generally, a minor’s K are considered voidable not void. This means the merchant cannot claim the K is void, or, stated another way, the minor can elect to keep a K if he so desires. There are exceptions, a minor’s K for necessities like food etc are not voidable. Also, once a minor reaches the age of majority, he must request rescission of an offensive K within a reasonable amount of time, or the K will be affirmed.
Hauer v. Union State Bank of Wautoma
· A contracting party exposes itself to a voidable K where it is put on notice or given a reason to suspect the other party’s incompetence such as would indicate to a reasonably prudent person that inquiry should be made of the party’s mental condition
· The court in this case referred to state law which reads the duty of good faith into every K. The unadjudicated mental incompetence of one of the parties is not a sufficient reason for setting aside an executed K if the parties cannot be restored to their original positions, if the K was made in good faith, for a fair consideration, and without knowledge of the incompetence. Although there was no duty to investigate, the Bank (∆) took a risk here since it knew of facts supporting the claim of inability to contract.
Duress and Undue Influence
Totem Marine v. Alyeska Pipeline
· A K cannot be voided if it was entered into as the result of economic duress.
· At early common law, avoidance of a K on the ground of duress was available only if a party could show that it was entered into for fear of loss of life or limb, mayhem, or imprisonment. The first Restatements focuses on a parties ability to exercise “free will and judgment” in defining duress, and the revised Restatement looks to the party having, “no reasonable alternative”.
Odorizzi v. Bloomfield School District
· When a party’s will has been overborne, so that in effect his actions are not his own, a charge of undue influence may be sustained
· Many types of K’s may be rescinded for undue influence. Mortamine statutes are in effect in some states. These hold that bequests made to churches shortly before death and after a visit by religious leaders are void and unenforceable. Wills may be declared invalid where they were procured through undue influence. K’s to sell land for far less than its value and transfers made in fear of civil or criminal prosecution are other examples.
Misrepresentation and Nondisclosure
Syester v. Banta
· Equity may, if fair to do so, relieve a party from the consequences of a release executed through a mistaken belief of fact and law.
· Syester is a very modern approach to equitable relief from mistakes. Most courts have, in the past, held that, absent fraud, a party will not be relieved from the consequences of a unilateral mistake. In Syester it was unnecessary for the court to reach the ultimate question of fraud, but it probably would have found that it was present under the unique set of facts herein.
Hill v. Jones
· Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them.
· This case recognized a duty of disclosure between parties in an ordinary arm’s-length, commercial transaction. More typically, the courts will recognize a “duty to speak up”: only in the presence of a confidential or fiduciary relationship. Beyond the existence of a confidential or fiduciary relationship,
rum.
(2) Substantive unconscionability alone can support a finding of unconscionability.
(3) Where the circumstances surrounding an agreement are in dispute as they relate to elements of procedural unconscionability, even if the K is one of adhesion, there must be findings of fact before it can be determined whether there was procedural unconscionability.
(4) Where specific terms of an arbitration agreement are substantively unconscionable, those terms may be severed to render the remainder of the agreement enforceable.
· Other issues the court decided were (1) that a determination as to whether Adler (∏) was forced into waiving his right to a jury trial could not be made until the disputes about the manner in which Adler (∏) entered into the arbitration agreement are resolved; and (2) that Fred Lind Manor (∆) did not waive its right to compel arbitration by not invoking the arbitration agreement prior to trial at agency hearings. The court also offered guidance on remand, ruling that in the event the trial court were to find that the fee-splitting provision was substantively unconscionable, it could sever that provision and still compel arbitration.
Public Policy
Valley Medical Specialists v. Farber
· In light of the public policy interest involved in restrictive covenants not to compete between physicians, each agreement will be strictly construed for reasonableness.
· The court noted that although stopping short of banning restrictive covenants between physicians, the American Medical Association, [AMA] “discourages” such covenants.
