CONTRACTS II OUTLINE
AVOIDING ENFORCEMENT
I. IN GENERAL, DEALS W/
A. Competency of ptys to agmt
B. Bargaining Process reaching agmt
C. Substance of resulting agmt
II. MINORITY & MENTAL INCAPACITY
A. Void vs Voidable
1. Void: K doesn’t exist from the beginning
2. Voidable: pty can avoid operation of K à can nullify K or keep it
B. MINORITY ENFORCEMENT & AVOIDANCE
1. Why would law not allow certain people to enter Ks?
a. Minor’s don’t have foresight to see consequences of their actions
b. Cts act as parents of minors to preserve their best interests
c. Protects minors by preventing adults from taking advantage of them
2. Dodson v. Shrader
a. Rule: minor’s K void if prejudices minor; K is good if benefits minor (“necessaries” such as food, clothing shelter); if minor’s K uncertain as to benefit/prejudice, voidable only at minor’s discretion
b. Majority Rule: minor determines, before/after majority, if he wants to affirm/disaffirm K b/c minor determines what’s favorable and what’s not
c. Minority Rules: (2 of them)
i. Benefit Rule: upon rescission of K, recovery of full purchase price subj to deduction for minor’s use of merchandise
ii. Use/Depreciation Rule: minor’s recovery of full purchase price subj to deduction for “use” or “depreciation” of merchandise
d. Ct’s Rule: minor allowed to purchase price back, minus Depreciation Caveats:
i. No overreaching by vendor, no undue influence of non-minor, fair & reasonable K, $ actually paid by minor, minor used merchandise
ii. Why? Economics: Willing buyers & sellers (even minors) promote mkt efficiency à this breaks down when seller can’t rely on buyer’s info (that they are/aren’t minor capable of legally contracting)
e. Notes:
i. #2: exceptions to Avoidability Doctrine (“necessaries”) & Misrepresentation of Age (on purpose or not?)
ii. #3: Rest 14 – K not void if entered into by minor, but voidable at minor’s discretion; if affirmed at majority, person bound by K; when reaches majority, must affirm/disaffirm w/in reasonable time or is considered bound by K
iii. #6: some cts say minors can disaffirm (release) Ks signed by parents
iv. #7: Marriage – minority is personal defense; if one partner in marriage is minor and other isn’t, majority partner cannot use minority defense to avoid Ks made by both partners
C. MENTAL INCAPACITY
1. Hauer v. Union St. Bank
a. Rule: Pty alleging mental incapacity must make restitution if:
i. K made on fair terms
ii. Other pty w/o knowledge of mental condition
b. Rest 15
i. Fair Terms – not overreaching by 2nd pty
ii. No Knowledge of Mental Defect – actual vs constructive knowledge of mental condition
iii. Pwr of avoidance terminates (for 1st pty) if those 2 terms met even if performed in whole/part unless changed circum make avoidance unjust
c. Note: Cannot set aside executed K b/c mental competence of pty not adjudicated by ct à Just b/c ct doesn’t call him crazy doesn’t mean doctors (licensed professionals) haven’t
d. Notes:
i. #2: Mental incapacity judged on case-by-case basis
ii. #3: Cognitive Test for Incapacity – person lacks capacity to enter K if person unable to understand nature/consequences of transaction;
iii. #3: Volitional Test – person lacks capacity to contract if person unable to act in reasonable manner in transaction & other pty has reason to know of condition
III. DURESS & UNDUE INFLUENCE
A. IN GENERAL – (Involves process by which K was made)
1. Old ideas:
a. Duress originally involved Ks made under threat of physical harm à unenforceable
b. Undue Influence grants relief against other types of coercion à b/w family members or some other confidential or “fiduciary” relationship (i.e. lawyer & client)
2. They have since expanded…
a. Duress now includes Threats to Person’s Prop and Econ Duress
b. Undue Influence expanded to relationships that aren’t confidential
B. ECON DURESS
1. General Modern Trends in Econ Duress
a. “Avoiding Enforcement” aka “Policing the Bargain”
b. Generally cts don’t want to get involved in bargains made b/w 2 or more ptys and at arm’s length
c. Modern Trends – more cts willing to interject in bargaining situations where one pty has distinct
consult financial advisors or attorneys
h. Note: presence/absence of one or more of these factors may make case weaker than if all are present
i. Note: not all factors necessary à majority good enough; however, you must argue relative strengths & weaknesses of absence/presence of the 7
j. Rest 177 (vs the 7-Step Pattern): unfair persuasion by dominant pty or when weaker pty feels that, b/c of relationship b/w him & dominant pty (usually a close one), dominant pty won’t act in weaker pty’s best interest
IV. MISREPRESENTATION & NONDISCLOSURE
A. IN GENERAL –
1. Rescission: return of ptys to status quo that existed before K was formed
a. Historically at law, in order to get Rescission, pty must show he made tender of some $ or prop received before instituting the action; in equity, tender unnecessary
b. Now, distinction b/w legal & equitable remedy relatively unimportant but there are still situations where it can be
2. Modern Law – victim of Misrepresentation has choice b/w 2 remedies:
a. Tort Action for damages
b. Right to Avoid Enforceability of K by Rescission à exercised by way of defense to action to enforce K or in affirmative action seeking restitution to benefits conferred on other pty
3. Factors Affecting Choice of Remedies:
a. Remedy of Rescission requires that injured pty return any $/prop he has received; therefore, if defrauded pty doesn’t want to do so, rescission not desirable remedy
b. Rescission may be unavailable even if defrauded pty would prefer it à if defrauded pty unable to return prop received b/c it was transferred to 3rd pty, Rescission may not be allowed
Rest 164 – (K voidable for either fraudulent or material misrepresentation); pty
