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Contracts II
Faulkner Law - Thomas Goode Jones School of Law
Hammond, Jeffrey B.

CONTRACTS SPRING 2008
 
Ch 7 – Avoiding Enforcement: Incapacity, Bargaining Misconduct, Unconscionability, and Public Policy
A.      Types of Contracts
                                       i.      void – K was never in effect; it was non existent from the beginning
                                     ii.      voidable – A party can avoid the K if he or she wishes
B.       Classes of people protected
                                       i.      Minority/Infants
No foresight to see the consequences of their actions
Minors (infants):
 
Dodson v. Shrader  Supreme Court of Tennessee
Facts: 
∏ was 16 and bought truck from Δ later truck engine blew. ∏ wanted refund
Rule: 
Sales K: a minor, who is a party is freely and fairly formed in good faith, may rescind the K and obtain a refund, but must allow the vendor reasonable compensation for the depreciation of the goods while they were in the minor’s possession.
 
Rules for minors (INFANCY)
·         R §14: K to which a minor is a party is not void per se but “voidable.” On reaching the age of majority, the minor may elect to affirm or disaffirm the K w/in a reasonable period of time
 
·         “Main” majority rule – minor may but does not have to void a K before or after reaching the age of majority. The contract is voidable
 
·         Traditional rule (majority) – minor who disaffirms a K is not liable for the value of the K or for the depreciation of property value.
                                      i.        “Necessaries” exception: minor is liable for the value of the goods where they are necessaries such as food, clothing, shelter, medical services, legal services, etc.
                                     ii.        “Misrepresentation” exception: A minor who misrepresents his age is nonetheless liable if he disaffirms the K.
 
·         Tennessee rule – (1) No overreaching by seller; (2) No undue influence; (3) K is fair and reasonable; (4) Money actually paid; and (5) Used the thing
 
·         “Benefit rule” (minority rule) – A minor who disaffirms is liable for the values of his use or benefit of the goods. (Restitution)
 
·         Depreciation rule (minority rule) – the minor’s recovery of the full purchase price is subject to a deduction for the minor’s “use” of the consideration he or she received under the K, or for the “depreciation” or “deterioration” of the consideration in his or her possession.   Note: Dodson court followed this rule. 
 
·         EXCEPTIONS:
1.       “Overreaching seller”: A minor is not liable if the other party exercised her influence over him.
2.     “Misrepresentation”: A minor who misrepresents his age is liable nonetheless.
 
                          i.        Disaffirmance
             §   A minor does not have the option to void Ks made for necessaries R§12 Comment f – recovery for adults in this situation based on restitution rather than enforcement of the K
             §   Minor’s tortious representation of age or willful destruction of goods, restricts ability to disaffirm may be restricted
             §   Ignorance of minor’s age is no defense to a minor’s disaffirmance
             §   Majority view -minor who misrepresents age can still disaffirm but may be liable in tort or fraud
 
                         ii.        Land conveyances – most states do not allow the minor to disaffirm the K until he has reached majority
 
                        iii.        Ratification – K made by minor is not void, but voidable, so the infant can choose to enforce it if he wishes. If so, minor is said to have ratified the K.
§ Must reach Adulthood: R§14 Once minor reaches age of majority, he/she has the power to affirm or ratify the K. 
 
§ Failure to disaffirm: By inaction – if the minor does not disaffirm w/in a reasonable time after reaching majority, he/she will have be

marriage is a minor and the other is not, cannot use the minority defense to avoid Ks made by both partners.
 
C. Classes Protected (continued) ii. Mental Incapacity
 
Hauer v. Union State Bank of Wautoma   Court of Appeals of Wisconsin
Facts: 
∏ suffered brain injury, was adjudicated incompetent and was appointed a guardian by the court. Bank loaned $$ in light of being informed not to – π sued after guy she loaned $ didn’t pay loan.
Rule:
1. An incompetent person’s transactions are voidable — the incompetent has the power to void the contract entirely.
  2. The infancy doctrine does not apply to adult mental incompetents. A party does not have an affirmative duty to inquire into the mental capacity of a loan applicant to evaluate his or her capacity to understand a proposed transaction
 3. A contracting party exposes itself to a voidable contract where it is put on notice or given 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.
 
·         Majority Rule – Party alleging mental incapacity must make restoration if the K was made on fair terms
·         Hauerrepresents a type of case which a party asserts not only lack of capacity but also a claim that the other party engaged in overreaching or improper conduct
§ In such cases, claims of incapacity are often combined w/ allegations of fraud, duress, or undue influence. 
·         Burden of proof is on the party seeking to avoid the K