CONTRACTS II OUTLINE
AVOIDING CONTRACTS ENFORCEMENT (weeks 1-5)
– MINORITY (Dodson; Re2d § 14)
o Infancy Doctrine (Traditional Rule): Any contract made by a minor is voidable by the minor (i.e. if the contract benefits the minor, it is good, if it prejudices the minor, it is void). Complete recovery upon rescission (for minor) of all consideration.
o Benefit Rule: Recovery upon rescission (for minor) is subject to a deduction for the minor’s use (the benefit to the minor).
o “Depreciation” Rule (Dodson Rule): Recovery upon rescission (for minor) is subject to a deduction for depreciation or deterioration of the consideration (if contract was fair and reasonable).
– MENTAL INCAPACITY (Hauer; Re2d § 15)
o Hauer Rule: Absent fraud or knowledge of the incapacity by the contracting party, the contractual act of an incompetent is voidable by the incompetent only if avoidance accords with equitable principles (i.e. if there is bad faith by the competent party, the contract is voidable by the incompetent party).
– DURESS (Totem Marine; Re2d §§ 174-176)
o Traditional Rule: Voidable if entered into for fear of loss of life or limb, mayhem or imprisonment.
§ Re2d § 174: Physical duress makes a contract void [not voidable] o Objective or Subjective Standard:
§ (Old) Objective Standard: The threat had to be such as to overcome the will of a person of ordinary firmness and courage.
§ (New) Subjective Standard: The threat has to be such as to overcome the will of the person allegedly induced.
o Economic Duress:
§ Elements of Economic Duress (Totem Marine):
· (1) Involuntary acceptance of terms of another
· (2) Circumstances permit no other alternative
· (3) Such circumstances were the result of coercive acts of the other party (i.e. the other party intentionally caused #1 and #2)
§ Re2d § 175: Voidable if entered into by “improper threat” with no reasonable alternative.
· Re2d § 176: “improper threat” is either
o (a) threat of crime or tort
o (b) threat of criminal prosecution
o (c) threat of lawsuit in bad faith
o (d) threat of bad faith in dealings
o (e) not fair and would harm recipient and not benefit the party making the threat
o (f) not fair and includes prior unfair dealings by the party making the threat
o (g) not fair and is a use of power for illegitimate ends
– UNDUE INFLUENCE (Odorizzi; Re2d § 177)
o Odorizzi: To make a good contract a man must be a free agent. Where will has been overcome against judgment, consent may be rescinded.
· (1) Dominant to servient relationship whereby servient party has undue susceptibility (i.e. partial incapacity)
· (2) “Overpersuasion”: application of excessive strength by dominant party over servient party (i.e. unfair advantage)
o Factors to “Overpersuasion”:
§ discussion of the transaction at an unusual or inappropriate time
§ consummation of the transaction in an unusual place
§ insistent demand t
istake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing;
§ (3) Disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part;
§ (4) The other person is entitled to know the fact because of a relationship of trust and confidence between them
o Factors a court should consider in deciding when fairness requires disclosure of material information (Prof. Page Keeton):
§ (1) Difference in degree of intelligence;
§ (2) Relation of parties;
§ (3) Manner in which information is acquired;
§ (4) Nature of fact not disclosed (i.e. intrinsic defects in real estate transactions);
§ (5) Class to which person who is concealing information belongs (i.e. seller or buyer);
§ (6) Nature of contract (i.e. releases and contracts of insurance require full disclosure);
§ (7) Conduct designed to prevent discovery (active concealment is fraudulent as a matter of law)
MISREPRESENTATION [IN THE EXECUTION] (Re2d §§ 162, 163, Park