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Contracts II
Southern Illinois University School of Law
Basanta, W. Eugene

Contracts Outline – Basanta (Spring 2010)

Capacity to Contract:
– Generally, a party to ao contract that lacks capacity has the option of voiding the contract.
– Infant refers to anyone who is a minor
– The age of minority is statutorily prescribed.

Dodson v. Shrader – 16 yr old Dodson buys a truck from Shrader. He ignores the advice of his mechanic and doesn’t change a necessary valve. He wants to return the truck for full purchase price. Both trial and lower appellate rule for Dodson.
– Reversed and remanded. New Rule: Where the minor has not been overreached in any way, and there has been no undue influence, and the contract is a fair and reasonable one, and the minor has actually paid money on the purchase price, and taken and used the article purchased, that he ought not to be permitted to recover the amount actually paid without allowing the vendor of the goods reasonable compensation for the use of, depreciation, and willful or negligent damage to the article purchased, while in his hands.
– (fair dealing à use by the minor à minor must reasonably compensate)
– Benefit Rule: upon rescission, the minor’s recovery is subject to a deduction for the minor’s use of the merchandise.
– Absent any evidence that the minor was taken advantage of
– The rescission must be within a reasonable time

Hauer v. Union State Bank of Wautoma – woman applies for loan…gets it…claims incapacity.
– Predetermined presumption for competency. Burden of proof on one claiming incapacity.
– The Cognitive test: The Court says that the “test for determining competency is whether the person involved had sufficient mental ability to know what he or she was doing and the nature and consequences of the transaction.”
– The Volitional test: a person lacks capacity to contract if the person is unable to act in a reasonable manner in the transaction and the other party has reason to know of the condition.

Mental incapacity: Intoxication
– May claim incapacity if the person claiming was influenced by a foreign substance and the other party should have known of it.

– Improper Threat [§176 lists the threat scenarios] – No reasonable alternative
– Inducement into action

Economic Duress – Posner thinks that economic duress is only a viable claim if other party caused it.

Duress is DIFFERENT than overpersuasion

Odorizzi v. Bloomfield School District – undue influence found in administration requesting/receiving a resignation from Odorizzi after he was accused of criminal homosexuality.

7 Characteristics that Establish a Pattern for Overpersuasion
1) discussion of transaction at an unusual place or inappropriate time
2) consummation of the transaction in an unusual place
3) insistent demand that the business be finished at once
4) extreme emphasis on untoward consequences of delay
5) the use of multiple persuaders by the dominant side against the servient side
6) absence of third party advisers to the servient party
7) statements that there is no time to consult financial advisers or attorneys

Fraud & Non-disclosure

Syester v. Banta – Fraud/Intentional Misrepresentation (Dance lessons)
Fraud Elements
a) That the defendants made one or more of the representations claimed by the plaintiff . . .
b) That said statements, or one or more of them, were false.
c) That said false statements or representations were as to material matters with reference to the entering into the contract.
d) That the defendants knew the said representations, or one or more them were false.
e) That said representations were made with intent to deceive and defraud the plaintiff.
f) That the plaintiff believed and relied on said false represenations and would not have entered into the contract, except for believing and relying upon said misrepresentations.
g) That the plaintiff was damaged in some amount through relying on said representations.

Scienter: A mental state in fraud that is characterized by an intent to deceive, manipulate, or defraud.

Hill v. Jones – Buyers (Hills) buy a home (72K) but weren’t told about termites. The sellers most definitely knew about the problem.
Modern view is that a vendor has an affirmative duty to disclose material facts where:
– it is necessary to prevent prior assertions from becoming a mis-representation
– disclosure would correct an inaccurate assumption or part of other party
– disclosure would correct an inaccurate assumption or part of other party in regard to the contract
– entitlement of other party to know the fact b/c of a relationship of trust/confidence.
Restatement §161

– Good faith and Fair dealing are required. Kinda squishy terms though…


Park 100 v. Kartes – man shows Kartes a form to sign as they depart for rehearsal dinner.
5 Elements to Fraud

A material misrepresentation of past or existing fact by the party to be charged, which
was false,
was made w

ley Medical Specialists v. Farber – Farber is a pulmonologist who signed a non-competition clause saying that he wouldn’t work in a specified area within a number of years after leaving company.

§ 186 Promise In Restraint Of Trade
a) A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of trade
b) A promise is in restraint of trade if its performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation.

§ 188 Ancillary Restraints on Competition
(1) promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if
a. the restraint is greater than is needed to protect the promisee’s legitimate interest, or
b. the promisee’s need is outweighed by the hardship to the promisor and the likely injury to the public.

The “blue pencil rule” – the court may line out writing but not necessarily change or add terms. [this courts is a bit conservative in that other courts would in fact change/add] – Non-competition clauses are not often to be enforced.
– Instead of adding a new and appropriate clause, the court may just remove the clause all together

(1) Criteria in determining if covenants not to compete are reasonable:
(a) The covenant must be no broader that is necessary to serve the LEGITIMATE INTERESTS OF THE EMPLOYER.
(c) Whether the agreement is INJURIOUS TO THE PUBLIC. (Can consumers have access to other businesses of the same type?)

RR v. M.H. & another – surrogate mother. Surorogate is paid at separate stages along the way. Argument as to the validity of the consent given.
Statute requires a 4 day waiting period. In this situation, the money was for the baby rather than the services so the court has a problem with that.

Mistake §151 – a belief not in accordance with the facts.