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

Contracts II
Basanta
Spring 2011
 
Avoiding Contract Enforcement
Minority/Mental Incapacity
–          Competency: relationship of parties/status of one or both parties
o   Minors or mental illness
–          Bargaining: behavior of parties during contract formation process
o   Duress, misrepresentation, undue influence, procedural unconscionability
–          Subject Matter/Substance of provisions
o   Substantive unconscionability
–          Dodson v. Shrader – minor: (minor negligently blows up car, sues seller for repairs and to give car back)
o   Traditional Majority Rule: “Infancy Rule” – minor entitled to full payment return
§  Basis: adults can be crafty and will try to trick minors
·         However, if minor misrepresents age, liable for damages
o   Minority Rule: Unless there is overreaching adult, when there is a reasonable K and minor has paid and used item, K is disaffirmed and minor must pay setoff himself
§  Rationale: Avoid minors using trickery to get money back – teach responsibility
§  Exceptions: necessities (clothing, food, shelter),
o   Rest 2d § 14 describes all this
–          Hauer v. Union State Bank of Wautoma – mental incompetence: (woman in motorcycle which rendered brain damage takes bank loan to invest in shady business, bank still takes it as collateral)
o   Majority Rule: incompetent person’s transactions are void in their entirety if they were incompetent at time of K formation
o   Volition Test: did other party have reason to know of individual’s incompetency?
o   Cognitive Test: did individual know what they were doing along with the consequences?
§  Intoxication follows these same rules
o   Rest. 2d § 15 covers this
Duress/Undue Influence
–          Traditional CL rule: duress – threats of physical harm or imprisonment (Rest. 2d § 174)
–          Modern rule: threats to property and economic duress also covered
–          Totem Marine Tug v. Alyeska Pipeline – economic duress: (P failed to complete K but wanted part performance – accepted very low price due to fear of bankruptcy)
o   Rest. 2d § 175: party has to make coercive action – must induce other party to accept K
o   Modern Rule: duress exists when
§  One party involuntarily accepts terms of another
§  Circumstances permit no other alternative
§  Circumstances a result of coercive acts of other party
–          Odorizzi v. Bloomfield School Dist.: undue influence – (gay teacher claimed resignation under duress – working on 40 hours without sleep and threats at his home)
o   Must prove undue influence: persuasion which tends to be coercive in nature
–          Economic Duress
o   Wrongful threat
o   Deprivation of free will to induce action
o   Lack of reasonable alternative
–          UCC Good Faith Test: if K in good faith then must honor it – unforeseen situation, no threat to breach
 
Misrepresentation/Nondisclosure
–          2 Options
o   Tort action for damages
o   Right to avoid enforceability by rescission
–          Syester v. Banta : misrepresentation – (dance lessons)
o   Rest. 2d § 162: K subject to rescission not only based on intentional and knowing misrepresentation, but also based on an innocent but material misrepresentation.
§  Maker K would induce r

sales tactics
§  Must use test of reasonable fairness
–          Procedural Unconscionability: lack of meaningful choice for buyer
–          Substantive Unconscionability: provision unreasonably favorable to seller
o   Generally need both types, but need less of a showing of substantive, more of procedural
–          Williams v. Walker-Thomas Furniture: unconscionability – (monthly rent for furniture, if unpaid then repossessed and no return of payment)
o   Consumer Protection Legislation: protects customer in situations like this
o   Dragnet Clause: add-on clause which gives seller flexibility (illegal sometimes
–          Adhesion K: A standard form contract drafted by one party, who is in a superior bargaining position and who regularly enters into such contracts, that is offered to the other party (a “consumer”) on a take-it-or-leave-it basis with little or no opportunity for that party to bargain or alter the standard provisions. Contracts of adhesion typically contain long “boilerplate” provisions in small type, written in language difficult for ordinary consumers to understand.
–          Higgins v. Superior Court: unconscionability – (Extreme Makeover Home Edition arbitration case)
o   Even if the adhesion K cannot be rescinded based on unconscionability, the arbitration clause can be