SLU LAW
Professor Cherry
Contracts II
Spring 2015
Defenses to Contracts
The setting out of additional facts and circumstances that rebut or avoid the normal significance of the prima facie case of contractual obligation, breach, and damages. Even though the facts that comprise the prima facie case of contracts are established to be true, if they facts constitution the defense are also established, a person seeking contractual enforcement is not ordinarily entitled to a remedy.
Capacity
Incompetence
Ortelere v. Teachers’ Retirement Board of NY
Ill Teacher made some changes to her retirement benefits and then died. Husband sought to have the changes set aside.
Should teacher be bound to contract if she suffered from mental illness?
No, Restatement 12 and 15.
R 12:
1. No person can be bound by a contract who has not legal capacity to incur at least voidable contractual duties.Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.
2. A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is
under guardianship, or
an infant
mentally ill or defective, or
R 15: (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction; or (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know if is condition.(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extend that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust.In such a case a court may grant relief as justice requires.
Basically: If one party knows the other is mentally ill then the contract is void.However if the party does not know or have reason to know the contract is valid.
Here the school board had reason/knew she was ill.
Infancy
Webster Street Partnership, Ltd. V. Sheridan
17 and 18 yr old minors enter into a lease agreement.They then stop paying rent and landlord sues.
As a general rule, an infant does not have capacity to bind himself absolutely by contract.
Court says minors can get out of contracts unless they contract for “necessaries.”
Clothes, food, housing (if they cannot live with parents)
Here, court didnot find the apartment was a necessary because the boys could have lived at home.
This is an incentive for people to be cautious when contracting with minors.
R 12 Lists exceptions to the general rule
Military, Marriage, emancipation, Student Loans, and necessaries.
Halbman v. Lemke, SC of WI
Absent misrepresentation or tortuous damage to the property, a minor who disaffirms a contract for the purchase of an item which is not a necessity may recover his purchase price w/o liability for use, depreciation, damage, or other diminished value.
Zelnick v. Adams, SC of VA
Whether or not attorney services are considered necessaries depends on if the dispute is over a necessary.If so, the infant is bound to legal fees.If not, the can be no recovery for services.This assures that minors can obtain legal services to protect their various interests (necessaries).
Misrepresentation *
A misrepresentation is an assertion that is not in accord with the facts. R159
Material Misrepresentation
For an innocent misrepresentation of fact to provide a defense to a contract, it must be a “material” fact.
R 470(2)” A misrepresentation becomes material when it becomes likely to affect the conduct of a reasonable person with reference to a transaction with another person.
Elements of Fraud
Representation
Falsity
Scienter (knowing state of mind that the person committing fraud has)
Deception
Injury
Halpert v. Rosenthal
Real estate agent and seller so no termites in the house because they think there are none. Upon inspection after purchase agreement is signed, termites were found. Buyer won’t buy so seller has to sell to another at a loss. P seller sues D buyer for the difference.
If someone is not aware of their own misrepresentation, should they be liable/is the contract void?
Does a innocent misrepresentation of a material fact make the contract void?
Yes, the misrepresentation is material. It would be unjust and inequitable to allow someone who has made false representations, even innocently; to benefit from the bargain induced by those representations.
A misrepresentation is any manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the facts.
May be innocent, negligent, or known to be false.
Becomes material when it becomes likely to affect the conduct of a reasonable man with reference to a transaction with another person.
Restatement
159-a mispresentation is an assertion that is not in accord with the facts.
162-When a misprep is fraudulent or material
1. A misrep is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker
a. knows or believes that the assertion is not in accord with the facts.
Or b. does not have the confidence that he states or implies in the truth of the assertion
Or c. knows that he does not have the basis that he states or implies for his assertion.
2. A misrep Is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.
164-When misrep makes a contract voidable:
1. If a party’s manifestation of assent is induced by either a fraudulent or a material misrep by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.
2. If a party’s manifestation of assent is induced by either a fraudulent or a material misrep by one who is n
ss.They may be trying to protect women’s interests.
In the Matter of Baby “M”
Whitehead tried to be bring a claim for fraudulent misrepresentations on the following:
The issue of Mrs. Stern’s infertility.
W wanted to define it narrowly but it was clear from documents that W was aware that infertility extended to a women who could not carry a baby to term w/o risks.
The omission to W that S had MS.
W had S evaluated by doctor that said she was fit to parent.Also it does not matter because she did not inquire about this until after the agreement so she did not rely on it.
The omission of contents of a psychological exam by the ICNY.
The ICNY was not related to the Sterns and the exam took place before the Sterns every contacted ICNY.
Borat Hypo: In a scene, Borat interviews some drunken college kids who make some pretty offensive statements. They sign a release.
They sue because they claim there were drunk and were under the impression that the show would only air in Kazakhstan.
Their damages were they could not get internships.
Is this a material misrepresentation?
Yes, a reasonable person would not expect to be affected by something only shown in Kazakhstan.
However judge did not sympathize with them and so No, you should never make racists comments on TV.
Duress
Improper threat which coerces party to enter or breach contract
Under R 175 and 176
Restatement 176: A threat is improper if the resulting exchange is not on fair terms and,
a. the threatened act would harm the recipient and would not significantly benefit the party making the threat.
b. the effectiveness of the threat inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat or
Was the victim’s will overborne?
Types of Duress
Physical duress
Duress by threat
Third party duress
R175 (2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress wither gives value or relies materially on the transaction.
Difference between duress and monopolist
Question when price is set differently for one particular customer: may look like gouging.
Key item to look at here: opportunistic behavior.We don’t want parties to the contract purposefully creating a situation of adversity, and then exploiting the situation.
