Contracts II Outline

Contracts II Outline
I. Contract Defenses
A. Illegality and Violation of Public Policy
– Baby M, AC v. CB
· Issue: Whether K’s that conflict with laws of public policy and legality are void?
· Rule: A K that is a) criminal or b) conflicts with existing statutes or c) violates public policy will be rendered void and invalid by the courts. Baby M. The use or inducement of money to an illicit transaction is illegal and the courts will infer a presumption of coercion, especially where there is a disparity of wealth between the parties. (i.e. sale of a child going to the “highest bidder”). Id. Whenever a case deals with children (under the age of 18), the courts consider the BEST INTEREST OF THE CHILD as the most important factor in deciding custody. Id. The best interest of the child is a question of fact and the courts will look to the evidence and facts of the case when making their determination. Baby M, ACCB Fitness of the parents, effect on the child of not living with the natural parents, sexual orientation of the parents, and other factors related to the overall welfare of the child are elements considered in the Best Interest of the Child analysis. Baby M, ACCB For example, a parent’s sexual orientation doesn’t automatically render them unfit to share custody of a child, but the nature of the activities and how they affect the best interest of the child is a question of fact considered by the court. AC,CB. Consent by one party to an illicit transaction is irrelevant, and public policy is against the idea of “Peonage”, and that there are values/things that society deems more important that just can’t be contracted for. BabyM, ACCB. Public policy requires that children should remain with and be raised by their natural parents. Baby M.
B. Statute of Frauds
– Metz Beverage
· Issue: Whether Oral Agreements are void under the Statute of Frauds?
· Rule: To satisfy the statute of frauds, it’s NOT necessary to prove that the parties created a written K. While courts prefer a written K, an oral agreement is enforceable so long as there is some writing that refers to the agreement and its terms, even if the writing repudiates the agreement. (i.e. Admissions Clause). Where there is an a) agreement between the parties or b) part performance, the Statute of Frauds will be set aside. When applying the Statute of Frauds, courts look to the relationship between the parties in order to avoid defeating the intentions of the parties on a technicality. The UCC parol evidence rule is intended to liberalize the rigidity of the common law and intends to expand commercial practices through custom, usage, and by agreement between the parties. Rigid adherence to the Statute of Frauds is contrary to the philosophy of the UCC and it is the policy of the courts to sustain a K whenever possible. The general statute of frauds requiring agreements to be void unless made in writing is inapplicable where there has been substantial part performance, and thus parties can’t have it both ways. ( i.e. D and P had K for 30 years, and P agreed not to compete with D…thus D can’t deny the existence of a K while imposing a restraint on P). The purpose of the statute of frauds is to prevent the enforcement of alleged promises that were never made, not to repudiate promises that actually were made. Where there is a dispute related to an oral agreement in a requirements K, evidence of restraint suggest that a K can only be terminated for cause. (i.e. D’s requirement that P not sell competing products). Cite entire rule to METZ
· Example: K between P and D started as an oral agreement and continued for 30 years. K had indefinite terms and no specific duration. K was a requirements K whereby D would sell P all the products P needed to satisfy his customer, and P agreed not selling products competing with D. P and D attempted to put K in writing a few times, but their attempts failed. D sent various letters to P in reference to THEIR ORAL AGREEEMENT, and threatened to terminate THEIR ORAL AGREEMENT. (Admissions Clause). Thus, statute of frauds isn’t dispositive and an inference to an agreement between P and D was found by court.
C. Lack of Capacity
– Halbman v. Lemke (Infancy Doctrine), Shoals Ford (Mental Incapacity)
· General Rule:
Capacity doctrine provides that contracts of minors and people with mental incapacity are voidable; the party lacking capacity may avoid the K by disaffirming it. Restatements 14&15. However, the minor, upon reaching the age of majority, or the person with mental incapacity upon recovering capacity, may choose to ratify or affirm the K and if performance is ongoing, continuation of performance may be treated as an implied affirmation. Id. Even if the K is voided, a child or person with mental incapacity may be liable in restitution if the other party provided “necessities” (food, shelter, clothing) to the child or person with mental incapacity. Restatements 12.
· Halbman: USE WHEN K INVOLVES A MINOR TO ADVOCATE NON-ENFORCEMENT (INFANCY DOCTRINE)
Absent misrepresentation or tort, a minor can disaffirm a K for the purchase of items which aren’t necessitites, and can recover all consideration conferred incident to the transaction. Halbman The infancy doctrine turns on the theory of consideration and is premised on the elements of a) volition, b) capacity, and c)inequality/exploitation. Id. Because minors lack a rational mind capable of forming “consensus ad edum”(volitional element) and minors aren’t equal to their adult counterparts(inequality), there is a risk of exploitation and unfair bargaining. Id. Thus, a child is deemed to be irrational and CAN’T achieve consensus ad edum unless: a) there was a misrepresentation or tort committed by the child, b) the sale of something was a necessity, c) the minor is married or emancipated in some way, d) K is ratified by the minor or they reach the age of majority or e) there was substantial part performance/implied affirmance. Id. Absent these factors, a disaffirming minor shouldn’t have to make restitution for diminished value/consideration. Id.
· Policy: Infancy Doctrine gives minors a way out of a K and is meant to protect minors at all costs even at the expense of an innocent vendor. 2nd Restatements 18. Purpose of doctrine is the protection of minors from foolishly squandering their wealth through improvident K’s with crafty adults who would take advantage of them in the marketplace. Halbman. When a K is disaffirmed, title to that part of the purchased property which is retained by the minor revests in the vendor; it no longer belongs to the minor. 2nd Restatements 18. A minor who disaffirms a purchase and recovers his purchase price should NOT ALSO be permitted to profit by retaining the property purchased. Id.

· Shoals Ford: USE TO ADVOCATE NON-ENFORCEMENT OF A K ON THE GROUNDS OF MENTAL INCAPACITY, EVEN WHEN TERMS OF THE K ARE FAIR.
· Issue: Whether the person was able to understand the K and its consequences/terms?
· Sub-Issue: Is the person insane or are they suffering from an “episodic” men