Contracts II Outline

Contracts II Outline
Minority & Mental Incapacity
•          Avoiding Enforcement
–        Issue of CAPACITY
•          Capability of a party to enter into a legally binding contract;
–        Here the question is not really whether a contract has come into being – it is more whether the contract the parties have purported to enter into is void ab initio, or voidable due to some incapacity/disability on the part of one party
–        If the party is legally incapable, the modern result is that the contract is VOIDABLE, not void
»        Thus the contract is not a nullity, though it is not enforceable against the impaired party if that party decides not to perform
–        Three main possibilities – incapacity due to age, mental impairment, or intoxication
•          E.g. where underage – an ‘infant’, someone below the age of majority – usually 18 (R2nd §14), party regarded as not being ‘fully savvy’, and felt that should be allowed to choose between whether
–        feels transaction of benefit to him, and voluntarily perform,
–        feels disadvantageous to her thus dissafirm the obligation and rescind the contract
»        Note: may not get off scot free – may be required to make some restitution for what enjoyed already
–        See generally R2nd § § 12, 13
–        Note this is a possible defense
•          Justification for avoidance of the contract, or argument against its formation
•          Tradition Presumption of Incapacity
–         certain parties were deemed incapable of entering into contracts – ie. Denied the capacity to contract
•          Infants (to protect them from improvident contracts they were at risk of due to immaturity)
•          Married Women (were ‘one flesh’ with their husbands, and the husband was the head, and legal representative of that one flesh unit
•          Persons of a certain race (racial prejudice)
•          Modern Presumption of Capacity
–        All adults presumed to be legally competent until satisfactory proof to the contrary is provided
•          Burden of proof of incompetency on the person asserting the incapacity
•          The Infant Doctrine (Minority)
–        Intended to protect minors from
•          Their lack of judgment due to immaturity
•          Crafty adults that would take advantage of them
–        Traditional approach towards minority previously that needed to determine if a transaction beneficial or prejudicial to the infant. 
•          If prejudicial, contract was VOID
•          If contract for necessaries – items needed to live
–        Determination of what necessaries could vary depending on the station in life of the infant – necessities contracts may not be void. Would be deemed to be for the benefit of the infant, thus would not be void, but VOIDABLE at the option of the infant
•          If misrepresented age or willfully destroyed the goods could be held liable – contract still void, but may be liable in restitution for necessaries, or for tortuous conduct
•          If uncertain as to benefit of prejudice, the contract would be deemed voidable
•          Voidable contract subject to disaffirmation by infant
•          Could rescind the contract if decided not to go through with it
•          Must be done before majority, or a reasonable time after attaining majority
•          Thus had option of invoking advantageous contracts, yet could be relieved from disadvantageous contracts
•          Some felt unfair to innocent vendors
•          Need to balance rights of minor v interest of innocent vendors
•          Thus idea began to take root that minors should make restitution in some way for use of object/benefit received while in possession of the consideration of the contract
•          i.e. should get less than the full purchase price paid if rescinds the contract 2 Other Rules for Minority:
•          The BENEFIT RULE – upon rescission, full recovery of purchase price subject to deduction for minor’s use of the merchandise OR:
•          The DEPRECIATION/DETERIORATION RULE – minor’s full recovery of price subject to deduction for minor’s use of the consideration received under the contract, or the depreciation or deterioration of the consideration while it was in her possession
•          Contract must be one where
•          Minor not ‘overreached’ in any way
•          No undue influence
•          The contract must be a fair and reasonable one
•          The minor must have paid money on the purchase price
•          Minor must have taken and used the article purchased
•          Idea of such restitution not universally adopted
•          More traditional rules still followed by some
•          No restitution unless minor has misrepresented his age, or wilfully damaged the property (some jurisdictions)
•          Minor however expected to return as much of consideration as remains in possession if possible, but if not, disaffirmance still permitted
•          Tests for competency
•          Whether person able to UNDERSTAND in a reasonable manner the nature and consequences of the transaction (COGNITIVE TEST)
•          Whether person able to ACT in a reasonable manner in relation to the transaction and the other party has reason to know of his condition (VOLITIONAL TEST)
•          Power of Avoidance may be lost §15(2)
•          To the extent transaction has been performed or
•          Avoidance would be unjust
•          Adults we presume competency to create a contract (unlike voidable minority – R 14)
•          Avoidance through mental capacity (R 3-15) or intoxication (R 5-16). One must prove the other party had knowledge or reason to know of the disability (cognitive test or volitional test – understanding or act/behavior)
•          Mental Capacity Tests:
•          Cognitive Test: whether person is able to understand in a reasonable manner the nature of the transaction and its consequences
•          Volitional Test: whether person is able to act in a reasonable manner in transaction and other party has reason to know of condition – this focuses on reasonable behavior (someone flails their arm doesn’t mean they raised their hand and want whatever you had to raise your hand to get)
•          R 15-2: avoidance on mental incapacity – if contract was formed completely and fair, it is still voidable but restitution