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Contracts II
University of Alabama School of Law
Lee, Grace

Professor Grace Lee
Spring 2010


Fairness to minor/incompetent v. Fairness to other party

· FACTS: Sixteen year old Larry Bowling (P) purchased a used car from Sperry (D) for $140. Bowling attempted to return the car to Sperry after discovering that the main bearing was defective and was informed that repairs would cost $45-$95. P left the car with D and mailed a letter disaffirming the contract. P sued D for the return of his money and the trial court entered judgment for D on the grounds that the contract was not voidable, because P’s aunt and grandmother accompanied P when he purchased the car and gave him the money to purchase it. P appealed.
· ISSUE: Is a purchase contract by a minor voidable despite the participation of an adult in the transaction?
o Yes. A purchase contract by a minor is voidable despite the participation of an adult in the transaction.
o The court held that the participation of P’s aunt and grandmother in the transaction did not change the rule that contracts by a minor regarding personal property are voidable.
o The evidence showed that the sale was made between P and D and not one of the adults. D was fully aware of P’s age when the sale was negotiated and P had every right to disaffirm the sale. D had the burden to show that the car was a necessity and D did not meet that burden.
o The court found that the contract was between Sperry and Larry because the certificate of title was in Larry’s name.
o The point of not allowing minors to enter into contracts is because they are not seen as capable of making important decisions.
· Class discussion:
o The cases should be decided on a case by case basis (circumstances and conduct) rather than deciding minor cases with a bright line age.
· HOLDING: Court voided the contract because the boy was underage. It did not matter that his grandmother signed too.

Mental Incompetency
· FACTS: The Plaintiff, Heights Realty, Ltd. (Plaintiff), entered into an exclusive listing contract with Johnye Mary Gholson (”Mrs. Gholson”), who was 84 years old when she signed the contract. Later, it became evident that the Defendant was mentally incapable to handle her affairs. Plaintiff brought suit against Phillips, the Conservator of Mrs. Gholson’s estate, to enforce its commission.
· ISSUE: The issue presented by this case is whether an 84 year old woman, who was later adjudicated incompetent, had the capacity to contract.
o Reason for voiding contract: Mental incompetence
o Five factors the court will consider to determine Mental Status
§ Physical condition
§ Adequacy of consideration
§ Whether or not the transaction was improvident
§ Relation of trust between the parties
§ Weakness of mind as judged by all other acts within a reasonable time
· Arguments:
o Phillips: she had diminished capacity
§ Evidence: Couldn’t remember her brother, set off alarm, locked herself out of a running car, can’t manage bills, confused
o Heights Realty: The evidence from the other side may not be reliable
§ Did they actually witness these events of diminished capacity
§ Those incidents could happen with a sane person too
§ The only testimony is from her family members
· Holding: Court found in favor of Phillips (old lady)
o Appellate court upheld

· FACTS: While being treated for a drug/alcohol problem at a facility owned by Defendant, Plaintiff sustained an injury and later sought to bring a personal injury action against Defendant. Defendants filed a Motion for Summary Judgment, based on their contention that there was no genuine issue of material fact, due to the indemnity agreement; however, Plaintiff counter-argued that she lacked capacity when she signed said agreement, because she was under the influence of drugs and/or alcohol when being checked into the facility.
· ISSUE: This case questions whether a normally lucid individual can claim lack of capacity due to the influence of drugs and/or alcohol.
o The court found there were several issues of material fact and that, if plaintiff could prove lack of capacity due to substance abuse, the indemnity agreement would not stand.
While proving lack of capacity due to a mental condition is fairly easy, proving lack of capacity due to substance abuse bears a higher burden of proof, in that Plaintiff must prove that she was under the influence of the questionable substances at the time she entered into the agreement. Regardless of her ability to prove this point, it is still a question of fact, which precludes the awarding of a Summary Judgment on behalf of defendant.
· Plaintiff signed a waiver to her rights to bring a claim upon the defendant’s conduct by signing a general release to be admitted to a rehab facilitiy
o Reason to void: She has no recollection of signing it because she was intoxicated and on drugs.
· Sympathy towards plaintiff:
o This plaintiff is not as sympathetic as the old lady because intoxication is self induced. (voluntary intoxication)
· Defendant motioned for summary judgment
o Court denied summary judgment

1. Mistake
a. Restatement 152 (mistake of both parties) and 153 (mistake of one party)
2. Fraud
3. Constructive fraud
4. Misrepresentation
5. Undue influence
6. Duress
7. Bad faith and unconscionability

Ways in which a contract may be voided:
· One party did not have the capacity to enter into the contract because of their age or mental incapacity
· One or both parti

Party that made mistake

[Voiding party assumed risk of mistake]

Unconscionable to enforce, no negligence, not a substantial hardship, notice

· FACTS: Plaintiff sought bids for a project from various construction companies. Defendant had the second-lowest bid and included in its bid was a bid bond, which offered to pay reliance damages to the Plaintiff, if Defendant turned down the job for any reason. Defendant realized a clerical error had been made when formulating the bid and sought rescission, rather than being held to the terms of the contract. The trial court found that a material mistake (i.e. a mistake that affected the essence of the contract) had been made and allowed rescission. Plaintiff appealed.There was a bid bond between the construction company and the architects
o Unilateral mistake. The construction company made a mistake and then conveyed it to the other side which created the problem.
· ISSUE: Whether, under these circumstances, a contractor is entitled to the equitable relief of rescission when it has submitted a bid which contains a material clerical mistake.
o Conclusion: The contract should be able to be rescinded.
o The mistake was material
§ The mistake of leaving out the glass estimate was 14% of the project. This is a significant part of the project, which makes it a material mistake.
o Enforcement of a contract pursuant to the terms of the erroneous bid would be unconscionable. (i.e., rescinding party would actually lose money, does not just lose benefit of the bargain)
§ In this case, Mattefs would actually lose money ($1,000) if they were held to the contract and make no profit at all.
o The mistake did not result from violation of a positive legal duty or from culpable negligence.
§ In this case, it was not negligent because any reasonable company could have made the same mistake. It was a clerical error.
o The party to whom the bid is submitted will not be prejudiced except by the loss of his bargain. (Substantial hardship on party that wants to enforce?)