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Contracts II
University of Alabama School of Law
Lee, Grace

Contracts Outline
I.                    Avoidance of Contracts
a.       Capacity to Contract – Is there anything about one of the parties that will influence their ability to contract? Certain Classes of person whose contractual capacity is limited. Their agreements are either void or voidable. Classes include infants (minors) and persons suffering from mental infirmity. 
                                                              i.      Minor/Infant – age of majority is mostly 18 (some jurisdictions it’s 21). Infancy ends at the very first moment of the day preceding one’s 21 (or 18th) birthday. Contracts made by infants are voidable. 
1.       Power of avoidance is only with the infant, or at his death, in his executors. 
2.       An adult cannot void based on the other party’s infancy. 
3.       The power of voiding the contract is disaffirmance
4.       Must disaffirm the entire contract. Cannot keep the favorable terms, and void the bad terms.
                                                            ii.      False Representations by the Infant:
1.       Age: if the infant willfully misrepresents his age, the majority view is that he nevertheless may exercise his power of avoidance. However, he must place the adult party in the status quo ante. 
2.       The contractor has the duty to ascertain that the other side is not an infant. 
a.       A minor is not capable of entering into a contract, and they don’t have the ability to commit an intentional tort. Not aware of the consequences of lying about age. Massachusetts rule
a.       Estoppel approach/Indiana Rule –If the person is the age of maturity and lies, the seller relied on that lie, and the liar cannot take advantage of that misrepresentation and sue
                                                          iii.      Liability of an Infant for Necessaries:
1.       Well settled that the infant is liable for necessaries furnished him. Not liable for the contract prive, but for the reasonable value of the necessaries furnished. 
2.       Necessaries are determined case by case. The question is often for the jury. 
3.       Obvious however, that food, shelter, and clothes are necessary.
                                                           iv.      Bowling v. Sperry – P is a 16 year old and purchases a car accompanied by Grandmother and Aunt. D knows he’s a minor, and sells him the car. P wants to return the car when the engine burns out. D says engine burned out due to P’s negligence. P wants to disaffirm the contract because of his age. Court says it does not matter that P was accompanied by adults or that his Aunt supplied the money, D sold to the minor. 
                                                             v.      Voidable Contract – different from a Void Contract, which means that it was never valid. There was a valid contract, but it could be voided. 
                                                           vi.      Can only void the contract for a limited amount of time. He has until before he’s the age of majority and until a limited time after. 
1.       NOT illusory because it can be a valid contract as long as the minor doesn’t disaffirm it, or waits long enough until the age of majority
                                                         vii.      If the car was necessary to sustain the Ps life, then that’s a defense that would make the contract unavoidable and P would have to compensate D. 
                                                       viii.      Policy reasons: store owners wouldn’t sell necessary items to minors if they knew the minor could renege on the contract. This way the minor gets something necessary to life and if he reneges, the owner gets compensated. 
1.       Court didn’t think the car was necessary to life. D said it was because he used to it get to work. But not necessarily the only means of getting to work for minor
                                                            ii.      Mental Infirmity: senility, mental retardation, temporary delirium deriving from physical injuries, intoxication, and side effects of medication.
1.       Question of Incompetence. Have to determine whether they have the mental ability to enter into a contract. Have to determine whether they were competent at the time they entered the Contract.
2.       Incompetency may be proven by circumstantial evidence including disparity of value in the considerations exchanged. 
                                                          iii.      Heights Realty, Ltd. V. Phillips – D was an elderly lady and signed an agreement saying that she would put her house up for sale for a certain amount of money. She rejected an offer, and changed the amount she wanted as a down payment. D said she was competent, her family says she wasn’t. 
1.       If she can void the contract then it never existed, and no money changes hands.
a.       If P can get the contract voided, D would have to pay them the commission they would have received based on the offer she was made. 
2.       It’s a question of competence at the time the contract was made. Difficult to determine, look at a number of factors:
a.       Individual’s physical condition
b.      Adequacy of consideration
c.       Whether or not the transaction was improvident
d.      The relation of trust and confidence between the parties to the transaction
e.      Weakness of the mind of the alleged incompetent person as judged by all other acts within a reasonable time prior and subsequent to the act in question.
3.       Different analysis than with age. 
a.       Harder to tell, it can change over time.
4.       Concerned with their state of mind at the time the contract was made
                                                           iv.      Important Things to Mention:
1.       How should the other party protect themselves?
a.       Waiver
b.      Psychologists
c.       Confirm Age
d.      Have a lawyer/family member present
e.      Have someone co-sign
f.        Notarized
                                                             v.      Restatement 15
1.       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…terminates to the extent 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.  
2.       Is a safe harbor here, but the court may grant relief as justice so requires. 
                                                           vi.      Illusory contracts – was never a contract. With this, they are contracts, but can be voided by the person who didn’t have the capacity to enter into a contract. 
                                                            ii.      Ervin v. Hosanna – Ervin (P) went to a rehabilitation center and was injured while there. Suing for her injury, but she signed a waiver. She says that she was mentally incapacitated and that the contract should be void. 
1.       Incapacitated because she was on drugs. 
2.       Court agrees and that there is an issue on fact, so summary judgment

                                                                                                                           ii.      avoidance/recission would not result in substantial hardship to the non-mistaken party
                                                                                                                                  iii.      Additionally, the following circumstances must exist in order to avoid a unilateral impalpable mistake:
1.       The agreement is entirely executory or the other party can be placed in the status quo ante;
2.       The mistake is vital/substantial (but not astronomical as that would likely make the mistake palpable and relief is easily given); and
3.       Mistake is of a clerical or computational error or other such misconstruction of the terms
b.      Restatement 153
                                                                                                                                      i.      Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performance that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake…and (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake
3.       Requirements for Voiding a Contract with a Unilateral Mistake
 
Restatement
Boise
Materiality
Yes
Yes
Voiding party did not assume risk
Yes
No (?)
Unconscionable to enforce
Yes
Yes
Other party at fault or knew of mistake
Yes (alternative to un-conscionability)
No (?)
No negligence on part of mistaken party
No (?)
Yes
Ne prejudice to other party
No (?)
Yes
Prompt notice of error given to other party
No (?)
yes
4.       Argument that the Boise Approach and the Restatement Approach are the same. [Explanation of why there are (?)s in chart] a.       Both must have a material effect and must be some kind of unconscionability.
b.      Voiding party assume risk. Yet in Restatement, can’t void contract if you assumed the risk in the contract. 
                                                                                                                                      i.      Boise case, even though they didn’t say the party didn’t assume the risk, they most likely didn’t otherwise it wouldn’t be in court.
c.       If other party had been at fault would the court really let them come in? Probably implied in Restatement
d.      Other party at fault of knew of mistake – if boise knew the rescission would arguably be allowed on those grounds. 
Gross negligence would probably prevent the party from rescinding