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Contracts
University of Dayton School of Law
Morris, Mark

Halbman v. Lemke
298 N.W.2d 562
Text as found on Page 543:

CALLOW, J.… [W]e must decide whether a minor who disaffirms a contract for the purchase of a vehicle which is not a necessity must make restitution to the vendor for damage sustained by the vehicle prior to the time the contract was disaffirmed.
This matter was [heard] upon stipulated facts[MM1] . On or about July 13, 1973, James Halbman, Jr., a minor, entered into an agreement with Michael Lemke whereby Lemke agreed to sell Halbman a 1968 Oldsmobile for the sum of $1,250. Lemke was the manager of L & M Standard Station in Greenfield, Wisconsin, and Halbman was an employe at L & M. At the time the agreement was made Halbman paid Lemke $1,000 cash and took possession of the car. Arrangements were made for Halbman to pay $25 per week until the balance was paid, at which time title would be transferred. About five weeks after the purchase agreement, and after Halbman had paid a total of $1,100 of the purchase price, a connecting rod on the vehicle’s engine broke. Lemke, while denying any obligation, offered to assist Halbman in installing a used engine in the vehicle if Halbman, at his expense, could secure one. Halbman declined the offer and in September took the vehicle to a garage where it was repaired at a cost of $637.40. Halbman did not pay the repair bill.
In October of 1973 Lemke endorsed the vehicle’s title over to Halbman, although the full purchase price had not been paid by Halbman, in an effort to avoid any liability for the operation, maintenance, or use of the vehicle. On October 15, 1973, Halbman returned the title to Lemke by letter which disaffirmed the purchase contract and demanded the return of all money theretofore paid by Halbman. Lemke did not return the money…
The repair bill remained unpaid, and the vehicle remained in the garage where the repairs had been made. In the spring of 1974, in satisfaction of a garageman’s lien for the outstanding amount, the garage elected to remove the vehicle’s engine and transmission and then towed the vehicle to the residence of James Halbman, Sr., the father of the plaintiff minor. Lemke was asked several times to remove the vehicle from the senior Halbman’s home, but he declined to do so, claiming he was under no legal obligation to remove it. During the period when the vehicle was at the garage and then subsequently at the home of the plaintiff’s father, it was subjected to vandalism, making it unsalvageable.
Halbman [sued for] the return of the $1,100 he had paid toward the purchase of the vehicle, and Lemke counterclaimed for $150, the amount still owing on the contract.… [T]he trial court granted judgment in favor of Halbman, concluding that when a minor disaffirms a contract for the purchase of an item, he need only offer to return the property remaining in his hands without making restitution for any use or depreciation.…[T]hecourt also allowed interest to the plaintiff dating from the disaffirmance[MM2] of the contract.… The appellate court affirmed.…
The sole issue [MM3] [is] whether a minor, having disaffirmed a contract for the purchase of an item which is not a necessity [MM4] and having tendered the property back to the vendor, must make restitution to the vendor for damage to the property prior to the disaffirmance. Lemke argues that he should be entitled to recover for the damage to the vehicle up to the time of disaffirmance, which he claims equals the amount of the repair bill.
Neither party challenges the absolute right of a minor to disaffirm a contract for the purchase of items which are not necessities.… [T]he doctrine of incapacity or the “infancy doctrine,” is one of the oldest and most venerable of our common law traditions.… [I]ts purpose is the protection of minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace.… Thus[,] a contract of a minor for items which are not necessities is void or voidable[MM5] at the minor’s option.…
Once there has been a disaffirmance, however, as in this case between a minor vendee and an adult vendor, unresolved problems arise regarding the rights and responsibilities of the parties relative to the disposition of the consideration exchanged on the contract. As a general rule a minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction.… In return the minor is expected to restore as much of the consideration as, at the time of disaffirmance, remains in the minor’s possession.[MM6] … Restatement of Restitution, sec. 62, comment b, (1937); Restatement (Second) of Contracts, sec. 18B, comment c.… The minor’s right to disaffirm is not contingent upon the return of the property, however, as disaffirmance is permitted even where such return cannot be made. Olson v. Veum, 197 Wis. 342, 345, 222 N.W. 233 (1928).… [But here we] have a situation where the property cannot be returned to the vendor in its entirety because it has been damaged and therefore diminished in value, and the vendor seeks to recover the depreciation.…
The law regarding…the consideration exchanged on a disaffirmed contract is characterized by confusion, inconsistency, and a general lack of uniformity as jurisdictions attempt to reach a fair application of the infancy doctrine in today’s marketplace. [See] Navin, The Contracts of Minors Viewed from the Perspective of Fair Exchange, 50 N.C.L.Rev. 517 (1972); Note, Restitution in Minors’ Contracts in California, 19 Hastings L.Rev. 1199 (1968).… That both parties rely on this court’s decision in Olson v. Veum, supra, is symptomatic of the problem.
In Olson a minor, with his brother, an adult, purchased farm implements and materials, paying by signing notes payable at a future date. Prior to the maturity of the first note, the brothers ceased their joint farming business, and the minor abandoned his interest in the material purchased by leaving it with his brother. The vendor initiated an action against the minor to recover on the note, and the minor (who had by then reached majority) disaffirmed.… [We held] that the contract of a minor for the purchase of items which are not necessities may be disaffirmed even when the minor cannot make restitution. Lemke calls our attention to the following language in that decision:
“[There is a] substantial distinction between a mere denial by an infant of contract liability where the other party is seeking to enforce it and those cases where he who was the minor not only disaffirms such contract but seeks the aid of the court to restore to him that with which he has parted at the making of the contract. In the one case he is using his infancy merely as a shield, in the other also as a sword.” 197 Wis. at 344, 222 N.W. 233. From this Lemke infers that when a minor, as a plaintiff, seeks to disaffirm a contract and recover his consideration, different rules should apply than if the minor is defending against an action on the contract by the other party.…
Additionally, Lemke [argues] that a disaffirming minor’s obligation to make restitution turns upon his ability to do so[,] [and that the obligation is excused] only when restitution is not possible. Here Lemke holds Halbman’s $1,100, and accordingly there is no question as to Halbman’s ability to make restitution.
Halbman argues in response that, while the “sword-shield” dichotomy may apply where the minor has misrepresented his age to induce the contract, that did not occur here and he may avoid the contract without making restitution notwithstanding his ability to do so.
The principal problem is the use of the word “restitution” in Olson. A minor, as we have stated, is under an enforceable duty to return to the vendor, upon disaffirmance, as much of the consideration as remains in his possession. When the contract 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. See, e. g., Restatement (Second) of Contracts, sec. 18B, comment c.… The rationale for the rule is plain: a minor who disaffirms a purchase and recovers his purchase price should not also be permitted to profit by retaining the property purchased. The infancy doctrine is designed to protect the minor, sometimes at the expense of an innocent vendor, but it is not to be used to bilk merchants out of property as well as proceeds of the sale. Consequently, it is clear that, when the minor no longer possesses the property which was the subject matter of the contract, the rule requiring the return of property does not apply.[1] The minor will not be required to give up what he does not have.… Olson does no more than set forth the foregoing rationale and that the word “restitution” as it is used in that opinion is limited to the return of the property to the vendor.…
Here Lemke seeks restitution of the value of the depreciation by virtue of the damage to the vehicle prior to disaffirmance. Such a recovery would require Halbman to return more than that remaining in his possession. It seeks compensatory value for that which he cannot return. Where there is misrepresentation by a minor or willful destruction of property, the vendor may be able to recover damages in tort.… But absent these factors, as in the present case, we believe that to require a disaffirming minor to make restitution for diminished value is, in effect, to bind the minor to a part of the obligation which by law he is privileged to avoid.…
The cases upon which the petitioner relies for the proposition that a disaffirming minor must make restitution for loss and depreciation would at some point force the minor to bear the cost of the very improvidence from which the infancy doctrine is supposed to protect him.
[M]odifications of the rules governing the capacity of infants to contract [MM7] are best left to the legislature. Until such changes are forthcoming, however, we…believe [our] result is consistent with the purpose of the infancy doctrine.
The decision [MM8] of the court of appeals is affirmed.

Odorizzi v. Bloomfield School Dist.
54 Cal.Rptr. 533
Text as found on Page 557:

FLEMING, J. Appeal from a judgment dismissing plaintiff’s amended complaint on demurrer. Plaintiff Donald Odorizzi was employed during 1964 as an elementary school teacher by defendant Bloomfield School District and was under contract with the District to continue to teach school the following year as a permanent employee. On June 10 he was arrested on criminal charges of homosexual activity, and on June 11 he signed and delivered to his superiors his written resignation as a teacher, a resignation which the District accepted on June 13. In July the criminal charges against Odorizzi were dismissed under Penal Code, section 995[2], and in September he sought to resume his employment with the District. On the District’s refusal to reinstate him he filed suit for declaratory and other relief.
Odorizzi’s amended complaint asserts his resignation was invalid because obtained through duress, fraud, mistake, and undue influence[MM9] and given at a time when he lacked capacity to make a valid contract. Specifically, Odorizzi declares he was under such severe mental and emotional strain at the time he signed his resignation, having just completed the process of arrest, questioning by the police, booking, and release on bail, and having gone for forth hours without sleep, that he was incapable of rational thought or action. While he was in this condition and unable to think clearly, the superintendent of the District and the principal of his school came to his apartment. They said they were trying to help him and had his best interests at heart, that he should take their advice and immediately resign his position with the District, that there was no time to consult an attorney, that if he did not resign immediately the District would suspend and dismiss him from his position and publicize the proceedings, his ‘aforedescribed arrest’ and cause him ‘to suffer extreme embarrassment and humiliation’; but that if he resigned at once the incident would not be publicized and would not jeopardize his chances of securing employment as a teacher elsewhere. Odorizzi pleads that because of his faith and confidence in their representations they were able to substitute their will and judgment in place of his own and thus obtain his signature to his purported resignation. A demurrer to his amended complaint was sustained without leave to amend.
[P]laintiff in effect seeks to rescind [MM10] his resignation pursuant to Civil Code, [§§1689, 1576,] on the ground that his consent [was] obtained through duress, menace, fraud, undue influence, or mistake. A pleading under these sections is sufficient if, stripped of its conclusions, it sets forth sufficient facts to justify legal relief.…[T]he facts[MM11] in the amended complaint are insufficient to state a cause of action for duress, menace, fraud, or mistake, but they do set out sufficient elements to justify rescission of a consent because of undue influence. We summarize our conclusions…
No duress or menace has been pleaded.… We agree with respondent’s contention that neither duress nor menace was involved in this case, because the action or threat in duress or menace must be unlawful, and a threat to take legal action is not unlawful unless the party making the threat knows the falsity of his claim.… The amended complaint shows in substance that the school representatives announced their intention to initiate suspension and dismissal proceedings under Education Code, section 13403, 13408 et seq. at a time when the filing of such proceedings was not only their legal right but their positive duty as school officials. (Ed.Code, § 13409; Board of Education, etc. v. Weiland, 179 Cal.App.2d 808, 4 Cal.Rptr. 286.) Although the filing of such proceedings might be extremely damaging to plaintiff’s reputation, the injury would remain incidental so long as the school officials acted in good faith in the performance of their duties.…
Nor do we find a cause of action for fraud, either actual or constructive. (Civ.Code, §§1571 to 1574.)… Constructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice. (Civ.Code, § 1573.)… Plaintiff, however, sets forth no facts to support his conclusion of a confidential relationship between the representatives of the school district and himself, other than that the parties bore the relationship of employer and employee to each other.… [But] no presumption of a confidential relationship arises from the bare fact that parties to a contract are employer and employee; rather, additional ties must be brought out…
However, the pleading does set out a claim that plaintiff’s consent to the transaction had been obtained through the use of undue influence.
Undue influence [is] a shorthand legal phrase used to describe persuasion which tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment.… The hallmark of such persuasion is high pressure, a pressure which works on mental, moral, or emotional weakness to such an extent that it approaches the boundaries of coercion. In this sense, undue influence has been called overpersuasion. (Kelly v. McCarthy, 6 Cal.2d 347, 364, 57 P.2d 118.) Misrepresentations of law or fact are not essential.… By statutory definition undue influence includes ‘taking an unfair advantage of another’s weakness of mind; [or] taking a grossly oppressive and unfair advantage of another’s necessities or distress.’ (Civ.Code, § 1575.) While most reported cases of undue influence involve persons who bear a confidential relationship to one another, a confidential or authoritative relationship between the parties need not be present when the undue influence involves unfair advantage taken of another’s weakness or distress.…
In essence undue influence involves the use of excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient object. In combination, the elements of undue susceptibility in the servient person and excessive pressure by the dominating person make the latter’s influence undue.…
Undue susceptibility may consist of total weakness of mind which leaves a person entirely without understanding (Civ.Code, § 38); or, a lesser weakness which destroys the capacity of a person to make a contract even though he is not totally incapacitated (Civ.Code, § 39; Peterson v. Ellebrecht, 205 Cal.App.2d 718, 721–722, 23 Cal.Rptr. 349); or, the first element in our equation, a still lesser weakness which provides sufficient grounds to rescind a contract for undue influence (Civ.Code, § 1575)… Such lesser weakness need not be longlasting nor wholly incapacitating, but may be merely a lack of full vigor due to [age, physical condition, emotional anguish,] or a combination of such factors. The reported cases have usually involved elderly, sick, senile persons alleged to have executed wills or deeds under pressure.… In some of its aspects this lesser weakness could perhaps be called weakness of spirit. But whatever name we give it, this first element of undue influence resolves itself into a lessened capacity.…
[Here] plaintiff has pleaded that such weakness at the time he signed his resignation prevented him from freely and competently applying his judgment to the problem before him.… It is possible that exhaustion and emotional turmoil may wholly incapacitate a person from exercising his judgment.… [P]laintiff has pleaded that possibility and sufficient allegati

r the repair bill and sold the car’s engine and transmission. The car was later vandalized, rendering it unsalvageable. Halbman brought suit, seeking the return of his $1,100. Lemke countersued for $150 due on the purchase price. The trial court found the contract to be disaffirmed and entered judgment for Halbman in the sum of $1,100. Lemke appealed, contending that Halbman should have been required to make restitution for the damage caused to the car before disaffirmance.

[MM2]Words or actions evidencing an intent not to abide by the terms of a previous transaction.

[MM3] Issue: Must a minor who disaffirms a contract for the purchase of an none necessary item make restitution for the diminution in value caused to that item?

[MM4] Contract for Necessaries-a contract for things that are necessary to subsist or to maintain a manner of living, such as food, clothing, and shelter

[MM5]A valid act that may later be avoided due to some defect, but that is binding until repudiated.

[MM6]Problem here is that the property cannot be returned in the same condition as it was.

[MM7] Capacity to Contract-the legal and physical ability to enter into a contractual agreement, typically characterized by the ability to understand the consequences of one’s actions.

[MM8] Decision: the jurisdictions are split over the resolution of this issue. However, it appears that the better view is the one which provides that absent misrepresentation or tortuous conduct, a minor who disaffirms a contract for the purchase of an none necessary item may recover his purchase price without liability for damage, depreciation, or other diminution in value. This view is more in keeping with the purpose behind the laws permitting a minor to disaffirm a contract, i.e. to protect him from improvident dealings with more experienced, and sometimes unethical, adults. To force Halbman to compensate Lemke for the damage inflicted upon his car, would be, in effect, to force him to undertake the responsibilities of his contract. Such a decision, if desired, should come from the legislature, and not the courts. Affirmed.

[MM9] Undue Influence-Improper influence that deprives the individual freedom of choice or substitutes another’s choice for the person’s own choice.

[MM10] Recession-the canceling of an agreement and the return of the parties to their positions prior to the formation of the contract.

[MM11] Facts: Odorizzi was arrested for criminal homosexual activities. At the time he was under contract as a teacher for the school district. Immediately after he was released on bail the school district convinced him to resign. Odorizzi was subsequently acquitted of the charges, but was refused reemployment by the district. Odorizzi brought suit to rescind his resignation. He charged duress, menace, fraud and undue influence. He claimed that the superintendent of the district and the principle of his school came to his apartment immediately after his release. He had not slept in nearly 40 hours and was under severe emotional and physical stress. He was told that if he did not immediately resign, the district would be forced to suspend him and then dismiss him, which would occasion embarrassing and humiliating publicity. However, if he resigned the matter would be kept quite and his chance for future jobs would not be impaired. The trial found nothing wrong with these actions, no confidential relationship existed, and that the district would have been forced by law to suspend Odorizzi.

[MM12] Issue: where a party’s physical and emotional condition is such that excessive persuasion leads to his own will being overborne, can he charge undue influence so as to rescind a resignation or contract?

[MM13] Holding: while none of Odorizzi’s allegations have any basis, he has made out a prima facie case of undue influence. In essence, the charge involves the use of excessive pressures to persuade one vulnerable to such pressures to decide a matter contrary to his own judgment. Extreme weakness or susceptibility is an important factor in establishing undue influence. It is normally found in cases of extreme youth or age or sickness. While it normally involves fiduciary or other confidential relationships, they are not necessary to the action. Here, extreme pressures were leveled against Odorizzi. He had just gone through an arrest, booking and interrogation procedure for a crime which, if well publicized, would subject him to public humiliation. He was threatened with such publicity if he did not immediately resign. He was approached with such publicity if he did not immediately resign. He was approached at his apartment, immediately after his release. He was not given the opportunity to think the matter over or to obtain outside advice. He was told that in any event he would be suspended and dismissed. These factors peresnt a jury issue. If Odorizzi can establish that he wouldn’t have resigned but for these pressures and the jury finds that they were unreasonable and overbore his will, Odorizzi could rescind his resignation.

[MM14]Remanded for new trial.

[MM15]Is a contract modification accended to by one party under circumstances amounting to economic duress enforceable against the party.

[MM16] Economic Duress: wrongful conduct that prevents the exercise of free will when entering into a business transaction by creating an apprehension of economic hardship.
Contract Modification: a change to the terms of a contract without altering its general purpose.

[MM17]The plaintiff said that he wanted the whole bid at a higher price. The defendant refused and later regretted because they were unable to find any other companies that could put this off, it is because of which they accepted this.

[MM18] Facts: Loral was under contract to produce radar sets for the government. The contract contained a liquidated damage clause for late delivery and a cancellation clause in case of default by Loral. Loral, who did a substantial portion of its business with the government, awarded Austin a subcontract to supply some of the precision parts. Subsequently, Austin threatened to cease delivery of the parts unless Loral consented to substantial increases in the subcontract price. After contacting 10 manufacturers of precision gears and finding none who could product eh parts on time to meet its commitment to the government, Loral acceded to Austin’s demand.

[MM19]Holding

[MM20] Holding: Loral has made out a classic case of economic duress in that:1) Austin threatened to withhold delivery of needful goods unless Loral agreed, 2) Loral could not obtain the goods from another source of supply, and 3) the ordinary remedy of an action for breach of the original subcontract would not be adequate [since so much was riding on Loral’s own general contract with the government.]. Thus it is “manifest” that Austin’s threat deprived Loral of his free will. “Loral actually had no choice”