Contracts II Outline
CHAPTER 4 – POLICING THE BARGAIN
Section 1 – Competency to Contract
– The most influential legislative contribution regarding “policing” is undoubtedly [UCC § 2-302].
Competency to Contract
– When are parties allowed to be excused of performance or void a contract?
o (1) Minors;
o (2) The Mentally Incompetent;
o (3) Duress or Undue Influence.
HALBMAN V. LEMKE (Supreme Court of Wisconsin 1980)
o Minor bought car that was vandalized.
o While in shop, infant disaffirms and seeks consideration.
o Can infant recover consideration and is he liable for damage/diminution in value?
– Holding and Rule:
o A minor who disaffirms a K 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 (Rest. 2nd).
o Protect those who are incapable of protecting themselves.
(2) Mentally Incompetent:
– Rest. §  – A contract is voidable when a person lacks capacity to contract by mental disease or defect if either:
o Capacity: Unable to understand the nature of the consequence; or
o Compulsion: Unable to act in a reasonable manner:
§ If unable to understand the nature and consequence of the transaction (FARNUM).
§ If compelled by disorder to make the contract.
§ If unable to act in a reasonable manner.
§ Especially Voidable if:
· The other party knows of your disease; or
· Knows you are intoxicated.
FABER V. SWEET STYLE MFG. CORP (1963) – Unordinary Behavior
o The plaintiff seeks recission of rash business contracts that he would not have ordinarily entered into.
o Voidable b/c the P was acting under irresistible compulsion; even though he understood the nature of the contract.
o Went further than the Restatement does b/c the D has to know that P was acting under compulsion.
o The contract of a mental incompetent is voidable at the election of the incompetent,.. and if the other party can be restored to the status quo recission will be decreed upon a showing of incompetence without more.
ORTELERE V. TEACHERS RETIREMENT BD. (1969) – Declared Insane
– Holding and Decision:
o Once a committee has been formed for an individual; any K that the individual makes is void.
– Modern courts:
o K is voidable at the election of the incompetent party if the other party can be restored to its status quo.
o There are exceptions to this general rule.
(3) Duress and Undue Influence:
– Undue Influence:
o Generally persuasion which tends to be coercive and which overcomes the will without convincing the judgment.
o Necessary factors are excessive strength by d
goods from another source. Loral had no viable alternative because would have long term effects on reputation & jobs if refused Austin’s offer.
SMITHWICK V. WHITLEY (1910) – Duress
o No duress because P had extremely good legal remedy;
o i.e. could have sued for specific performance.
o No duress b/c no need to acquiesce.
WOLF V. MARLTON CORP. (1959) – Duress
o Duress is tested, not by the nature of the threats (whether a legal right), but rather by the state of mind induced thereby in the victim.
STEWART M. MULLER CONSTR. CO. V. NEW YORK TEL. (1976)
o It is not a breach to threaten to do something that one has a legal right to do.
o The subjective test of victim’s mind is irrelevant.
ALASKA PACKERS ASSN V. DOMENCIO (1902) – Pre-Existing Duty
o Workers signed K for fishing season.
o In the middle they threatened to stop work if they were not paid more $.
– Holding and Rules:
o (1) Preexisting Duty:
§ Not enforceable because there was no consideration for additional work.
Workers did nothing that they were already under K to render.