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Contracts
University of Mississippi School of Law
Case, David W.

Contracts

Spring 2010

Case

Chapter 7: Avoiding Enforcement

1. Defenses- all parts of a valid K are present, these defenses are raised for K enforcement OR an offense to void the K enforcement.

A. Minority and Mental Incapacity

i. Minority- incapacity based on age.

Infants: Restatement (2d) of Contracts, § 14

a) Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday.

b) Prevents minors from entering into frivolous K’s 2 days bf their birthday.

Dodson- 16 yr. old buys truck, ruins it and wants dealer to take it back and he get his $ back.

· Majority-

· -follows the “infancy doctrine” to protect minors from their lack of judgdement and from squandering their wealth through improvident contracts with crafty adults who would take advantage of them. Whenever K is prejudice to infant it is void and when benefit is for necessaries it is good, when K is uncertain to benefit or prejudice it is voidable only by the choice of infant. Can be voided if minor so chooses after reaching the age of majority or deems himself under moral obligation to do so. Void K.

· Policy:(1) Protect minors from crafty adults, but there are also some crafty teenagers. Need the rule (Infants sec.14) bc otherwise it would be subjective to every different situation with minors.

· (2)Minors would lose the ability to enter into Ks at all, when minors spend money and do other worldly transactions so they should be allowed to enter into contracts.

· (3)Exception: There may be some innocent merchants/sellers who aren’t out to get the teenager.

· -Dodson is better off when he gets the $4900 back, bc he had free use of the truck and did not have to pay for it (i.e. restitution)

Minority (2)-

· 1. Benefit Rule”- upon rescission, recovery of the full purchase price is subject to a deduction for the minor’s use of the merchandise. Merchant will be paid something based on how long the minor had and used merchandise. Value of Use (i.e. car rental rates)

· 2. Oregon Rule: Minor’s recovery of the full purchase price is subject to a deduction for the minor’s “use” of the consideration he or she received under the contract, or for the “depreciation” or deterioration of the consideration in his or her possession. Value of Property (i.e. the truck)

· Ct.- adopts #2 rule. Whenever K is a fair and reasonable one minor will be held to that K. Rule is modified here bc minors conduct many business transactions bf they reach the age of majority and therefore will be held responsible and especially bc minor kept item(s) for so long.

· *Minor can disaffirm the K even though he can’t put the other party back in their original place, Creates a voidable K at the minor’s option.

Notes:

· 1. Dodson court applies a minority rule

· 2. Minor is always liable for necessaries-items needed to live, food, clothing, shelter.

· 3. In most states when the minor reaches the age of majority they have the power to affirm or void the K .

ü Minor must act w/n a reasonable time OR will be

ü Minor can do nothing for enough time and that will be deemed to be an automatic ratification of the K.

ii. Mental Incapacity

Restatement (2d) of Contracts, § 15

(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect

(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or

(b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.

(2) 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 under Subsection (1) 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.

o Hauer Case- lady was cheated out of her $ but she had suffered mental damage after a motorcycle accident.

Ø Apply 2 Test to determine mental incapacity. Only have to satisfy one can apply them both. (see note #3)

Sec. 15(1) a & b (may need an expert help prove the mental incapacity)

a)Cognitive Test- persons capacity for knowledge and understanding

b) Volitional Test- ability to control yourself

Sec. 15 (2)

Those who are suffering from mental incapacity you can’t usu. void the K if you know of the other party’s mental defect. The Hauer’s banker told the bank of her mental defect therefore they must fork over the money and the K is void.

Note 1 further explains diff bw minor and mental capacity.

*Burden is on the party trying to void the K.

Where other party’s mental incapacity is known contract can be voidable.

Where mental capacity is unknown there may be no remedy or recourse for the pre-contract condition. (p.532)

*Cause of action existed where mental incompetence was known or ought to have been known by the defendants.

Holding: Court affirms previous judgment. Bank should have taken more precaution in executing loan for E. Bank was told not to touch fund bc H needed the $ to live, bank owed a fiduciary duty to H.

Notes:

7. Intoxicated Persons:

Restatement (2d) of Contracts, § 16

A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication

(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or

(b) he is unable to act in a reasonable manner in relation to the transaction. *therefore volitional

v Don’t necessarily need an expert to prove this or to get to the jury; witnesses can explain the nature of the situation.

* This rule is an OR so all of these don’t have to be proven. (i.e. may be able to disguise being drunk bc you have a high level of tolerance; other party only has to prove that the other party was drinking.

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B. Duress and Undue Influence

i. Duress-

When DURESS by Physical Compulsion Prevents Formation of a K §174:

Ø If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.

Duress by Threat Makes a K Voidable §175 :

(1) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

(2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

Threat is Improper If § 176:

(a) what it threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property

(b) threatened criminal prosecution

(c) threaten the use of civil process and the threat is made in bad faith, OR

(d) the threat is a breach of the duty of good faith and fair dealing under the contract with the recipient.

(2) A threat is improper if the resulting exchange is not on fair terms, and

(a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,

(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or

(c) what is threatened is otherwise a use of power for illegitimate ends.

Aleyska Case (case about the tug boats)

Rule(s) apllied:

1) Wrongful act or threat that induces the other party to enter into a K. (wrongful act depends on the circumstances of the case but can be any of the following…)

o act rises to a crime or

o tortuous act

o immoral act (“bad faith” contractually – in the absence of good faith)

*see restatement slide-176 (1) The threat is improper if

(a) what it threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property

(b) threatened criminal prosecution

(c) threaten the use of civil process and the threat is made in bad faith, OR

(d) the threat is a breach of the duty of good faith and fair dealing under the contract with the recipient

2) Party has no reasonable alternative or adequate remedy other than agreeing to K.

o Reasonable unless it is unreasonable??

§ alternative remedy may not be adequate where the delay involved in pursuing that remedy would c

– assertion of facts that aren’t made with fraudulent facts

* He told her bf that he felt she could be a professional dancer and later came back to say that she had reached her potential on the 400 hrs. of classes she had taken. He doesn’t believe anything he is telling her at the time he was stating it. This misrepresentation is not in accord w/ the facts-proves Rest. #162-1

Rest. #164 –hearer of misrepresentation must be justified in relying on the misrepresentation.

*She had previously sued them for fraud; but why would she believe them a second time-this may deflate her argument for rescission.

o May be able to argue Undue Influence: (bc she would possible lose under #164; bc she was not justified in her reliance on the misrepresentation.

1.

2.Excessive pressure by Dominant pressure- she like dancing w/ Carey

Notes:

1. Tells diff. bw fraudulent or material misrepresentation

When Misrepresentation Makes a K Voidable § 164:

(1) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation to the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

When Misrepresentation is Fraudulent or Material § 162

(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to assent

(a) knows or believes that the assertion is not in accord with the facts, or

(b) does not have the confidence that he states or implies in the truth of the assertion, or

(c) knows that he does not have the basis that he states or implies for the assertion.

(2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

Ø Fraudulent = Misrepresentation

Ø Doesn’t have to be intentional to have a cause of action.

Reliance on Assertions of Opinions

(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.

*must be able to prove the facts; assertion of opinion can’t be the basis for misrepresentation.

(2) ) If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to facts not disclosed and not otherwise known to the recipient may properly interpret it as an assertion.

(a) that the facts known to that person are not incompatible with his opinion, or (your opinion is a fact (your state of mind) Carey telling Ms. Syester that she can be a great dancer and he believed it at the time he said it, but he later says that she is not).

(b) that he knows facts sufficient to justify him in forming it.

When Reliance on Assertion of Opinion is not Justified

Ø To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient (w/ the Exceptions of 2 a & b) Unless you fit in one of these categories:

(a) A relationship of trust and confidence (a fiduciary relationship-lawyer:client) to the person whose opinion is asserted that the recipient is reasonable in relying on it, or

(b) Reasonably believes that, as compared with himself, the person whose opinion is asserted has special skill, judgment or objectivity (whatever can be argued to prove this; broad enough to fit in different facts-doctors, engineers, specialist, etc.) with respect to the subject matter, or