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Contracts II
University of Mississippi School of Law
Roy, Lisa Shaw

 







Contracts IIProfessor Lisa Shaw-RoySpring 2009















Defenses
·         Defenses can be used as a sword or a shield but we will primarily look at them as swords
·         Defenses have to do with either competence of individuals, the bargaining process or the substance of the agreement
·         Rescission: puts parties back where they were before entering the contracts (ex ante)
·         Disaffirm: when the party that has the power to void a K does so
Competency
·         Minority and Mental Incompetency
·         General distinction:
o       Minors may disaffirm without returning the consideration they received
o       Mentally Incompetents may disaffirm but must repay for the consideration they received
1. Minority
·         Dodson v. Shrader
o       Fact Summary: Minor bought a car, seller did not know of buyer’s minority
o       Issue: whether the sellers must refund full amount of full amount less something
o       General Rule: A minor may void a K without returning value received if it is no longer in his possession
§         Exception: K for necessities are not voidable – they undoubtedly benefit the minor
§         Exception: K not voidable when minor lies about his age
o       Exception (here) (Benefit/Use Rule) When the seller has done not wrong, the minor-buyer cannot fully recover amt paid w/o compensating vendor for use/depreciation and willful/negligent damage to the article.
§         Protects vendors/encourages minors to conduct themselves honestly
2. Mental Incapacity
·         Hauer v. Union State Bank of Wautoma
o       Fact Summary: Brain damaged woman who was lured into taking out a loan for a third party
o       General Rule: Mentally incompetent person may disaffirm their K BUT is required to restore the other party
§         Exception: mentally incompetent person may be excused from returning consideration if special circumstances exist such as bad faith
o       Cognitive Incapacity: The person is unable to understand the nature of the transaction or its consequences (used here)
o       Volitional Incapacity (Restatement §15): If the person is unable to act in a reasonable manner in the transaction AND the other party has reason to know of the condition.
§         It can be transient

Bargaining Process
1. Duress
Physical Duress à Void – was never validEconomic Duress à Voidable – may be disaffirmedElements: Wrongful Threat, No Reasonable Alternative, and Actual Inducement
·         Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co.
o       Fact Summary: Tug service problems – Π signs release, wants to rescind
o       The Elements of Economic Duress
§         Wrongful threat
·         Does not have to be illegal, just bad faith
§         No reasonable alternative
·         There must be financial hardship
·         Many courts say that it must be caused Δ
·         The analysis is very subjective
§         Actual inducement
o       Restatement §175
§         If a party’s manifestation of assent in induced by an improper threat by the other party that leaves the victim no reasonable alternative, the K is voidable by the victim
2. Undue Influence
Undue influence à K is voidableElements: Undue Susceptibility, Excessive Pressure, and Causation
·         Odorizzi v. Bloomfield Sch

assertions of opinion
§         Restatement §169 (a)-(c)
·         (a) possibly applies, she has strong arguments for (b) and (c)
4. Non-disclosure
·         Hill v. Jones
o       Facts: Seller knew about termites but did not tell buyers
o       Restatement § 161 – disclosure is necessary…
§         To prevent a previous assertion from being a misrepresentation, fraudulent or material
§         To correct a mistake of the other party or prevent a failure to act in good faith
§         Disclosure would correct a mistake of the other party as to the contents or effects of a writing evidencing or embodying an agreement in whole or in part
§         When there is a relationship of trust and confidence between parties
o       Generally: If a condition is open and obvious there is no duty to disclose
o       Rule: Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer
o       One party cannot deprive the other of the fruits of the K
§         DO NOT CONFUSE with a duty to look out for the other party


·         Park 100 Investors, Inc., v. Kartes
o       Facts: L asked them to sign a “Lease Agreement” that was actually a personal guaranty.
o       Elements of Fraud