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
