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Contracts II
University of Toledo School of Law
Davis, Benjamin G.

Contracts II Outline
8 WAYS TO AVOID ENFORCEMENT

­Minority

Can disaffirm contracts, but may have to compensate for services or use.

Use Rule: Minor repays what he used (depreciation)
Benefit Rule: Minor repays what benefit he attained from the contract

Must be a Minor at the time of contract
If minor reaches 18, still has a reasonable time to disaffirm
In Some jurisdictions a minor cannot disaffirm contracts for necessities (i.e. food, clothing, shelter) or if the minor misrepresented his age.

Mental Incompetence

To be construed as mentally incompetent must fall under one of two tests

Cognitive Test: Person is unable to understand nature of transactions.
Volitional Test: Person is unable to act in a reasonable manner.

Presumption is mentally incompetent person will have to make restitution for use and benefit.
All Adults are assumed to be competent
Burden of Proof of competency on person claiming to be incompetent
MUST be incompetent at the time the contract was made

Duress

TWO TYPES:

Physical Duress: Forcing the manifestation of assent (gun to head) = CONTRACT IS VOID
Improper Threat or Economic Duress: Contract = VOIDABLE

Restatement §176: “When a Threat is Improper”
(1) A threat is improper if:
a. What is 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. What is threatened is a criminal prosecution
c. What is threatened is the use of civil processes 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 a 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 including the manifestation of assent is significantly increased by prior unfair dealing by party making the threat, or
c. What is threatened is otherwise a use of power for illegitimate ends.

Duress Exists Where:

One party involuntarily accepted the terms of another
Circumstances permitted no other alternative
Such circumstances were the result of coercive acts of the other party

If there is a reasonable alternative there is no duress.
If a third party induces manifestation of assent it is voidable by victim UNLESS the other party relied on good faith and without reason to know.

Undue Influence

Taking an unfair advantage of another’s weakness of mind; or taking a grossly oppressive and unfair advantage of another’s necessities or distress.
Undue Influence Requires:

A Vulnerable Party (A party susceptible to influence)
Overpersuasion (7 factors/§177)

– Discussion of transaction at unusual or inappropriate time
– Consummation of the transaction in an unusual place
– Insistent demand that business be finished at once
– Extreme emphasis on untoward consequences of delay
– The use of multiple persuaders by the dominant side against a single, subservient party
– Absence of third-party advisors to the subservient party
– Statements that there is no time to consult financial advisors

The mere presence of a close relationship or proof that some influenced was used is not enough to show undue influence

Misrepresentation

Occurs whenever assent is induced by misrepresentation or fraud
Three avenues of redress:

Tort action for damages
Contract recession
Reformation

TEST (§162):

Maker intends his assertion to induce a party to manifest his assent and the maker:

– Knows or believes that the assertion is not in accord with the facts OR
– Does not have the confidence that he states or implies in the truth of the assertion OR
– Knows that he does not have the basis that he states or implies for the assertion

Makes a Contract VOID pursuant to §163:

Misrepresentation of the character or essential terms
Induces conduct that appears to be a manifestation of assent
Someone who neither knows/reasonable opportunity to know the essential terms of the proposed contract.

Makes a Contract VOIDABLE pursuant to §164

Either a fraudulent or material misrepresentation
That induces a manifestation of assent
Justifiable reliance by the person who was induced

Opinions can be relied on if it is justified:

An opinion expresses onlya belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters
Reliance on an opinion is not justified- UNLESS:

– There is some type of relationship that creates trust and confidence where it is reasonable to rely on opinions
– The r

edom of contract between parties.

Restatement §178: “When a Term is Unenforceable on Grounds of Public Policy”
3.) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.
4.) In weighing the interest in the enforcement of a term, account is taken of:
a. The parties’ justified expectations
b. Any forfeiture that would result if enforcement were denied,
c. Any special public interest in the enforcement of particular term
5.) In weighing a public policy against the enforcement of a term, account is taken of:
a. The strength of that policy as manifested by legislation or judicial decisions
b. The likelihood that a refusal to enforce the term will further that policy
c. The seriousness of any misconducts involved and the extent to which it was deliberate, and
d. The directness of the connection between that misconduct and the term.
o Restraint of Trade
§ Covenants not to Compete are unenforceable unless they are “ancillary” to an otherwise valid transaction.
§ If the restraint is greater than is needed, the promisee’s need is outweighed by the hardship to the promisor, and it is likely to injure to the public the covenant is likely to be an unreasonable restraint in trade.
§ Restraint on trade are “ancillary” and valid if:
– A promise by the seller of a business not to compete with the buyer in such a way as to injure the value of the business sold
– A promise by an employee or other agent not to compete with his employer or other principle
– A promise by a partner not to compete with the partnership
o Restitution
§ may be allowed if a performance rendered for a promise found to be unenforceable on the grounds of public policy if the promisor was excusably ignorant of the legislation or was not equally in the wrong.
o Court can use BLUE PENCIL- the court using its own discretion to strike out terms of a contract that it feels violate the law.

JUSTIFICATION FOR NON-PERFORMANCE

Mistake