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Contracts II
University of Toledo School of Law
Tierney, James Edwin

Avoiding Enforcement
 
Minority Doctrine – Restatement (2d) § 14    Dodson v. Shrader
            General Rule: Contract entered into by persons under 18 are voidable at the discretion of the minor.
 
            This is a bright line rule – not case-by-case. Adjudication will determine whether or not the minor can invoke the rule. Either the party is 18 or s/he is not.
 
            Policy: To protect minors from their own immaturity.
 
            Exceptions: 
1.      Contracts for necessaries. If the minor is allowed to void, merchants would hesitate to provide them with the necessaries.
2.      Once the minor has reached majority, if the contract is positively affirmed or the benefits of it have been enjoyed, s/he may not longer void. This applies for a reasonable time after majority is reached.
 
Majority Rule: The minor must return the item (in whatever condition) and will receive the consideration back. 
            Pro: If merchant is not an innocent party, this is fair.
            Pro: Rule is clear; merchant can easily check the age of the customer
            Con: Losing the benefit of the bright line rule.
 
Benefit/deterioration rule: Minor who rescinds must pay for the benefit received from the contract or the deterioration of the goods.
 
Courts are divided with respect to the benefit/deterioration rule.
 
 
                                    Enforceable contract with minor
·         Necessities (food/shelter/clothing) but only
Liable for reasonable value.
·         Affirmation after turns 18 years old
 
 
Benefit Rule
Depreciation/Use Rule
 
 
                                                Unenforceable contract with minor
                                                (If voided by minor)
 
 
Mental Incapacity – Restatement (2d) §15    Hauer v. Union State Bank of Wautoma
            General Rule: 
Every adult is presumed to be competent, unless that person proves that:
                        (1)(a): S/he was unable to understand the nature and consequences of action (cognitive test), or
                        (1)(b): Unable to act in a rational manner (volitional test)
 
                        (2): If contract was made on fair terms (defendant does not know of incompetence), power to rescind terminates to the extent that circumstances have so changed or contract has been performed that total avoidance would be unjust.
           
                        Note: The Restatement does not say “reason to know.”
 
            Policy:             1. Protect incapacitated persons
                        2. Mutuality – incapacitated person did not really assent.
Distinguished from the infancy doctrine:
1.      Regardless of the test used, the court makes a case-by-case determination of mental capacity.
2.      Do not need to void if circumstances have changed, although the other party did not know of incapacity.
 
·         These claims are often combined with other claims of overreaching (Fraud, Undue Influence)
·         Consider psychiatric evidence, also look at fairness.
 
 
Undue Influence/Duress 
Historically
·         Physical force
·         Not exercising free will
Expanded
·         Threatens to destroy property
·         Modern – economic duress
 
General Rule for Duress – Restatement (2d) §175: Totem Marine
1.       Improper threat – this is a question of fact (Restatement (2d) §176 describes improper threat)
The threat must be improper – it would be improper to not pay for services received, but not necessarily improper to not pay the amount Totem said they owed.
2.       No reasonable alternative
Policy –
·         Relative bargaining position will be taken into consideration.
·         Financial desperation is not sufficient unless it is caused by the defendant (if there were a hard rule that financial desperation allowed avoidance, it may lead to inability to settle even if both parties wanted to).
General Rule for Undue Influence – Restatement (2d) §177:   Odorizzi v. Bloomfield School District
1.      Unfair persuasion by dominant party
2.      Persuasion of vulnerable party (vulnerable by reason of 1) temporary circumstances or 2)confidential relationship)
Undue influence is usually accompanied by several of the following factors (not elements, just checklist):
·         Discussion of transaction at an unusual or inappropriate time
·         Consummation in an unusual place
·         Insistence that the business be finished at once
·         Emphasis on risks of delay
·         Multiple persuaders against a single servient party
·         Absence of third-party advisors
·         No time to consult advisors
 
Misrepresentation – Restatement (2d) §164   Syester v. Banta
            General Rule –
1.      If assent is induced by fraudulent (implies intent) or material (does not require intent) misrepresentation, the contract is voidable.
2.      If the fraudulent misrepresentation is by someone not a party to the contract, is still voidable unless the first party did not know, or was materially changed or relied.
 
·         May be a contract cause of action causing non-enforcement of contract, or tort cause of action which may be remedied with damages, including punitive damages

·         Unreasonable restraint of trade (violates antitrust law)
·         Examples
·         Not -to-compete contract – void if unreasonable
·         Borelli v. Brusseau (sick spouse) Contract was void as against public policy
·         Case law that spouse is already obligated under the marriage contract to provide services
·         Dissent said the duty could be delegated, so there is consideration
·         Surrogate mother
·         Current status, most contracts are not enforceable, but are not illegal either.
·         Risk – mother will change mind and lose money. 
 
Mutual Mistake  – Restatement (2d) §152   Lenawee County Bd. Of Health v. Messerly (septic tank leak)
·         Must distinguish between:
·         Mistake regarding the value of the consideration (non-rescindable)
·         Mistake regarding the nature of the thing exchanged (rescindable)
·         Sherwood v. Walker (Barren Cow Case) – court agreed to rescind, based on mutual mistake – there was not a mistake of identity, but rather the nature of the thing exchanged.
·         Contract is voidable when:
1.      Mistake of both parties
2.      At the time of the contract
3.      As to a basic assumption, which
4.      Materially affects the agreed exchange of performance, and
5.      Affected party has not assumed the risk of the mistake.
·         If it is clear what the parties meant, the writing may be reformed to reflect the actual agreement (clerical or mathematical error)
 
Assignment of risk (“as is”) : Restatement (2d) §154 Lenawee
·         Risk is allocated by terms of the contract (“as is”)
·         Party knows he has only limited facts (“conscious ignorance”), or
·         It is reasonable under the circumstances
·         Courts are divided on enforcement of boilerplate “as is” clauses
 
Unilateral mistake; Restatement (2d) § 153   Wil-Fred’s v. Metropolitan Sanitary Dist. (constr. – bid too low)
·         Court much more reluctant to rescind
·         In addition to §152, party making unilateral mistake must show:
·         Enforcement would be unconscionable, or