Policing the Bargain Flashcards
Void v. Voidable contracts
Void = cannot ever come into legal existence
Voidable = presumptively enforceable but one of the parties can void or get out of the contract if they want to.
Infants: general rule
Contracts entered into by minors are voidable.
Exceptions: minor may not void contracts for “necessaries”
Infancy: policy/rationale behind doctrine
to protect children from themselves and from being taken advantage of and to discourage adults from contracting with infants. Although it may seem like a harsh penalty to the contractor, that is intended since the rule is meant to discourage people from entering contracts with minors.
Infancy: effect of legislation
Legislation that aims to provide the same protection as the infancy doctrine overrides/displaces the common law doctrine.
Infancy: options for minor
Minor may void during minority.
Upon reaching age of majority may (1) choose to ratify (affirm) or (2) avoid the contractual obligations entered into during minority.
Infancy: ratification
Once a minor reaching the age of majority, they can choose to ratify the contracts they entered as an infant and make them fully binding.
This can be done expressly or implicitly.
Implicit ratification = person does something that suggests to a reasonable observer that they intend to ratify it.
Ex: accept the benefit; wait too long to disaffirm
Infancy: restitution (and exceptions)
If an infant disaffirms or voids the contract they get their money back and they have to make restitution, but only PARTIAL RESTITUTION (normally).
They have to give back possession of what they received, but they don’t have to give all of the value back.
Exceptions (must make full restitution):
1. Necessaries
2. When a minor lies about their age (some jur)
3. When a minor is the instigator / plaintiff (minority)
Mental Incompetence: general rule
Contracts of a mentally incompetent person are voidable. Full restitution is required.
May disaffirm/void during a lucid interval or by a representative on their behalf.
Mental Incompetence: Tests for mental incompetence
Old Cognative Test = “whether the mind was so affected to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction.”
Restatement = made old test prong 1 and added a new volitional prong = test is ALSO satisfied if the person by reason of mental illness or defect is unable to act in a reasonable manner in relation to the transaction AND the other party has reason to know of his condition. (aka did they have the inability to act on their own best reasoning and the other party knew)
Guardianship: General doctrine
§ 13 No capacity to contract if under guardianship due to mental illness or defect. The guardianship proceedings are treated as giving the public notice of the ward’s incapacity.
No restitution required, because there was never a contract in the first place.
Differences between mental incompetence and guardianship
MI = voidable G = void
MI = full restitution G = no restitution
MI = only MI party can voidable G = both parties can void (bc it doesn’t exist).
Intoxicated Persons: general rule
An intoxicated person enters voidable contracts IF intoxicated person can show they were SO DRUNK that the other party should have known or did know that they were unable to understand the nature of the transaction or they were unable to act in reasonable manner (volitional).
Duress: elements
§175
- Threat
- Threat was improper (judge this via 176)
- It induced assent (subjective, if it contributes to decision)
- Because there was no reasonable alternative.
Duress: when would duress arise from efforts to modify a contract?
ONe party to an executors contract (k that hasn’t been fully preformed) threatens not to complete their performance unless the other party agrees to pay more or sweeten the deal.
Duress: two ways courts have addressed contract modification
- Pre-existing dirty Rule (Alaska Packers)
- Duress
Duress: contract modification pre-existing duty rule
§33
When a party does what he is legally obligated to do (bc of K), he cannot demand additional compensation.
Also cannot make a gratuitous promise look like there is consideration just to try to avoid the consideration problem = “pretense of a bargain”
Duress: contract modifications duress rule
Usually improper under 176(1) good faith and fair dealing.
Big question mark on these cases for duress doctrine is whether there is a “reasonable alternative”
Other party will always argue “you could have just sued us for breach” but the problem here is that the breach victim bears the burden to prove damages with reasonable certainty, so there are some leaks in the system (lawsuit rarely truly fully compensates the breach victim).
Breach victim then has to prove that a lawsuit wouldn’t make them sufficiently whole
Ex: Austin Instrument v. Local — may lose future business w/ Navy but hard to prove / calculate.
Duress: Illegal contract modification doctrines — is one better than the other?
Yes, Duress is better.
Lambo’s arguement of why PED sucks:
1. Unnecessary (we already have a way to do it through duress)
2. It’s easy to get around (can put in consideration or demand mutual rescission + new K)
3. Often in best interest of parties to allow them to modify a contract and make it legally enforceable.
Legal Contract Modification
§89
A promise to modify a duty under a contract not fully performed on either side is binding if:
the modification is fair and equitable in view of circumstances and not anticipated by the parties when the contract was made. (need an objectively demonstrable reason for seeking modification).
2-209
If it’s a good faith modification it needs no consideration to be binding.
Under either policing argument, if there is a legitimate reason to be asking for modification, the modification is going to be enforceable.
Duress doesn’t work bc threat not improper
Preexisting Duty doesn’t work bc good faith/fair and equitable
Undue Influence: explained / elements
“duress lite” — can’t satisfy all the duress elements here, but it’s pretty clear that the person isn’t acting under their own free will.
Elements (177)
1. Extremely high-pressure bargaining tactics (unfair persuasion)
2. Relationship between persuader and persuadee of either domination or confidence.
Undue Influence: form a third party?
If the UI came from a third party, victim can still rescind as long as the other party (in good faith) did not materially rely on the transaction or gives value to it.
If there was not good faith, victim can rescind even if there was reliance.
Misrepresentation: general doctrine elements
Elements of voiding a K due to misrep:
1. Misrep (assertion not in accord with the facts)
2. Either fraudulent or material
3. Recipient justifiably relied on the misrepresentation.
4. Recipient was included (made more likely) to enter K bc of misrepresentation.
Misrepresentation: when is a misrepresentation fraudulent
162
if the maker intends his assertion to induce assent and the maker:
- knows or believes the assertion is not in accord with the facts or
- does not have the confidence he states or implies in the truth of the assertion, or
- knows that he does not have the basis he states or implies
Misrepresentation: when is a misrepresentation material?
162
if it would be likely to induce a reasonable person to manifest his assent or maker has special knowledge that it will induce this persons assent
