Policing the Bargain

Question 1

Void v. Voidable contracts

Answer 1

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.

Question 2

Infants: general rule

Answer 2

Contracts entered into by minors are voidable.
Exceptions: minor may not void contracts for “necessaries”

Question 3

Infancy: policy/rationale behind doctrine

Answer 3

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.

Question 4

Infancy: effect of legislation

Answer 4

Legislation that aims to provide the same protection as the infancy doctrine overrides/displaces the common law doctrine.

Question 5

Infancy: options for minor

Answer 5

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.

Question 6

Infancy: ratification

Answer 6

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

Question 7

Infancy: restitution (and exceptions)

Answer 7

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)

Question 8

Mental Incompetence: general rule

Answer 8

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.

Question 9

Mental Incompetence: Tests for mental incompetence

Answer 9

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)

Question 10

Guardianship: General doctrine

Answer 10

§ 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.

Question 11

Differences between mental incompetence and guardianship

Answer 11

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).

Question 12

Intoxicated Persons: general rule

Answer 12

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).

Question 13

Duress: elements

Answer 13

§175

1. Threat
2. Threat was improper (judge this via 176)
3. It induced assent (subjective, if it contributes to decision)
4. Because there was no reasonable alternative.

Question 14

Duress: when would duress arise from efforts to modify a contract?

Answer 14

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.

Question 15

Duress: two ways courts have addressed contract modification

Answer 15

1. Pre-existing dirty Rule (Alaska Packers)
2. Duress

Question 16

Duress: contract modification pre-existing duty rule

Answer 16

§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”

Question 17

Duress: contract modifications duress rule

Answer 17

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.

Question 18

Duress: Illegal contract modification doctrines — is one better than the other?

Answer 18

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.

Question 19

Legal Contract Modification

Answer 19

§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

Question 20

Undue Influence: explained / elements

Answer 20

“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.

Question 21

Undue Influence: form a third party?

Answer 21

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.

Question 22

Misrepresentation: general doctrine elements

Answer 22

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.

Question 23

Misrepresentation: when is a misrepresentation fraudulent

Answer 23

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

Question 24

Misrepresentation: when is a misrepresentation material?

Answer 24

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

Question 25

Misrepresentation: When is an action equivalent to an assertion? (concealment)

Answer 25

§160
Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.

Two common situations:
- Party actively hides something
- Party prevents the other from making an investigation that would have disclosed the defect.

Question 26

Misrepresentation: when is non disclosure tantamount to a misrepresentation?

Answer 26

1. Active concealment
2. When the person who fails to disclose has an affirmative duty to speak due to:
   - confidential relationship
   - other mistake about the basic assertion and bad faith not to correct
   - Other mistake about the writing
   - half-truth

Question 27

Misrepresentation: when is reliance justifiable for nondisclosure purposes?

Answer 27

It doesn’t have anything to do with negligence. You can be negligent and justifiably rely. Failure to use due diligence does not engate.

Knowledge of truth negates justifiable reliance.
Recklessness (consciously disregarding a risk) negates reliance.

Question 28

Misrepresentation: Opinions

Answer 28

Normal rule = contracts can only be rescinded for fraud/misrepresentation as to a material existing fact, rather than an opinion.
BUT exceptions (169)
a. relationship of trust and confidence and reasonable to rely
b. the person has a higher level of expertise on this matter (Arthur Murray)
c. Some other reason the recipient is especially susceptible

Question 29

Unconscionability: Elements

Answer 29

Unconcionability has generally been recognized to include
(1) an absence of meaningful choice on the part of one of the parties (procedural unconscionability); together with
(2) contract terms which are unreasonably favorable to the other party (substantive unconscionability)

You do not have to have both prongs equally — the more you have one the weaker your showing on the other can be.

Question 30

Unconscionability: what does the procedural element mean?

Answer 30

There is something unsavory about the bargaining process that seems to negate meaningful choice.

ALMOST duress, U/I, misrep but not quite. Kinda the spirit of those things.

Question 31

Unconscionability: what time do we look at to see if the K is unconscionable?

Answer 31

Whether it was unconscionable (shocked the conscious) at the time it was made.
DOES NOT allow for hindsight.

Question 32

Unconscionability: what can courts do if they find a term unconscionable?

Answer 32

Lots of discretion over what to do. Can:
- Strike term
- Refuse to enforce the whole contract
- limit the application of a term.

Question 33

Unconscionability: why is unconscionablility rarely successful?

Answer 33

Hard to figure out appropriate remedy
Can have unintended consequences (should these decisions be better left to an elected body? — WTF)
Courts more likely to rule u/c if parties agree to someone alt resolution term that is one sided.

Question 34

Public Policy Limitations on Enforcement

Answer 34

Contract unenforceable because…

Violates / undermines a statute
Undermines family relations
Restraints on alienation
Restraints on trade

Question 35

SFKs/Adhesion: Pros/Cons

Answer 35

Pros:
- Reduce transaction costs
- Lowers costs by reducing juridical risk (this term is enforceable, this one is not, etc.)
both pros are cost savings that should theoretically be passed down to buyers in reduced pricing.

Cons
- “overreaching” or one sided term. Drafter has all the advantages.
— Competition has some restraint on this overreaching.

Question 36

SFKs/Adhesion: Four ways to enforce (list only)

Answer 36

1. Focus on Assent
2. Strict Construction
3. Focus on Adhesion + a defect in competition
4. Adhesion + either violates reasonable expectation or substantively unconscionable.

Question 37

SFKs/Adhesion: 1. Focus on Assent

Answer 37

Didn’t see the K. You cannot be bound to a contract that you didn’t assent to.

Limitations:
- needs to be a surprise/conspicuous contract (think little piece of paper where you wouldn’t expect contract language)
- Based on reasonable expectations of people… which change — we are getting more and more used to seeing contract language on everything.

Question 38

SFKs/Adhesion: Strict Construction

Answer 38

Reads the contract language as narrowly as possible.
“Well it doesn’t specifically say not in the lawn” sooooo

Limitations
- you can only stretch language so far
- only temp solution (they will go add lawn to K)
- when we don’t acknowledge what we are doing (this term is unfair to enforce) we are preventing the creation of a body of precedent of minimum fairness.

Question 39

SFks/Adhesion: 3. Focus on adhesion + defect in competition

Answer 39

You are sticking me with a term that I don’t like AND i can’t go somewhere else for a better term BECAUSE OF a defect in competition.

Defect in competition:
- nominal competitors agree not to compete (agree to offer same terms)
- monopoly/monopsony

inability to get a better deal is not dispositive because it could just be the optimal term to maximize value.

Question 40

SFKs/Adhesion: 4. Adhesion + term violates expectations OR substantively unconscionable

Answer 40

Lack of knowledge of the term is not enough.
Need to have no knowledge PLUS term violates expectations.

How does this work?
- if a party reasonably believes the adhering party would not have accepted the contract if he had known the agreement contained a particular term, we can say there was no assent.