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
Misrepresentation: When is an action equivalent to an assertion? (concealment)
§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.
Misrepresentation: when is non disclosure tantamount to a misrepresentation?
- Active concealment
- 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
Misrepresentation: when is reliance justifiable for nondisclosure purposes?
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.
Misrepresentation: Opinions
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
Unconscionability: Elements
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.
Unconscionability: what does the procedural element mean?
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.
Unconscionability: what time do we look at to see if the K is unconscionable?
Whether it was unconscionable (shocked the conscious) at the time it was made.
DOES NOT allow for hindsight.
Unconscionability: what can courts do if they find a term unconscionable?
Lots of discretion over what to do. Can:
- Strike term
- Refuse to enforce the whole contract
- limit the application of a term.
Unconscionability: why is unconscionablility rarely successful?
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.
Public Policy Limitations on Enforcement
Contract unenforceable because…
Violates / undermines a statute
Undermines family relations
Restraints on alienation
Restraints on trade
SFKs/Adhesion: Pros/Cons
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.
SFKs/Adhesion: Four ways to enforce (list only)
- Focus on Assent
- Strict Construction
- Focus on Adhesion + a defect in competition
- Adhesion + either violates reasonable expectation or substantively unconscionable.
SFKs/Adhesion: 1. Focus on Assent
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.
SFKs/Adhesion: Strict Construction
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.
SFks/Adhesion: 3. Focus on adhesion + defect in competition
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.
SFKs/Adhesion: 4. Adhesion + term violates expectations OR substantively unconscionable
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.
