Capacity and consent are two different contract issues that can lead to the same result: a voidable contract.

Transcription

1 Capacity and consent are two different contract issues that can lead to the same result: a voidable contract. 1

2 After reading first sentence: By which we mean a valid contract one which is not voidable by either party. Read the rest, then say: Minors are persons who have not yet reached the age of majority. 18 is the age of majority in 47 states. 3 states plus the District of Columbia use a higher age. Alabama and Nebraska do 19. Mississippi and the District of Columbia do 21. All contracts created by minors are voidable. Contracts created by someone with a mental impairment are either voidable or void. 2

3 Read whole thing, then say: Disaffirmance is an especially easy and convenient way to avoid a contract. Minors can disaffirm. Persons with a mental impairment must generally rescind, which requires a court order. 3

4 1a. Read page 309 2a. They affirmed the trial court s decision, although they lowered the award to $3,100. 4a. How would an adult co-signer affect the legal outcome? 4

5 3a. In all three cases, the minor will have to return the car promptly when asked for it. 3b. Rescinding means filing suit to have a court formally cancel the contract. The court will order the parties to do specific things. For example, they would order Kevin to return the car promptly, and order the dealership to give him a full refund. As soon as you FILE SUIT to rescind, you have disaffirmed. 5

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7 2a. No matter how many times a MINOR says she will honor a contract, it has no effect. 3a. An example of exercising dominion over the item would be to place an ad in the newspaper or on Craig s list to sell it after you turn 18. DO THE EXAM STRATEGY QUESTION ON PAGE

8 A minority of states allow the minor to rescind only to the degree he can make restitution. If he returns the car worth half as much as when he bought it, he gets a 50% refund. If the car was totaled or stolen, he gets no refund. 8

9 2a. Textbooks would be considered a necessary for a student. A car would be considered a necessary for someone employed as a pizza delivery person where the job required that they provide their own car. A business suit would be considered a necessary for an unemployed person who needed a good suit to go to job interviews in, etc. A ski boat, a snowboard, music CDs, jewelry, or a fancy restaurant meal would never be considered a necessary. 3a. So if the minor had contracted for an essential service such as rental housing for 12 months, but had only lived in the apartment for 3 months before disaffirming the contract and moving out of the apartment, they would only have to pay for the 3 months they were actually IN the apartment. 9

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11 1a. Note that the same person may be deemed to be mentally competent to enter simple contracts but lacking capacity to enter into more complex contracts. The question the jury will have to decide is: did this person lack the capacity to understand the nature and/or the probable consequences of THIS contract. 2a. Some states say that a contract entered into by a person who has been adjudicated to be incompetent is void. The majority of states treat them as voidable at the option of the mentally impaired person or their guardian only. Even those states who treat these contracts as void have an exception for necessaries: the incompetent person must pay the reasonable value of any benefits actually received. 3. Included among those not so adjudicated are those that TEMPORARILY lack capacity because of voluntary intoxication. These persons can rescind only if they were too drunk to understand the nature and consequences of the contract, and only if they promptly disaffirm the contract upon regaining capacity. If they RATIFY the contract after they become sober, they are stuck. 11

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13 Read everything in red boxes on pages about Cedric. 13

14 1a. If the car has depreciated, the amount of their refund will be reduced by the decline in value of the car. If restitution is impossible, most states will not allow the mentally incompetent person to rescind the contract. So the rule here is DIFFERENT from the rule for minors. This is because it is often much more difficult for the dealer to tell that the person is mentally incompetent than to tell that they are underage. 2a. The bad faith exception works like this: if there is evidence that the seller was PERFECTLY AWARE that the person lacked mental capacity and TOOK DELIBERATE ADVANTAGE OF THEM for their own gain, then the mentally impaired person will be able to receive a full refund EVEN IF they cannot make restitution. 14

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16 1a. A party may not DISAFFIRM a contract based on misrepresentation or fraud. They must file suit requesting that the court RESCIND the contract officially declare it cancelled. 16

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18 1a. This horse won its last 5 races; or I had a flood report done on this land and it checked out O.K. 2a. This photograph is a picture of the boat I am proposing to sell you (when in fact that boat was destroyed in a hurricane 3 weeks ago) 3a. This land is densely forested; or this food contains zero grams of fat per serving or this pie contains no sugar or this car s engine delivers 240 horsepower. 4a. I think land around here will go up at least 20 to 30% in the next 2 years; or I think this property would be perfect for the bed and breakfast you re planning to build. 5a. This is the best car for the money. You won t find a better buy on a used car than this one. This is the smoothest bourbon sold in the continental United States. 18

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20 Decision: Judgment reversed. Opinion: Where, as here, a statement is made by a party having superior knowledge, that statement may be taken as one of fact, even though it would be considered a statement of opinion if the parties were dealing from a standpoint of equal knowledge. Mrs. Vokes could reasonably have concluded that Mr. Davenport had superior knowledge as to both her dancing potential and her degree of improvement. Mr. Davenport greatly exaggerated both, probably to induce her to enter into additional contracts. A party with superior knowledge who chooses to speak must speak truthfully, else any agreement entered into as a result of the exaggerations will be voidable. 20

21 The trial court granted summary judgment to the jewelry store on the grounds that Perel & Lowenstein s appraisal was only an opinion, not a statement of fact; but the Tennessee Supreme Court reversed, arguing that In the purchase of a diamond or other precious stone, the purchaser must rely upon the integrity of the jeweler from whom he purchases. The layman is in no position to make his own determination as to its true value, but must rely upon statements of value made to him by the jeweler. Here, the jeweler falsely represented the value of the diamond to the complaintant, knowing the falsity of the representation, that the buyer was not familiar enough with the valuation of diamonds to be able to recognize the falsity. The buyer reasonably relied upon defendant s statements, which were stated as facts. Because the seller had superior knowledge and stated as a fact the minimum value of the ring, this statement, which ordinarily would be treated as a statement of opinion no matter how stated, can be treated as a statement of fact in this case. 21

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24 Thus, for example, in the sale of a racehorse, it may not be material whether the horse was ridden in its most recent race by a particular jockey, but its running time for the race probably would be. 1. Do Dorothy and John Huffschneider example. 2. Do Iverson Motors example. 24

25 1a. If the false statements are made AFTER you agree to the contract, the court will rule that you did not RELY on the statements in deciding to contract, i.e. that the statements could not have induced you to enter into the contract. Do the Gardner buys the Punjab Tavern example. 1b. If the false statements were made before you agreed, but to someone else, and you didn t learn of them until after you had agreed, then you cannot have relied on them. 1c. If a real estate agent tells you a piece of property is ½ acre but you know for a fact it s 1/3 acre, the false statement cannot be used as a basis for rescission because you did not rely upon it. 2a. If a used car dealer tells you a car has only 40,000 miles on it but the odometer plainly reads 99,000 miles, or if he tells you the engine runs great when in fact it sounds awful when it s running, your reliance on his statements, if you claim such, will be deemed unreasonable. 2b. If the seller of wilderness land tells the buyer that the area is untouched by pollution, but a large lake is permanently covered with six inches of smelly, thick red scum, the buyer will not be justified in relying on the statements. If the buyer goes forward with the purchase, he cannot rescind. 25

26 All states, however, allow plaintiffs injured by fraud in a contract for the sale of goods to both rescind and sue for deceit. 26

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28 Insert exhibit 13.1 here, page

29 1a. The seller says this land has gold on it They have reason to believe that. But later, and before the deal is consummated, they learn that the geological survey was done on a neighboring piece of land. They must disclose. 2a. See next slide for an illustration of situation 2. 29

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31 No practical purpose, they argued, would be served by imposing a burden on the buyer to discover such hard-to-uncover facts which are at the same time material to the value of the transaction. To the contrary, it encourages predatory business practice. Do Hess v. Chase Manhattan Bank, pages

32 For example, if there is a map that the buyer thinks is current and it shows a feature such as waterfront access, but the map is out of date and the land does NOT have waterfront access and the seller knows the map is out of date 32

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34 What s a septic system? What would it mean for the soil to be unsuitable? Do end-of-chapter additional question #4. 34

35 If the parties are wrong about an important fact, the exchange they make is likely to be quite different than what they had contemplated. 35

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37 For example, suppose that Susan contracts to sell a parcel of land to James with the mutual understanding that James will build an apartment on the land. Unknown to them, 3 days before the contract is signed, the town in which the land is located enacts an ordinance precluding such use of the land. HOWEVER, You can t void a contract for the purchase of a car because you thought you could sell it to someone else for more than you paid, nor because you did not correctly estimate or assess its market value before you bought it. These are ordinary business risks which you assume when you enter into a business transaction. 37

38 Do Exam Strategy question, page 324. Do end-of-chapter additional question #7. 38

39 3a. A contract is unconscionable to enforce iff the mistaken party would suffer grave consequences if the contract were enforced. 4. Read red-boxed areas, pages , then do Donavan v. RRL Corp. 39

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41 p They had paid $35,000 for it and intended to sell it for about $37,000. They offered to sell it to Mr. Donovan for $37,019 on the spot, but he refused. He demanded they sell it to him for $25,995. They later sold it to someone else for $38, reasoning that there was no valid offer because defendant's unilateral mistake of fact undermined the required element of contractual intent. 41

42 1. citing CA Vehicle code section , subdivision (e). 3. This was important. If this was not the case, the supreme court would probably have sided with the customer. 42

43 1. This was important. If this was not the case, the supreme court would probably have sided with the customer. 43

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45 4. The defendant would have to accept a price 32% below their intended advertised price, losing more than $ 9,000 on the deal, and Plaintiff would obtain what the supreme court called a $ 12,000 windfall if the contract were enforced. Finally, the plaintiff can be restored to his position prior to the commencement of bargaining. Those factors together were sufficient in the view of the California supreme court to establish unconscionability. 45

46 1a. A contract induced by duress is voidable at the option of the victim. It is not VOID. For example, if Barry, a traveling salesman, takes his car to Cheatum Motors for repair and, when it is finished, pays them the full amount previously agreed upon for the repair. If Cheatum then refuses to return Barry s car to him unless he pays substantially more, and if Barry, after trying to persuade them that this is unfair, caves in and pays the extra amount to get his car out because his car is his livelihood, Barry will be able to recover the extra amount he paid in court later because living without his car while he files suit against them to get it back would not be viewed by the modern court as a reasonable alternative for Barry. An even better example is given on pages of your textbook. (Read redcircled paragraphs on these pages.) 46

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51 Do Conrad Schaneman example. 51

52 Do end of chapter additional questions 2, 3, 5, and 6. 52