K: Grounds for Recission
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Grounds for Recission
Cases where parties have struck a definite bargain w/ apparent mutual assent, and have satisfied formal requirements such as statute of frauds BUT important public policies may be offended by enforcement of the agreement AND one party has raised an issue.
Rescind means to void or annul
Reasons the courts may resind: lack of capacity, duress, misrepresentation, mistake, fraud, nondisclosure
Halbman v. Lemke
F: P (a minor) entered into a contract with D to buy a used car for $1250. P paid $1000 up front and would pay $25 per week until the balance was paid.Five weeks after the purchase agreement, car broke down. D offered to help P with labor for repairs if P would supply the parts.P refused and took the car to the repair shop. The bill was $637.40. P did not pay the bill.P returned the title to D and demanded the return of the purchase price. D refused.The repair shop chopped the car to pay the bill and towed the car to P's father's house. There, the car was vandalized and unsalvageable.P sued for return of the purchase price.
Px: Lower court found for P.Appellate court affirmed, found for P.WI Supreme Court affirmed, found for P.
I: Does a minor, having disaffirmed a contract for the purchase of an item which is not a necessity and having tendered the property back to the vendor, have to make restitution to the vendor for damage to the property prior to the disaffirmance?
H: Absent misrepresentation or tortious damage to the property, a minor who disaffirms a contract for the purchase of an item which is not a necessity may recover his purchase price without liability for use, depreciation, damage, or other diminution in value.
Note: Public policy is being dealt with here. (need to protect minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace)
The Infancy Doctrine
The "infancy doctrine" gives a minor the absolute right to disaffirm a contract for the purchase of items which are not necessities.The purpose of this doctrine is to protect minors from foolishly squandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace.It is designed to protect the minor, sometimes at the expense of an innocent vendor.
Disaffirmance - Minors
A minor is under the enforceable duty to return to the vendor, upon disaffirmance, as much of the consideration as remains in his possession.Thus, when the minor no longer possesses the property which was the subject matter of the contract, the rule requiring the return of the property does not apply.
Two Part Test for Necessity
(See Young v. Weaver)
Items essential for life.
How do you know if something is a necessity?
Determining Whether the Subject of a Contract is a Necessity to a Minor
(See Young v. Weaver)
Is it in the general clause of necessaries, and if so, whether there is sufficient evidence to warrant the jury in finding that they are necessary?
If no . . .
If yes . . .
Young v. Weaver
F: The tenant, who was 18-years-old and had been living with her parents all of her life, decided she wanted to move out. She and a friend, who was also a minor, signed a contract for the lease of an apartment with the landlord. No adult signed the lease as a guarantor. The tenant was employed on a full-time basis. She paid a security deposit and entered a lease set to expire about 10 months later. Her parents kept her room waiting at their home so that she could return at any time. Every time the tenant's father talked to her on the telephone while she lived in the apartment, the father asked her to move back home. The tenant lived in the apartment for approximately two months; she then returned to live with her parents. She stopped paying the apartment rent.
Px: The landlord sued her for rent still owed plus damage that her dog had done. The Tuscaloosa Circuit Court (Alabama) entered a judgment that awarded damages to appellee landlord after the landlord filed a complaint alleging that appellant tenant committed breaches of the apartment lease existing between the landlord and the tenant. The tenant appealed.On appeal, the appellate court found the tenant could not be held liable because she was a minor and the evidence showed that the apartment was not a "necessity" for which a minor could be held liable because her parents were willing to take her back into their house at any time.
Outcome: The trial court's judgment was reversed and case was remanded to the trial court to enter a judgment in favor of the tenant.
The ability to incur legal obligations and acquire legal rights. A person must have the ability to give consent before he can be legally bound to an agreement.
Groups Lacking Capacity
- Those suffering a mental disability
- Those who are intoxicated
A person who contracts w/o capacity may avoid the contract at his/her option
Right to avoid a contract
i.e. Halbman v. Lemke
Minors and Disaffirmance
Minors may not avoid contracts if a statutory exception exists: marriage, educational loans, insurance
Emancipation of minor from parents does not give minor capacity to contract
Minor's power to avoid contracts does not end on day he/she reaches age of majority, but continues for a reasonable time therafter
Ratification occurs when a person who reaches majority indicates that he/she intends to be bound by a contract made while still a minor
May be express or implied by conduct
Duty Upon Disaffirmance
Each party has a duty to return to the other any consideration (i.e. money or goods) that the other has given.
If the consideration given by the adult has been lost, damaged, destroyed, or depreciated in value, courts are split on whether the minor party must make restitution to the adult party (i.e. buying a car and returning)
Disaffirming minors are required to pay reasonable value for necessaries (required for survival) furnished to them. i.e. Young v. Weaver
Capacity and Mental Impairment
R.2d § 16
Test: Did the person have sufficient mental capacity to understand the nature and effect of the contract at the time of formation?
Varies by jurisdiction
Right to Disaffirm or Ratify - Mental Illness
The person may disaffirm the contract OR once he/she regains capacity, ratify the contract.
Upon disaffirmance, consideration must be returned and the person is liable for reasonable value of any necessaries
Capacity - Intoxication
Intoxication is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the bargaining process
COURTS ARE NOT USUALLY SYMPATHETIC
Three Types of Capacity
- Mental Defect
Capacity and Mental Impairment - MINORITY VIEW
R2d § 15
A party could avoid a contract for lack of capacity, even if he understood the terms of the contract, if a mental disease rendered him unable to resist entering into the contract
Lena was desperate to sell her home as it has been on the market for 10 months. While showing the house to Green, an environmental activist, she told Green that the house had been partially constructed out of environmentally friendly materials and cold easily be made entirely environmentally friendly. Lena believed these statements because they were true of her next door neighbor's house, which was built by the same contractor at the same time and was almost identical in appearance to her own. As a result of Lena's statement, Green entered into a contract to by the house. Later, Green discovered that that house is not environmentally friendly and could never be made so except at a greater cost than the value of the house. If Green sued to get out of the contract based on misrepresentation, Green would:
See Halpert v. Rosenthal
Win b/c Lena's misrepresentation was material.
Guitar George entered into negotiations with Musician Mike to sell his 1969 Martin D28 acoustic guitar. Martin guitars were made with Brazilian Rosewood until March of 1969 when it became illegal to sell products made from this rare wood. After March of 1969, Martin used a lesser quality of wood to make their guitars. In order to hide the fact that George's Martin was made after March of 1969, George removed the model identification number sticker from inside the guitar, and replaced it with a false identification number that would indicate it was made from Brazilian Rosewood. When Mike went to look at the guitar, he wrote down the identification number so he could check the number to insure the authenticity of the guitar. After the number checked out, Mike agreed to pay George $5,000 for the guitar. A few weeks later, Mike took the guitar to get appraised and was told the guitar was only worth $1,000 because it was not made of Brazilian Rosewood. If Mike sued George he would most likely:
Win based on concealment.
Frank, seeking to induce Dani to buy his house, tells her that Archie, a famous architect, designed the house. Because houses designed by renowned architects have a better market value, Dani agreed to buy the house. Before closing, Frank learns from a local historian that his house was designed by Archie's partner, Betty, who was also a renowned architect. Houses designed by Betty are just as valuable as houses designed by Archie. After closing on the house, Dani learns that the house was not designed by Archie, and that Fran had been made aware of this information prior to the closing date. If Dani sues Frank, she will most likely:
Lose, because the fact was not material.
R2d § 175 - Improper Threat
If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
R2d §176 - What Makes A Threat Improper?
1) A threat is improper if:
a. what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
b. what is threatened is a criminal prosecution,c. what is threatened is the use of civil process and the threat is made in bad faith, ord. the threat is a brach of duty of good faith and fair dealing under a contract with the recipient
2) A threat is improper if the resulting exchange is not on fair terms, anda. the threatened act would harm the recipient and would not significantly benefit the party making the threat,b. the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, orc. what is threatened is otherwise a use of power for illegitimate ends.
Nephew provides meal and company to his lonely wealthy Uncle. Recently Nephew told Uncle he would discontinue. What possible issues?
- Is there a special relationship?
- Is there an identifiable threat?
How to Assess Misrepresentation Issues
- Q: Is there misrepresentation?
- A: Define misrepresentation.
Rescission for Misrepresentation
A party may rescind a contract by showing a
Halpert v. Rosenthal
A Cohen Favorite
During the parties' negotiations for the sale and purchase of the vendor's home, the vendor and his agent affirmatively represented, upon the vendee's specific inquiry, that the home was termite-free. After the parties executed the contract for the sale, an inspection revealed that the home was infested with termites. The vendee notified the vendor that he did not intend to buy the home. The vendor later sued the vendee to recover the difference between the contract price and price he later obtained from a different buyer; the vendee counterclaimed for the return of the deposit he paid to the vendor under the contract. A jury rendered a verdict for the vendee and the trial court denied the vendor's motion for a directed verdict on the counterclaim.
The speaker's knowledge of the inaccuracy is not a prerequistie for rescission
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