Ch. 7 (CQ)

Ferdinand has been undergoing medical treatment for a neurological disorder. As a result of the disorder, he imagines that some things are different than reality and then cannot distinguish true reality from his imaginings. It most often happens when he reads. Tests show that when he reads something longer than a few paragraphs, when immediately asked what the paper says, he will often answer something totally unrelated and typically something else he has read in the past day or two. He has never been declared mentally incompetent nor has a guardian ever been appointed. Ferdinand met with a Quick Freeze salesperson about a new subzero freezer. The salesperson noted some odd things Ferdinand said during the meeting. Once he asked, "What is its gas mileage?" The salesperson gave the statistics on the energy use of the freezer. At another point Ferdinand asked if the interior was leather. After a fifteen-minute conversation the salesperson gave Ferdinand a contract to buy the most expensive freezer they sold for $4,900. The contract required Ferdinand to pay $500 at signing (which he paid) and the balance over 4 years for total payments equaling $8,500. Ferdinand signed the contract and then asked: "when can I drive it home?" The salesperson said it would be delivered in two weeks. Ferdinand showed his sister the contract the next day at lunch. She exclaimed: "Why would you sign this contract? You bought a new subzero freezer last month." He responded that it was a contract to buy a car not a freezer. He had purchased a car the day before he met the freezer salesperson. His sister immediately contacted Quick Freeze and informed them that her brother did not know what he was doing and has a mental illness. They need to consider the contract as rescinded. Which of the following best describes the most likely outcome of the claim of mental incapacity if brought to a court? (A) If the jurisdiction requires or permits the cognitive test of incapacity, it is likely the contract will be voided, and Quick Freeze will have to refund the $500 deposit. (B) As long as the jurisdiction requires the use of the volitational test to determine mental capacity, the contract will be voided, and Quick Freeze will have to refund the $500 deposit. (C) If the jurisdiction requires or permits the cognitive test of incapacity it is likely the contract will be voided, but Quick Freeze will not have to refund the $500 deposit. (D) As long as the jurisdiction uses the volitational test to determine mental capacity then the contract will be voided, but Quick Freeze will not have to refund the $500 deposit.

(A) If the jurisdiction requires or permits the cognitive test of incapacity, it is likely the contract will be voided, and Quick Freeze will have to refund the $500 deposit. Rationale: This question tests both the legal test for determining incapacity and the rules relating to restitution once a contract is found void for incapacity. The so-called cognitive test is used in the majority of jurisdictions. It tests whether the party was able to understand what they were doing in entering into the contract. The Restatement (Second) of Contracts §15 describes this test thus: "He is unable to understand in a reasonable manner the nature and consequences of the transaction." An increasing number of jurisdictions have moved to permitting or requiring proof of incapacity through a volitional test. This test focuses not on the party's comprehension but ability to control their actions. They may understand what they are doing but psychologically they do not possess the ability to resist entering into a contract. The same section of the Restatement describes the volitional test thus: "he is unable to act in a reasonable manner in relation to the transaction." The facts in the question are relevant to proving incapacity through a cognitive not a volitional test. Thus, if the jurisdiction requires or permits the use of a cognitive test, the contract will be found void. Answers B and D are therefore not a good choice since they condition voidability on a volitional test. Next, the question frames the issue of restitution. If a legal guardian has been appointed the contract executed by the incompetent party is immediately void and restitution follows. In cases in which the non-incapacitated party had reason to know of or at least suspect incapacity and in which the pre-contractual status quo can easily be re-established, the court will typically order restitution. Here, all that has to be done is to return the deposit and void the contract since the freezer has not been delivered yet. It is most likely on these facts that a court would order the deposit returned and therefore A and not C is the best answer.

The husband of a pregnant woman was murdered. On the night before the funeral, the widow had had little sleep and was physically and emotionally exhausted. Immediately after the funeral, four of her husband's brothers approached the widow about "an urgent matter." The widow assumed that the brothers would not approach her at this time if it were not important, and after talking with her for well over an hour, the brothers persuaded the widow to sign documents that transferred her complete interest in her late husband's estate to the husband's children from a previous marriage. The brothers deliberately approached the widow at this time because they thought it would be easier to convince her to deed the property when she was still in shock over the death of her husband. On what ground might a court allow the widow to rescind the transfer? (A) The brothers exerted undue influence inducing the widow to transfer her interests. (B) The widow made a unilateral mistake in signing away her rights. (C) The brothers' statement that the matter was urgent was a material misrepresentation. (D) The widow was mentally incapacitated.

(A) The brothers exerted undue influence in inducing the widow to transfer her interests. Rationale: Issue: This problem tests your ability in issue spotting the correct defense. Rule: Restatement (Second) of Contracts § 177(1)-(2) (1) Undue influence is unfair persuasion of a party that is under the domination of the person exercising the persuasion or who by virtue of the relation between them, is justified in assuming that that person will not act in a manner inconsistent with his welfare. 2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim. Analysis: Here, the correct answer is Choice A. The widow was in a weakened emotional and physical state because of the sudden death of her husband. Family members, who she presumably would trust, came to her with what they said was an urgent matter. Under the Restatement, she was "justified in assuming" that the brothers would not act in a manner inconsistent with her welfare. Whether the persuasion is unfair depends on the surrounding circumstances. The Restatement comment notes that factors to be considered include "the unfairness of the resulting bargain, the unavailability of independent advice, and the susceptibility of the person persuaded." Here, the brothers approached the widow at an inappropriate time when she was in a weakened physical and emotional state, and spoke with her for over an hour until she agreed to transfer her interest in the husband's estate to another without receiving any consideration. These facts clearly have the indicia of the element of unfair persuasion. Since the widow was justified in assuming the brothers would not act against her self-interest and they used a high degree of unfair persuasion, the most likely reason for rescinding the transfer is undue influence. Choice B is incorrect. While the widow may have made a mistake in judgment by transferring her rights, that is not the sort of mistake that results in the defense of unilateral mistake. To assert the defense of unilateral mistake, the mistake must have been a mistake of fact—not a mistake of judgment. Choice C is a poor answer choice because the defense of misrepresentation requires a misstatement about a fact existing at contract formation. Here, the brothers were offering their opinion that the matter was urgent. While they were doing so dishonestly, the better defense under these facts would be undue influence. Choice D is not a good answer choice because the facts do not clearly demonstrate that the widow could not understand or appreciate the nature of the contract. While the facts state that she was worn down, she had not yet reached a state of mental incapacity.

Jose contracts with Ines to completely rewire his home. The state in which the contract is formed makes it illegal "to perform, or enter into a contract to perform, electrical work unless the person performing the work is licensed" by the state. To become licensed an electrician must pass several written and skills tests and take at least 4 hours of continuing education each year. There is also an initial license fee of $300 and an annual fee of $50. Ines has never been licensed in the state although she has been working there for a few years. She thinks it is unreasonable to have to take tests and pay this money since she believes she knows what she is doing as a self-taught electrician. Pursuant to the contract Jose gave Ines a $1,000 deposit. Before the work was begun but after signing the contract and paying the deposit, Jose learned that Ines is not licensed. He claims the contract is void as against public policy. If this dispute over the contract were to go to court, what would be the likely outcome? (A) Because the law that applies to the contract charges fees that produce revenue for the state, the contract is still enforceable notwithstanding its violation of the law under the revenue exception. (B) The contract will be declared unenforceable, and a court will likely order restitution of the $1,000 deposit in these circumstances. (C) The contract will be declared unenforceable, but the court will not order any restitution by any party. (D) The contract is still enforceable since it only violates a statute not a policy.

(B) The contract will be declared unenforceable, and a court will likely order restitution of the $1,000 deposit in these circumstances. Rationale: Contracts that violate public policy are void. Contracts that violate public policy include, but are not limited to, contracts to perform criminal acts and contracts that do not require legally mandated licenses or permits to perform the work contracted. Some courts will enforce a contract that is subject to a licensing or permit requirement if the license or permit serves no regulatory function and can be obtained merely by tendering a fee to the applicable governmental unit. The statute in this state, although involving a license fee, appears to have a regulatory purpose as it seeks to ensure that those performing electrical services are qualified. Compliance involves more than a fee. Thus, answer A is incorrect. Entering into the contract—not merely performing the work—is explicitly declared contrary to law and is therefore illegal and contrary to public policy. Answer D creates a false dichotomy between statutes and public policy and is therefore incorrect. The contract will certainly be held void as contrary to public policy. As to restitution, traditionally the common law left the parties where they were and did not order restitution under an illegal contract. However, in more recent decades if one party is clearly at fault and that party is the subject of the regulation the courts will find the parties not to be in pari delicto (equally at fault) and may order restitution to restore the person whom the regulation is meant to protect. The Restatement (Third) of Restitution confirms this approach in §32 which states that a person "who renders performance under an agreement that is illegal or otherwise unenforceable for reasons of public policy may obtain restitution from the recipient . . . (2) as necessary to prevent unjust enrichment, if the allowance of restitution will not defeat or frustrate the policy of the underlying prohibition." In this case, the statute is meant to protect people like Jose from unlicensed contractors. Jose has not received any benefit under the contract and if the parties are left where they stand, Ines would be unjustly enriched. It is therefore likely a court would order restitution of the deposit. Answer B is therefore the best answer and answer C is not the best choice.

A 22-year-old man moved to the city from a rural area where he grew up to take a blue-collar job in the city that paid him $3,000 a month. It was the first time that he had been away from home. He had not completed high school but was of average intelligence. He went to a rental agency and told the agent he wanted a small, modest apartment that cost no more than $750 per month. The rental agent then showed the young man a series of luxury apartments that each cost $2,500 per month. While showing the apartments, the agent continually complimented the young man and told him how important it was for a young man's image to rent a luxury apartment. Later, the young man signed a three-year lease renting the apartment for $2,500 a month. If the young man sues the rental agency to rescind the agreement because it was unconscionable, which of the following additional facts would tend to help the rental agency? (A) The lease was written using complex legal terms that would be unfamiliar to the average person. (B) The young man took the lease home and consulted an attorney before signing the lease. (C) The $2,500 per month rental rate was 50% more expensive than the fair market value for such an apartment. (D) The contract was an adhesion contract.

(B) The young man took the lease home and consulted an attorney before signing the lease. Rationale: Issue: The problem tests whether students understand which facts are important in proving or disproving the unconscionability defense. Rule: A court may refuse to enforce a contract or term on a finding that it is procedurally and substantively unconscionable. Procedural unconscionability may be demonstrated by (1) gross inequality in bargaining power, or (2) unfair surprise. Substantive unconscionability may be shown by: (1) overly harsh allocation of risks not justified by the circumstances, or (2) great price disparity. Analysis: Students should note the call of the question. The question does not ask who wins but whether certain types of evidence would favor one party or the other. The correct answer is Choice B. Choices A, C, and D would all be evidence that would not help the rental agency disprove the defense of unconscionability. Procedural unconscionability is present when there is a defect in the bargaining process because of (1) gross inequality in bargaining power or (2) unfair surprise. Gross inequality in bargaining power can be shown when one of the parties lacks any ability to modify the contract. Choice D states that that contract was an adhesion contract. An adhesion contract is a standard form contract that is given to a party on a take-it-or-leave basis. An adhesion contract by itself is not unconscionable; however, it is a fact used to show that there was inequality in the bargaining power between the parties. Choice D would not help the rental agency. As to unfair surprise, one common example is when there are complex and hidden terms in a complicated legal document. If the average person cannot understand the document because of legalese, then courts may find that the transaction is procedurally unconscionable. Choice A states that the document has complex legal terms that would be unfamiliar to the average person. If this were a fact, then it would not help the rental agency. Such a fact would go to show that there may have been unfair surprise. This fact alone would not prove that the contract was unconscionable, but it would not help the rental agency. However, Choice B would help the rental agency. If the young man had an opportunity to show the lease to an attorney and get advice before signing it, then the young man would be less likely to have experienced any unfair surprise. Choice B is correct. Alternatively, if the written legal document was written in plain language and without legalese (as it was here), that would be evidence that suggests there was no unfair surprise. Choice C speaks to second element of unconscionability—substantive unconscionability. Substantive unconscionability can be shown by overly harsh allocation of risks or great price disparity. If the $2,500 monthly rent is 50% above the fair market value of the property, then that is evidence that there was a price disparity in value. The young man would be overpaying for the apartment. This fact alone may not prove unconscionability, but it would not help the rental agency. Therefore, Choice C is also incorrect.

Byron and Amanda Coddleston were looking to buy a home in Philadelphia. While touring the home of Deborah Jefferson, the Coddlestons mentioned how much they loved old houses. They also stated they greatly admired Benjamin Franklin. To encourage them to make an offer Deborah Jefferson told them that her home was one of the oldest in Philadelphia (which is true) and that Benjamin Franklin lived in the house for a year (which is not true and which Deborah just made up to pique their interest). This fact pushed the Coddlestons over the edge as they could not resist owning a house in which their hero Benjamin Franklin lived. They signed a contract to purchase right then and there for $650,000. A month later and before they had completed the purchase of the house, they went to the Franklin archives and discovered that the records contained a list of all of Franklin's homes and the one they contracted to buy appeared nowhere on the list. The Coddlestons want to avoid their contract to buy the home. Do they have a good argument to avoid the contract? (A) Yes, the contract is procedurally unconscionable (it was signed right then and there) and substantively unfair since it does not meet their expectations of being a former residence of Franklin. (B) Yes, Deborah committed a fraudulent representation that entitles the Coddlestons to rescind the contract. (C) No, the Coddlestons could have easily examined the archives before signing the contract and thus bear the risk of their mistake. (D) No, the contract is not against public policy and therefore must be enforced.

(B) Yes, Deborah committed a fraudulent representation that entitles the Coddlestons to rescind the contract. Rationale: The question tests the relevance of various voidability defenses. The contract does not appear to be against public policy but that does not mean another voidability defense does not apply. Answer D is not a good answer. Determining which party bears the risk of a mistake is part of the analysis in applying the doctrine of mutual mistake. This question does not involve a mutual mistake, however. Deborah is not mistaken. Deborah untruthfully told the Coddlestons that Franklin lived there, and they believed her. Thus, answer C is not the correct choice. There is no evidence of either procedural or substantive unconscionability in the problem. Merely acting quickly to enter into a contract is not procedurally unfair when there is no evidence of coercion or unfair bargaining. There is also no term that appears to shock the conscience in the contract. Answer A is therefore incorrect. Deborah clearly made a fraudulent misrepresentation. She knowingly made an assertion not in accordance with the facts. The Coddlestons justifiably relied upon this statement in that it was reasonable to believe Deborah would know this fact. The fact induced them to buy the house. If a fraudulent misrepresentation is made, the one relying on the misrepresentation may either rescind the contract or sue for damages. Answer B is correct.

Buyer seeks to purchase a quantity of Fortex valves. Buyer asks Seller whether the valves he offers to sell have hinges that are composed of plastic or steel. Seller does not know the answer and says, 'Which do you want?' 'Steel,' Buyer responds. 'Well, you're in luck. These valves do have steel hinges.' By signed writing, the parties contract for the purchase of 100,000 valves for $200,000. The writing is exhaustively detailed, and includes a merger clause. It describes the goods to be sold as '100,000 Fortex valves.' It makes no mention of hinges. After the parties sign the writing, Buyer asks to see a few of the valves. He finds that their hinges are composed of plastic and alerts Seller to that fact. Seller responds, 'Read our contract, it calls for Fortex valves and says nothing about hinges.' Is Buyer entitled to rescind the contract? (A) Yes, because both parties were mistaken about the nature of the hinges (B) Yes, because Seller committed a fraudulent misrepresentation (C) No, because Seller's statement was an opinion on the quality of the valves (D) No, because the writing is a total integration

(B) Yes, because Seller committed a fraudulent misrepresentation Rationale: Issue: The issue is whether Seller has committed a fraudulent misrepresentation by making a representation when he did not know whether the statement was true or false and knowing that the statement would influence Buyer's decision. Rule: A contract is voidable if "a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying." Restatement (Second) of Contracts § 164(1). A fraudulent misrepresentation is defined as one where "the maker intends ... to induce a party to manifest his assent and the maker (a) knows or believes the assertion is not in accord with the facts, or (b) does not have confidence that he states or implies in the truth of the assertion, or (c) knows he does not have the basis that he states or implies for the assertion." Restatement (Second) of Contracts § 162(1). Analysis: Seller made a fraudulent misrepresentation under Restatement (Second) of Contracts § 162(1)(c) since he had no basis for stating the claim that the valve hinges were made of steel. Buyer may, therefore, rescind the contract under Restatement (Second) of Contracts § 164(1). Choice B is correct. Choice A is incorrect since Seller was not mistaken about the facts. Seller knew that he did not know the facts and made a representation upon which he had no basis to state the claim. Choice C is incorrect. A distinction is made between a statement of fact and an opinion. In some cases, a salesperson's statement about a product or service is considered an opinion—such as, "this is the best product ever." Opinions are generally not subject to the misrepresentation rules provided that the opinion is given in good faith. Here, the statement about the hinges is not an opinion, but a statement of fact about the hinges. Even if the statement were an opinion, the facts suggest that Seller is not honestly expressing himself in good faith since he knows he has no basis for making the statement. Choice D suggests that the writing controls under the parol evidence rule since it appears to be totally integrated. However, an exception to the parol evidence rule is when there is a misrepresentation upon which the contract can be rescinded. Therefore, Choice D is incorrect.

Ten years ago, Wanda needed to raise capital for her newly formed corporation, Wandaco, and offered Victor 40% of the Wandaco stock in exchange for $100,000. Victor accepted. Today the total value of all Wandaco stock is $100 million. Wanda approaches Victor and makes a signed, written offer to buy his share of the business for $40 million, which is the fair market value of the stock. Victor rejects the offer, wishing to hold on to the stock. Wanda's daughter, Ella, wishes that Victor would sell Wanda his Wandaco stock because she hopes to inherit it someday. Without Wanda's knowledge, Ella approaches Victor and says, "If my mother makes another offer to buy your Wandaco stock, you'll accept it. If you don't, I'll tell your wife that we have had an affair." In fact, Victor and Ella never have had any such affair. One week later, Wanda again presents Victor with her written offer to buy Victor's Wandaco stock for $40 million. Because of Ella's threat, Victor accepts the offer and signs a contract to convey the shares to Wanda. Is the resulting contract voidable at Victor's option? (A) Yes, because Victor could rescind the contract based on Ella's fraudulent misrepresentation (B) Yes, if Wanda had reason to know about Ella's threat to Victor (C) No, because Wanda's $40 million offer represented the fair market value of Victor's stock (D) No, because in making to Victor the same offer on two separate occasions, Wanda demonstrated her good faith

(B) Yes, if Wanda had reason to know about Ella's threat to Victor Rationale: Issue: The issue centers on whether the defense of duress applies, when the party exerting coercion is not a party to the contract. Rule: Restatement (Second) of Contracts § 175: "(1) 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. (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. Analysis: When one forms a contract because some other party subjects him to an 'improper threat,' and he had "no reasonable alternative," then he forms the contract under 'duress.' The contract is voidable at his option; he is entitled to honor it or not, according to his own wish. If the coercion is asserted by someone who is not a party to the transaction, then the contract is voidable only if the party to the transaction knows of the coercion. Therefore, Choice B is the best answer. Choice A is incorrect because the facts here do not raise the defense of fraudulent misrepresentation. The defense of fraudulent misrepresentation occurs "[i]f a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying ...." Restatement (Second) of Contracts § 164(1). The defense is based on deception—where the party entering the contract is deceived into believing something that is not true. Here, while Ella is threatening to make a fraudulent statement, Victor knows it is not true. Therefore, more appropriate defense is duress. Choice C makes a factually correct statement but has the wrong conclusion. It is true that the terms reflect the fair market value of the stock, but that does not change the fact that Victor was induced by duress to enter into the transaction. Choice D is also a poor answer choice. Even if Wanda were operating in good faith on both occasions, that is not a reason to enforce the contract. Also, it is not clear that Wanda was operating in good faith with the second offer. If Wanda knew of her daughter's actions then the second offer was in bad faith. The key factor here is whether Wanda knows of the coercion.

John has Williams Syndrome, a rare genetic disorder that affects a person's cognitive ability resulting in an intellectual disability. One unusual characteristic of Williams Syndrome is that the individuals with it are highly verbal and sociable despite having an intellectual disability. They are often described as having a "cocktail party" personality. John went into a Jewelry Store one day and started talking with the clerks in a cheerful manner. One of the clerks, began to show John several expensive watches and eventually sold John a watch on credit that cost $3,000. John, however, was just interested in talking with the clerk. John did not understand that the watch was very expensive and that he could not afford it. John agreed to the purchase just to please the clerk, who he thought was a friend. John took the watch with him but broke it shortly thereafter. Assume that John's relatives sue the Jewelry Store on John's behalf to rescind the contract. Which of the following is the most likely rationale if the court finds in favor of the Jewelry Store? (A) John understood the consequences of an action but cannot help himself from acting in an irrational manner. (B) John had sufficient mental ability to understand in a reasonable manner the nature and consequences of the transaction. (C) The Jewelry Store did not know of John's intellectual disability, and the contract was on fair terms. (D) John took immediate possession of the goods—asserting control—and therefore, the Statute of Frauds is satisfied.

(C) The Jewelry Store did not know of John's intellectual disability and the contract was on fair terms. Rationale: This problem tests on the defense of mental incapacity. John can assert a defense to contract formation under Restatement (Second) of Contracts §15(1) because he is "unable to understand in a reasonable manner the nature and consequences of the transaction." However, Jewelry Store can counter this using the limitation on the defense stated in Restatement (Second) of Contracts §15(2). Restatement (Second) of Contracts §15 (2) states, "Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires." Since John's condition makes him appear to be sociable, it is plausible that Jewelry Store was unaware that he had an intellectual disability. The contract was on fair terms and the watch cannot be returned since it was broken. Consequently, it would appear to be unjust to unwind the contract. Answer A is incorrect. It describes the minority rule volitional test as to mental incapacity. If this were true, the court would likely not rule in Jewelry Store's favor so long as Jewelry Store had knowledge of the John's incapacity. Answer B is incorrect since it does not correctly reflect the facts in the problem and, again, would favor John—not the Jewelry Store. Answer D brings up the tangential issue of the Statute of Frauds. Here, there appears to be an oral agreement. At least, the facts do not indicate that there was any written agreement. Since the transaction involves the sale of goods of $500 or more, UCC §2-201 requires a signed writing by the party against whom enforcement is sought or an exception. Even so, an oral agreement would be valid under UCC §2-201(3)(c) "for goods for which payment has been made and accepted or which have been received and accepted." In any case, the Statue of Frauds is not the main issue and would not be the principal rational for enforcing the contract against John.

Hank is 15 years old but looks older. Most people assume Hank is over 18 years old—the age of majority in his jurisdiction. Although his parents were planning to pay for college when Hank graduated high school, Hank thought that he might skip college and become a professional pilot. Hank entered into a contract with Aviation School for a series of pilot training lessons that would lead to a commercial license. The school never asked Hank his age, and Hank never told them how old he was. The total price that Hank was obligated to pay under the contract was $10,000. Under the terms of the agreement, Hank was obligated to pay $500 a month until the balance was paid off. Hank took a month's worth of lessons. However, before the first $500 was due, Hank decided that being a pilot was not for him. Which of the following best describes the enforceability of the agreement between Hank and Aviation School? (A) Aviation School can enforce the contract because Hank's appearance deceived Aviation School. (B) Either party may rescind the contract. (C) The contract is voidable only by Hank. (D) The contract is enforceable because training for a job is presumptively considered a necessity.

(C) The contract is voidable only by Hank. Rationale: Issue: May Hank rescind the contract because he was under the age of majority when he entered into the agreement? Rule: A minor's contracts are voidable by the minor at any time before reaching the age of majority or within a reasonable time after becoming an adult. A minor who disaffirms a contract is entitled to recover all of the consideration he has conferred and, in return, the minor is expected to restore as much of the consideration as remains in the minor's possession. Contracts that are not subject to a minor's incapacity defense include those for necessities and when the minor misrepresents his age. Analysis: Applying the incapacity rule regarding minors should be straightforward. Hank is under the age of majority. It is the minor—not the adult—who has the right to rescind. For these reasons, Choice C is correct, and Choice B is incorrect. Choice A is incorrect since nothing in the facts suggests that Hank told Aviation School he was of the age of majority. One exception to the ability of a minor to disavow a contract is if the minor misrepresents his age. The fact that Hank looks older does not mean that he intentionally tried to deceive the Aviation School into thinking he was older. Choice D is also incorrect. Necessities traditionally include food, clothing, shelter, and medical services. Education is not presumptively considered a necessity. There are some states that have statutes where educational loans cannot be rescinded; however, that depends on the jurisdiction, such a statute is not referred to in the facts. Even if education were considered a necessity, a contracts subject to the necessities exception requires that the minor have no other source for the necessity. Here, Hank's parents are willing to pay for his college education; therefore, Hank has another source.

Seller inherited a piece of farmland that he wanted to sell. A prior listing for the property stated that the property had "40 acres of tillable land and 70 acres of pastureland." Seller advertised the property for sale using this information. Buyer and Seller negotiated a price for the property that was based on the fair market value of property having this amount of tillable land and pastureland. Buyer and Seller entered into a signed contract reflecting all the details stated. However, Seller was honestly mistaken, and the information in the listing was incorrect. In fact, the property had only 18 acres of tillable land and 40 acres of pastureland, making the property worth less than half of what Buyer paid for it. Upon discovering this discrepancy, Buyer seeks to rescind the agreement based on a theory of misrepresentation. Which of the following is the most likely result at court? (A) Seller wins, because of the legal principle of caveat emptor. (B) Seller wins, because Seller made an honest mistake. (C) Buyer wins, because Seller's statement was fraudulent. (D) Buyer wins, because Seller made a material misrepresentation.

(D) Buyer wins, because Seller made a material misrepresentation. Rationale: Issue: This problem tests on the difference between a material and fraudulent misrepresentation. Rule: Restatement (Second) of Contracts §§ 162 & 164 Analysis: Choice A is an unlikely result. While caveat emptor (buyer beware) is a traditional legal principle guiding transactions, a more modern approach incorporates representations about material facts into a contract. Restatement (Second) of Contracts § 164 provides that "If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient." Under these facts, Buyer was justified in relying on a contract term that defined the property as having a certain amount of tillable land and pastureland. The price was negotiated based on these statements. Consequently, the historical rule of caveat emptor is inapplicable. Under the Restatement (Second) of Contracts § 162, there are two types of misrepresentation: fraudulent misrepresentation where the maker knows or should have known that the statement was not true; and material misrepresentation. Here, the misrepresentation is not fraudulent because Seller was just mistaken. Seller did not know his statement was not in accord with the facts. Consequently, Choice C is incorrect because Seller's statement is not fraudulent. Choice D is correct because the statement is a material misrepresentation. According to Restatement (Second) of Contracts § 162(2), "A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so." Here, the price was negotiated based on the tillable acres and amount of pastureland. Under the Restatement, a contract can be voided as a misrepresentation even though the maker was honestly mistaken, provided that the misrepresentation is material. A reasonable person would not have entered into the agreement since the fair market value is actually worth half of what Buyer paid. Therefore, the misrepresentation is material.

Company relies on software that is written in an obscure programming language. If the software stops working, Company risks going out of business. The software, in fact, stops working. Company contacts Programmer, an independent contractor who is one of the few programmers with experience to fix this software. Programmer is willing to take on the job but demands a premium because he will have to cancel his planned vacation. Programmer offers to fix the software at a cost to the company of $100,000, which is roughly 50% higher than the usual rate. Company objects to the price, and Programmer says, "Take it or leave it." Company accepts Programmer's offer because Company cannot find another programmer who is willing to fix the software immediately. Programmer fixes the software and submits a bill for $100,000. If Company later tries to avoid paying the higher fee, will it be successful? (A) Yes, because Programmer's improper threat resulted in duress (B) Yes, because Company had no reasonable alternative (C) Yes, because the contract was procedurally and substantively unconscionable (D) No, because Programmer performed the services required under the contract

(D) No, because Programmer performed the services required under the contract Rationale: Issue: This problem tests on the elements of duress and unconscionability. Rule: Duress. Restatement (Second) of Contracts § 175(1) provides "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." Unconscionability. A court may refuse to enforce a contract or term on a finding that it is procedurally and substantively unconscionable. Procedural unconscionability may be demonstrated by (1) gross inequality in bargaining power, or (2) unfair surprise. Substantive unconscionability may be shown by: (1) overly harsh allocation of risks not justified by the circumstances, or (2) great price disparity. Analysis: Under these facts, the defenses of duress and unconscionability are not available to Company. Choice D is correct. Choices A and B speak to elements of the duress defense. As to Choice A, nothing suggests that Programmer has engaged in an improper threat—one of the basic elements of duress. (See Restatement (Second) of Contracts § 176.) Programmer is demanding a premium because he will need to cancel his vacation. Programmer is an independent contractor and can charge what he likes for his services. These actions by Programmer are not threats to commit a tort or a crime or any of the other types of improper threats listed by the Restatement (Second) of Contracts § 176(1). Additionally, Programmer does not owe any duty to Company, so there is no bad faith being exerted. Other types of improper threats under Restatement (Second) of Contracts § 176(2) —a use of power for illegitimate ends—is not suggested by the facts. This is more a case where Programmer has some leverage because of market forces—i.e., the unavailability of other programmers. Also, it cannot be said that the exchange is unfair. Programmer is asking for a premium on his time because he was planning to go on vacation. This is analogous to a worker getting overtime pay of time and a half. Therefore, Choice A is incorrect. As to Choice B, Company may go out of business if it does not hire Programmer but the lack of alternatives alone does not constitute duress. There also must be an improper threat. As noted above, that element is missing; therefore, Choice B is incorrect. Choice C is also incorrect. Programmer's "take it or leave it" offer alone does not make the contract unconscionable. Company knows or should know that it relies on a program written in an obscure programming language and that there are few programmers who know how to program in that language. Consequently, it should come as no surprise that hiring such a programmer may be expensive. Furthermore, it is unlikely that the $100,000 charge would be considered substantively unconscionable. The charge is 50% more than normal. However, Programmer is giving up his vacation. In essence, Programmer is charging a reasonable rate of time and half for his services. That sort of charge does not shock the conscience to the level needed to be substantively unconscionable.

Connie is an independent truck driver. Dan is a shipping agent. Dan wants Connie to move cargo a distance of 2,000 miles, beginning the trip that same day. Connie responds, 'I can do that, but my trucking operator's license expired yesterday, and I have not yet renewed it.' Driving a commercial truck under an expired license subjects the driver to a civil fine of $50, but is not a criminal violation. In response to Connie, Dan shrugs his shoulders. Then by signed writing, the parties form a contract. Before she begins loading the cargo, Connie learns that she can take another hauling job and earn more money. Connie repudiates her contract with Dan. Dan sues Connie for breach of contract. Connie asserts the defense that the contract was void because of illegality. Will Connie be successful in voiding the contract with Dan based on illegality? (A) Yes, because a contract, the performance of which breaks the law, is presumptively void (B) Yes, because both parties would have been complicit in a crime (C) No, because Dan—the wronged party—would not have committed any illegal act (D) No, because the policy of enforcing contracts is more important than the public policy behind the licensing law that would have been broken

(D) No, because the policy of enforcing contracts is more important than the public policy behind the licensing law that would have been broken Rationale: Issue: The issue is whether Connie's violation of the licensing laws in performing a contract is the type of illegality that provides a valid defense to breach of the contract. Rule: A contract or a provision of a contract may be void or voidable if the subject matter or consideration of the contract is either illegal or against an established public policy at the time of contract formation. Analysis: A contract involving the commission of a crime (such as a contract to murder another party) is clearly illegal. Such contracts are void as a matter of public policy. Some contracts, however, involve an act that may break a law in the performance of the contract. However, courts may still enforce the contract by balancing the interest of enforcing the contract against the strength of the public policy. The facts here are similar to Illustration #4 of Restatement (Second) of Contracts § 178: "A and B make an agreement for the sale of goods for $10,000, in which A promises to deliver the goods in his own truck at a designated time and place. A municipal parking ordinance makes unloading of a truck at that time and place an offense punishable by a fine of up to $50. A delivers the goods to B as provided. Because the public policy manifested by the ordinance is not sufficiently substantial to outweigh the interest in the enforcement of B's promise, enforcement of his promise is not precluded on grounds of public policy." Choice D is the correct answer because a court would likely find that the violation of the licensing law with a fine of only $50 is relatively minor when compared to the breach of a shipping contract worth $50,000. Another reason for not allowing the defense is that the party who would be violating the law (Connie) should not be able to profit from that illegal conduct by using it as a shield from contractual liability. Choice A overstates the common law rule regarding the defense of public policy. Not all contracts that break a law are rendered void. Choice B misstates the facts since the violation of this licensing law is not a crime, as stated in the facts. Choice C has the right conclusion but the wrong rationale. A contract could be void for public policy even though one of the parties does not commit an illegal act.

Minor was 17 years old and wanted to purchase a custom-made dress for her high school prom—the last big dance of the year. Minor wanted a special dress since the date of the dance coincided with her birthday when she would turn 18 years old. Minor went to Dressmaker and told her what she wanted to do and why. Together they looked over design magazines until they found a dress that Minor liked. Dressmaker took Minor's measurements and they then entered into an oral agreement where in return for $800 Dressmaker would make the dress Minor had chosen and have it ready a week before the dance. Dressmaker made the dress according to the terms of the agreement and promptly informed Minor that the dress was ready. Minor told Dressmaker that she changed her mind about going to the dance since all of her classmates "are so immature." Minor refused to pay for the dress. Dressmaker cannot sell the dress to anyone else because it was made for Minor's measurements. If Dressmaker were to sue Minor for the cost of the dress, which of the following best states the legal outcome and rationale. (A) Dressmaker would win because Minor only disaffirmed the contract after turning 18 years old. (B) Dressmaker would win under the "Unique Goods" exception since the dress could not be sold to anyone else. (C) Minor would win because she has a reasonable time to disaffirm the contract even after turning 18 years old. (D) The contract is voidable by Minor because she was a minor at the time of contract formation.

(D) The contract is voidable by Minor because she was a minor at the time of contract formation. Rationale: This problem tests the Minor Incapacity rule. Answer A is incorrect on the facts and the law. As to the facts, Minor disaffirmed the contract before the dance occurred. Answer A misstates the facts since she was still 17 years old at the time that she disaffirmed the contract. Moreover, a minor has a reasonable time after reaching the age of majority to disaffirm a contract. Even if Minor had just turned 18 years old when she disaffirmed, Answer A could not be a correct answer since it misstates the law. Answer B is also incorrect. The answer speaks to a "Unique Goods" exception. No such exception exists for the incapacity rule. There is a "Specially Manufactured Goods" exception to the statute of frauds. If Minor were claiming that she is not liable for performance because the contract was oral, then Dressmaker could use that exception under the UCC to satisfy the writing requirement. However, Minor would still win the dispute. Answer C states the right conclusion for the wrong reason. It is a true statement of the law that a minor has a reasonable time after reaching the age of majority to disaffirm the contract; however, that is not relevant to this inquiry since Minor was 17 years old at the time that she disaffirmed the contract. Answer D is the best choice. Since Minor was a minor at the time of contract formation, she has the choice of disaffirming the contract. This is so even though the dress was unique. Dressmaker took on the risk of entering into a contract with minor. Since there is no evidence of Minor lying about her age or willfully destroying the property, Minor is not liable to Dressmaker.

A husband enters into an agreement with his neighbor on the following terms: (1) the husband will pay the neighbor $25,000, (2) the neighbor will kill the husband's wife, and (3) the husband will then pay the neighbor an additional $75,000 upon the successful killing of the wife. The husband pays the neighbor the initial $25,000. Although the neighbor makes a good-faith attempt to kill the husband's wife, the neighbor fails to do so. The husband then demands a return of his $25,000 from the neighbor. With respect to the husband's demand, among the following judicial statements, which is most suitable? (A) The husband recovers the $25,000 because the neighbor would otherwise enjoy an 'unjust enrichment.' (B) The husband recovers the $25,000 because the neighbor materially breached the agreement. (C) The husband does not recover the $25,000 because the neighbor made a good faith attempt to perform. (D) The husband does not recover the $25,000 because these parties are in pari delicto.

(D) The husband does not recover the $25,000 because these parties are in pari delicto Rationale: Issue: To what extent would public policy result in the non-enforcement of an agreement? May a party seek restitution of money paid under such an agreement? Rule: If a contract is voided by public policy, a party generally has no claim in restitution for performance that he has rendered. Analysis: Courts will not enforce an illegal contract. Here, a contract for murder would obviously not be enforced. For example, the neighbor could not sue the husband for breach of contract if the neighbor was successful in killing the husband's wife but the husband did not pay the additional $75,000. Similarly, criminals who enter into an agreement cannot expect to maintain a suit for restitution of money paid. Under the common law principle of in pari delicto (Latin for "in equal fault") courts leave the parties without a restitutionary remedy for illegal contracts. Restitution is an equitable concept and it would not further the goals of equity to reward a party with restitution when both parties acted illegally. Choice D is the best answer. Choices A, B, and C all suggest that there is an enforceable agreement, which is incorrect given the illegality of the contract.