Chapter 7 | AVOIDING ENFORCEMENT: INCAPACITY, BARGAINING MISCONDUCT, UNCONSCIONABILITY, AND PUBLIC POLICY

The Krullen Heartless Appliance Store is located in a poor neighborhood. Sam Shyster is the sales manager. He puts a sign in the window reading, "New Dishwashers — only $19." Fred Farkus, fourth-grade dropout, sees the sign and asks, "Is it really $19?" Sam says, "Yeah — take a look at this contract. See? $19!" What Sam doesn't point out is that it's $19 a month for ten years, chargeable to a credit card. This is in small print buried toward the bottom of a 10-page contract. Sam tells Fred to sign, and he does, although he doesn't really understand the contract since it's all words and no pictures. The actual cost of the dishwasher under the contract, expressed as a present value, is $1,900; the same model is on sale nearby at an all-cash price of $600. Fred soon goes into default, and Sam not only seeks to repossess the dishwasher but also to collect the balance owed. A) If you represent Fred, what defense should you assert on his behalf? B) Will the defense you assert in (A) be successful.

(A) That the contract is unconscionable. (B) Yes. A consumer contract will be held void for unconscionability under UCC § 2-302 if it is unduly one-sided under the circumstances existing at the time of signing. The fact that the party opposing a finding of unconscionability concealed the true nature of the contract from the other party will strongly militate towards a finding of unconscionability. So will the weaker party's lack of sophistication or education, as will the extreme substantive unfairness of the terms. Here, all of these factors work in favor of a finding of unconscionability, so that's what the court will probably do. As a remedy, the court will then probably either order the contract rescinded (in which case Fred would give back the used dishwasher and be relieved of the need to make further payments), or will "rewrite" the contract so that the payments due will approximate the dishwasher's fair value.

(a) If a minor disaffirms a contract, does he have to return whatever he received under the contract? (b) If the consideration received is damaged, must the minor make "restitution" by returning the consideration and paying the difference in value?

(a) Yes, he must return the consideration if he still possesses it. (b) No, with an exception in some jurisdictions. If the consideration is damaged, the minor is not responsible for the difference in value—unless he committed an intentional tort. On this last rule (regarding the effect of whether the minor's tort was intentional), some jurisdictions differ. EXAMPLES: Let's say Eddie, age 16, buys a used pickup truck from a dealer for $5,000, signing a contract in which he agrees to pay $100 a month. Before he's made even one payment, he changes his mind and decides he doesn't want the truck. He disaffirms the contract. Because he still has the pickup, he has to return it. But now, let's say instead that Eddie unintentionally wrecks the pickup, and that's why he wants to disaffirm the contract. Under the traditional view, Eddie still only has to return the pickup even though it has lost value to the seller. Eddie does not have to reimburse the difference in value to the seller. However, in some jurisdictions, the outcome changes if Eddie intentionally destroyed the pickup, since Eddie committed an intentional tort.

There are two basic ways a contract can be illegal (and thus generally unenforceable). What are they?

1. The formation or performance involves criminal or tortious conduct; or 2. The contract's subject matter is contrary to public policy (e.g., agreements to defraud a third party or obstruct justice). NOTE: Distinguish illegal contracts from other contract-related instances involving illegality. For instance, if an offer contemplates conduct that, at the time of the offer, is illegal, the offer is never valid. If a contract becomes illegal after it's formed, the duty to perform under the contract is "discharged."

Lafayette operates a fruit stand, and Habel is his customer. When Habel asks to purchase a peach, Lafayette explains that he has but one peach, ten days old. "It looks all right and it's probably good," Lafayette says, "but the state law against distribution of potentially poisonous foods prevents me from selling you any fruit that is more than three days old, unless it is refrigerated, which this peach is not. And, who knows—maybe it's not safe." Habel responds, "I'll take my chances," and the parties contract for the sale of the peach, at a price of $1. Immediately after forming the contract, before either party has performed, Lafayette decides not to sell Habel the peach and refuses to do so. To what recovery is Habel entitled? A. None B. The fair market value of the peach C. $1 D. The customary charge in the community for a peach

A ANALYSIS. Follow the yellow brick road and you'll stop at 4(b), but you'll recognize that Lafayette has not enjoyed any unjust enrichment. So, Habel recovers nothing. A food safety regulation, certainly, reflects public policy. The contract is illegal, wherefore it is void and unenforceable. Habel has no action for breach of contract. Further, he has not performed under the contract. He has parted with no value in money, property, labor, or service, meaning that Lafayette has enjoyed no unjust enrichment. He is entitled to no recovery at all. He recovers nothing—nada, rien, nusquam, zilch—which means A is right.

In the context of contracts, what is the rule for the defense of "duress"?

A contract is voidable by the victim if (1) a party was induced to enter into the contract (2) by an improper threat made by the other party, and (3) the victim has no reasonable alternative. As to element #2, Rest. 2d §176 defines an improper threat as one of the following: "(a) what is threatened is a crime or a tort ... , (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, or (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient." NOTE: Improper threats break into two broad categories—physical duress (threats to a person's body) and economic duress (threats to a person's property or well-being). Physical duress makes a contract void as a matter of public policy. Economic duress makes a contract voidable at the option of the victim. Rest. 2d §§175-76.

Wicked Witch corners Dorothy and her little dog, Toto, behind the stacks in the public library. Witch snatches Toto and says to Dorothy, "Sign this contract promising to sell me the ruby slippers for $100, or you'll never see Toto alive again." Witch's fingers close ominously around Toto's throat as she says this. Toto whimpers. Dorothy signs. A) Dorothy reneges, and Witch sues to enforce the contract. What result? B) Before Dorothy hands over the slippers, Witch changes her mind, says, "Forget it," and hands Toto back to Dorothy. Dorothy would actually rather have the $100 than the slippers. Will a court enforce the contract on her behalf? (Ignore the issue of whether the appropriate remedy is an order of specific performance or a damages award.)

A) Dorothy can avoid the contract due to duress. The defense of duress is available whenever the other party makes a threat or wrongful act that overcomes the free will of the defendant. When the defense is available, the party asserting it is discharged from the contract. B) A contract entered into under duress is voidable only at the option of the wronged party, not at the option of the wrongdoer.

Gail Ible meets with her long-time stockbroker, Bully Bear, for some investment advice. Bully advises Gail to invest $2,000 in a local biotechnology company. Bully knows, but carelessly fails to mention, that the president of the company was just indicted on fraud charges and that no successor has yet been picked. (The news is not yet public — Bully knows the info through his contacts at the company.) Gail signs a contract to buy the stock through Bully's firm. After the news becomes public, the stock price falls by 50%. Gail sues Bully for contract damages based on misrepresentation. A) Will the fact that Bully's misstatement was negligent rather than intentional make a difference in the outcome? B) If you're representing Bully's firm, what defense will represent your best shot at getting him off? C) Will the defense you asserted in part (B) work?

A) No. A contract action for misrepresentation can be based on a negligent (or even non-negligent but incorrect) misrepresentation of a matter of material fact — unlike a tort action for fraud or deceit, there is no particular mental-state element in a contract misrepresentation action. B) That Bully never made any affirmative misrepresentation; he merely failed to make a disclosure. C) Probably not. It's true that as a general rule, a party's failure to make a disclosure won't be treated as equivalent of an affirmative misstatement, and therefore won't serve as the basis for a misrepresentation action. But there are a number of exceptions to this general rule. On of those exceptions is that if there is a relation of "trust and confidence" between the plaintiff and the defendant, the defendant's failure to make disclosure will be treated as the equivalent of an assertion. Since the facts tell us that Gail has used Bully for a long time, and has come to him for advice, a court would probably hold that the requisite relation of trust and confidence existed between them.

Gerry Atric, an 89-year-old man, had lived in his house for 45 years. He had lived alone since the death of his wife some years ago. Gerry had always been stubborn, impatient, and difficult, and this had become worse as he aged. He hated asking anyone for help, and he rarely sought or listened to advice. In recent months it had become clear to his daughter that he was no longer coping with the house, which had started to become dirty and dilapidated. In addition, he seemed not to be managing his affairs well and had become forgetful and sometimes confused. Gerry's daughter urged him to sell the house and to move to an assisted living complex. Gerry resisted at first, but finally decided to do that. Without consulting or seeking advice from his daughter or anyone else, he advertised the house for sale, intending to sell it himself to save the real estate agent's commission. Gerry was confident that he knew exactly how much the house was worth, but he was wrong. His information about the market was years out of date and he did not do any research into current prices. He therefore priced the house at about 75 percent of its market value and advertised it for sale. Holmes Flipper, a property speculator, visited the house in response to the advertisement and realized that it was underpriced. Holmes therefore made an immediate offer to buy the house for its full asking price, which Gerry accepted. The parties' interactions during the transaction were quite minimal, consisting of a couple of short comments. The only impression that Holmes gained about Gerry was that he was a rather unfriendly elderly man of few words. After the contract of sale had been signed, Gerry told his daughter about it. She was appalled because she knew that he had let the house go for a patently inadequate price. She gathered data of recent sales of comparative properties, which she showed to him, finally convincing him that he had sold too cheaply. Gerry now wishes to rescind the sale. Does he have grounds to do so?

An adult person is presumed to be competent to contract. If Gerry seeks to avoid the contract on the basis of incapacity, he must prove that he was mentally incompetent at the time of entering the contract. The facts concerning Gerry's mental capacity are vague but suggestive. It appears that he has certain character traits, such as stubbornness, resistance to advice, and impatience, that are likely to place him at risk of entering a disadvantageous contract. These flaws in his nature may indicate that he probably lacks skill in contracting but do not, on their own, constitute the kind of mental incompetence that would give rise to a claim for avoidance. The facts hint at some possible recent deterioration of his mental capacity, but it is not clear if this had reached the level required for avoidance on the ground of incapacity. Evidence of laypersons who observed Gerry's conduct during and immediately before and after the transaction is relevant to his incapacity. Holmes apparently did not detect anything untoward in Gerry's behavior during the transaction, but Gerry's daughter has some evidence to offer about his conduct before the transaction. This anecdotal lay testimony alone is unlikely to establish a finding of incompetence without supporting expert testimony by a psychiatrist who has examined him, diagnosed his condition, and can convince the factfinder that it is serious enough to have impaired his ability to contract under the applicable test. It does not sound as if Gerry was so impaired as to satisfy the cognitive test—that he could not understand the nature and consequences of the transaction. However, he might satisfy the motivational standard—that his mental defect impaired his ability to transact in a reasonable manner. The motivational test is satisfied by a much less serious degree of infirmity, but Restatement, Second, §15(1) more strongly protects the reasonable reliance interest of the other party by precluding avoidance for motivational disorders unless the other party had reason to know of the incapacitated person's inability to conduct the transaction rationally. This is an objective test, based on notice rather than actual knowledge. Although Holmes did not observe any conduct that might have alerted him to Gerry's possible mental incapacity, the fact that an elderly man was selling his house at a bargain price may be sufficient to place Holmes on notice that Gerry was suffering from some mental infirmity. EXAMPLE: In Heights Realty Ltd. v. Phillips, 749 P.2d 77 (N.M. 1988), an 84-year-old woman entered into an exclusive listing agreement with a real estate agent, and then refused to sell the property when the agent found a willing and able buyer. Although there was nothing unfair or extraordinary about the contract terms, and the agent testified that the seller was "sharp as a tack" during their negotiations, the seller had been in a gradual and subtle mental decline for some years. Her deteriorating mental condition was described by a number of family members, who had noticed erratic and confused behavior, memory lapses, and mismanagement of her affairs. A psychiatrist testified that although it could not be stated conclusively that she was mentally incompetent, this could be asserted as a matter of medical probability. He believed that she probably realized that she was contracting for the purpose of selling her property but could not have understood the detailed terms of her contract. During the course of the suit, she was in fact adjudged incompetent and was represented by a conservator. The court, applying the stricter cognitive test followed in the jurisdiction, found that the combination of psychiatric and anecdotal evidence was sufficient to satisfy the seller's burden of establishing mental incompetence under that standard.

Peter, age twenty-two, is a skilled auto body worker. Paul, age seventeen, is skilled in piano repair. Peter and Paul agree that Peter will paint Paul's car and Paul will repair Peter's piano. Peter then paints Paul's car, but Paul does not repair Peter's piano. Peter sues Paul for breach, whereupon Paul disaffirms the contract. The legal result will be that: I) Paul must pay Peter the fair market value of the paint job with which Peter provided him. II) Peter must pay Paul the fair market value of the piano repair Paul failed to provide him. A. I only B. II only C. I and II D. Neither I nor II

Answer: D Peter, an adult, forms a contract with Paul, a minor. Peter performs under the contract, but Paul does not. Paul then disaffirms the contract and thus puts it to an end. Because Paul didn't perform, Peter received nothing from him. Consequently, Peter need make no restitution to Paul. Paul retains the value of his painted car, but that represents a service. Because Paul is a minor, he need make no restitution for it. Fair or unfair, right or wrong, Paul has a newly painted car, and he need pay nothing for it. D is right.

What is the general rule and what are its exceptions regarding minor incapacity?

As a general rule, such contracts are voidable at the minor's option before the minor reaches the age of majority or within a reasonable time afterward. The act of voiding such contracts is called "disaffirming" them. EXCEPTIONS: The following are exceptions to the minor incapacity rule: 1. Necessities. Minors are liable for so-called "necessities." While a minor can disaffirm contracts, he'll be liable for the value (not necessarily the price) of any necessities. These include food, shelter, clothing, and medical expenses. The nature of necessities varies depending on the minor's circumstances; if he's not emancipated and lives at home with his parents, clearly shelter isn't a necessity. 2. Torts. The minor is normally liable if the minor (a) willfully misrepresented his age, or (b) intentionally harmed the property that is the subject matter of the agreement (e.g., destroyed the property). Jurisdictions are split on this rule. 3. Statutory Exceptions. Minors can't avoid contractual obligations imposed by law—e.g., student loans and child support for the minor's child.

(SA) Bonna Petite, a precocious 17-year-old with an appetite for haute cuisine, decided to eat lunch at Trés Cher, the most elegant and expensive restaurant in town. She put on a business suit and groomed herself meticulously, succeeding in making herself look like a young executive of around 25 years of age. After eating a magnificent lunch, Bonna informed waiter that she was a minor. She disaffirmed the contract and refused to pay for the lunch. The age of majority in Bonna's state is 18. Can she get away with this?

As a minor, Bonna has the right to disaffirm her contract. The general rule is that she must restore any benefits that she still retains at the time of disaffirmance, but is not accountable for the value of property that has been consumed or dissipated. As she has consumed all the food, there is nothing left for her to restore. The general rule places the burden on Trés Cher to inquire about the age of its youthful-looking customers, and it bears the risk of failing to do so, even if Bonna looked older than she was. On the other hand, Bonna has behaved very badly, and the law should not encourage this kind of thing. There are a few possibilities for holding Bonna accountable for her conduct. (1) Trés Cher could argue that the meal was a necessary. Food required for sustenance could qualify as a necessary, but it is harder to so classify a sumptuous meal at a fancy restaurant, especially where the minor lives with her parents and has food available at home. (2) Alternatively, Trés Cher could argue that Bonna should be held liable in tort for fraud, which she may have committed, either by deliberately misrepresenting her age or by entering into a contract with the intention to breach it. A minor can be held responsible for tortious conduct and a finding of fraud could make Bonna liable for the loss caused by her misrepresentation. The difficulty with a fraud cause of action is that Bonna's dressing up to look older is probably not enough to constitute a misrepresentation of the majority because courts usually require that the minor lies affirmatively about her age. A cause of action based on Bonna's deliberate intent, at the time of contracting, not to perform her obligations under the contract might be a promising cause of action if Trés Cher is able to prove that state of mind. In the absence of a finding of liability for a necessary or in tort, the rule that a minor is responsible to restore only the existing benefit received under the contract leaves Trés Cher with no remedy. As noted in Example 1a, some courts have moved away from that absolute rule and do recognize that the minor has some liability for restitution of the value of a consumed benefit: restoration of the value of any benefit received from the use of the property, or a setoff of the major's loss against any restitution due to the minor, or a money judgment against the minor. There is a stronger incentive for adopting this approach where, as here, the minor was willful in causing the major party's loss. Note, however, that the remedy of offsetting Trés Cher's loss against its restitutionary obligation to Bonna would not work in this case because Bonna gave nothing to the restaurant and there is no restitution owed to her against which her obligation could be offset. As a matter of policy, a rule that confines the major party's recovery to the minor's existing benefit most strongly advances the goal of protecting the minor against improvident conduct that creates liability. However, a rule that makes a minor fully accountable for the value of the benefit, even if consumed or lost, allows the court to sanction the minor's irresponsible or antisocial conduct. A rule that makes the minor accountable for a consumed or lost benefit, but only to the extent of an offset against the major party's restitutionary obligation, is a compromise solution that tries to accommodate both these goals.

Vincent, a married man, owns Blackacre. Fern makes a signed written offer to buy it for $1 million, and Vincent rejects the offer, both parties acting honestly in all respects. Diana is Fern's daughter. She badly wishes that her mother own Blackacre. Without Fern's knowledge, Diana approaches Vincent and says, "If my mother makes another offer for Blackacre, you'll accept it. If you don't, I'll tell your wife about the affair we had." Fern again presents Vincent with her written offer to buy Blackacre for $1 million. Because of Diana's threat, Vincent accepts and signs the writing. Is the resulting contract voidable at Vincent's option? A. Yes, because Vincent's assent followed from Diana's improper threat B. Yes, if Fern had a basis on which to know the substance of Diana's conversation with Vincent C. Yes, if Fern knew of Diana's affair with Vincent D. No, if after forming the contract Fern acted in reasonable reliance on it, to her detriment

B ANALYSIS. If B and C form a contract, B having assented to its terms because a third party, A, subjected him to an improper threat, then (1) if C knows or has reason to know of A's threat, the contract is voidable at B's option, and (2) if C did not know of A's threat and C has relied to his detriment on the contract, then the contract is not voidable; B must honor it. In this case, Fern is Party C (the offeror), Vincent is Party B (the victim), and Diana is Party A (the wrongdoer). In order that the contract be declared voidable, it takes only the single showing (a) that Fern knew or should have known what Diana did to render the contract voidable, or (b) that Fern did not rely on the contract to her detriment. Conversely, it takes two showings to render the contract fully enforceable: (1) that Fern did not know or have reason to know what Diana did, and (2) that Fern reasonably relied on the contract to her detriment. The story tells us nothing as to whether Fern did or did not know of Diana's threat to Vincent. Consequently, a correct answer choice, be it "yes" or "no," must provide us with facts on that subject. A fails to do that; reading A we still do not know the state of Fern's knowledge regarding Diana's threat to Vincent, and so we cannot say its "yes" answer is correct. A is wrong. C fails in the same way. It posits that Fern knew of the affair, but says nothing as to what Fern knew of Diana's threat. Without that information, we still cannot answer "yes" or "no." That leaves B and D. D posits that Fern reasonably relied on the contract. That alone is not sufficient to render the contract enforceable. In order that D be correct, it would have to posit also that Fern neither knew nor had reason to know of Diana's threat to Vincent. But D is silent on that point, and so we cannot answer the question "yes" or "no." D is wrong. B posits that Fern "had a basis" on which to know "the substance of Diana's conversation with Vincent." Those words mean that Fern had reason to know of Diana's threat. That additional information allows us to conclude that B is right.

As Bella emerges from TarMart Store, Sidney approaches and offers her a membership in "Consumer's Club." He explains that Consumer's Club members are entitled to enormous discounts on an equally enormous number of goods. Bella, wearing a large hearing aid, responds, "I don't understand." Sidney says, "Take from your bag one item that you just purchased in TarMart." Bella pulls out a package of twelve Snow-White soap bars, marked $10.95. Sidney then opens the Consumer's Club catalog to show the same package of twelve Snow-White soap bars priced at $6.95. As Sidney reaches into Bella's grocery bag for another item, Bella says, "I don't think I'm interested." Sidney responds, "But you should be—it's good for you and your family. Think of all the money you'll save—money that you can put toward your family's other needs!" Bella asks, "What'd you say? I don't hear so well." Sidney repeats his pitch and again opens his catalog. "I'm not sure I understand how the club works," Bella says, "and I really have to go." "Well, just sign right here at the bottom of this page," answers Sidney, "and you can go with the happy knowledge that you belong to Consumer Club." Bella, worn down and running late, says, "All right, where do I sign?" Sidney points. After glancing at the document's tiny print, Bella signs. Sidney hurriedly gives Bella a copy of the writing, and departs. Unbeknownst to Bella, the writing's terms provide that: 1) Consumer Club's catalog prices are subject to change without notice. 2) Members must pay a $200 membership fee within thirty days of signing, and suffer a $25 penalty for every month or partial month for which such payment is late. 3) Members who order less than $1,000 worth of merchandise from the catalog per year must pay a $300 "failure to purchase" charge. 4) Members must pay an annual renewal fee, which is subject to change without notice. 5) Members not wishing to renew must contact Consumer's Club by signed writing six months before the end of their membership. (The document, however, provides no address or other contact information for Consumer's Club.) 6) Consumer's Club does not send bills or requests for fee or penalty payments, but requires members to keep track of all required fees and send them as outlined in the signed writing. Four years after Bella signs the document, Consumer's Club contacts her and demands payment of $2,000 in membership fees, $1,200 in penalties, and $4,000 in annual "failure to purchase charges," for a total of $7,200. Bella refuses to pay, Consumer's Club brings suit, and Bella's attorney asserts that the contract is unenforceable for the reason that its terms are unconscionable. Beyond the facts already described, Bella's assertion of unconscionability would be most strengthened if she were able to show (1) that she asked Sidney if she could have time to read the document and (2) that Sidney responded, A. "No, but if you choose not to sign today, we might contact you again if you'll provide me with your contact information." B. "Certainly, you may take home a copy of the writing and read it. But if you wish to join Consumer's Club, we'll require that you sign this document as it is; we won't change it in any way." C. "Yes, but our offices have not yet approved any proposed changes to this writing." D. "Yes, but be aware that our fees and charges might increase between now and the time, if ever, that you sign."

B ANALYSIS. None of the four choices concerns the contractual terms themselves. Rather, each adds a fact to the bargaining process, and we should search for that which touches most closely one of the four factors that create unfair bargaining/procedural unconscionability. In D, Sidney tells Bella about one of the writing's terms, to wit, that prices, fees, and charges are subject to change. Arguably, Sidney thus exerts pressure by implicitly encouraging Bella to sign then and there. D reflects some pressure, wherefore D could be right. But maybe one of the other choices beats it. In C, Sidney warns Bella that his offices have not yet approved changes to the writing. On the one hand, that raises the specter of an adhesion contract (where terms are presented as a take-it-or-leave-it proposition), but on the other, it suggests that the offices might have considered proposed changes to the document's terms and would consider any that Bella proposes. C is not outright wrong; neither is it strikingly correct. In A, Sidney does nothing objectionable, but in B he expressly informs Bella that the terms are nonnegotiable—that to join the club, she'll have to sign the document as is. With that, certainly, Sidney presents the document as a take-it-or-leave it proposition, meaning that he proposes a "contract of adhesion." Among the choices, therefore, B touches most closely one of the four factors that create unfair bargaining and so, B is right.

Lafayette operates a fruit stand, and Habel is his customer. When Habel asks to purchase a peach, Lafayette explains that he has but one peach, ten days old. "It looks all right and it's probably good," Lafayette says, "but the state law against distribution of potentially poisonous foods prevents me from selling you any fruit that is more than three days old, unless it is refrigerated, which this peach is not. And, who knows—maybe it's not safe." Habel responds, "I'll take my chances," and the parties contract for the sale of the peach, at a price of $1. Assume that Habel pays Lafayette $1. Lafayette then refuses to hand him the peach and refuses, also, to return the dollar. Habel brings an action against Lafayette. If a court allows Habel to recover, it will award him A. the fair market value of the time devoted to forming the contract with Habel. B. the fair market value of the peach. C. $1. D. the customary charge in the community for a peach.

C ANALYSIS. The contract is illegal, wherefore it is void and hence unenforceable. Habel has no action for breach of contract. Arguably, Habel's participation in the contract violates public policy since he has knowingly purchased and intends to ingest food that is, legally, substandard. If the court should so conclude, then Habel will recover nothing. With its first few words, "If a court . . . ," the question hypothesizes that Habel does recover, and you're asked to identify the appropriate form of recovery. Because the court cannot enforce the contract, it will award restitution for unjust enrichment. Habel will be entitled to have the fair market value of any benefit he has conferred on Lafayette in money, property, labor, or service. In this case, Habel's payment of the $1 purchase price confers on Lafayette a benefit of that same amount (since the fair market value of a dollar is always a dollar). C is right.

As Bella emerges from TarMart Store, Sidney approaches and offers her a membership in "Consumer's Club." He explains that Consumer's Club members are entitled to enormous discounts on an equally enormous number of goods. Bella, wearing a large hearing aid, responds, "I don't understand." Sidney says, "Take from your bag one item that you just purchased in TarMart." Bella pulls out a package of twelve Snow-White soap bars, marked $10.95. Sidney then opens the Consumer's Club catalog to show the same package of twelve Snow-White soap bars priced at $6.95. As Sidney reaches into Bella's grocery bag for another item, Bella says, "I don't think I'm interested." Sidney responds, "But you should be—it's good for you and your family. Think of all the money you'll save—money that you can put toward your family's other needs!" Bella asks, "What'd you say? I don't hear so well." Sidney repeats his pitch and again opens his catalog. "I'm not sure I understand how the club works," Bella says, "and I really have to go." "Well, just sign right here at the bottom of this page," answers Sidney, "and you can go with the happy knowledge that you belong to Consumer Club." Bella, worn down and running late, says, "All right, where do I sign?" Sidney points. After glancing at the document's tiny print, Bella signs. Sidney hurriedly gives Bella a copy of the writing and departs. Unbeknownst to Bella, the writing's terms provide that 1) Consumer Club's catalog prices are subject to change without notice. 2) Members must pay a $200 membership fee within thirty days of signing, and suffer a $25 penalty for every month or partial month for which such payment is late. 3) Members who order less than $1,000 worth of merchandise from the catalog per year must pay a $300 "failure to purchase" charge. 4) Members must pay an annual renewal fee, which is subject to change without notice. 5) Members not wishing to renew must contact Consumer's Club by signed writing six months before their memberships end. (The document, however, provides no address or other contact information for Consumer's Club.) 6) Consumer's Club does not send bills or requests for fee or penalty payments, but requires members to keep track of all required fees and send them as outlined in the signed writing. Four years after Bella signs the document, Consumer's Club contacts her and demands payment of $2,000 in membership fees, $1,200 in penalties, and $4,000 in annual "failure to purchase charges," for a total of $7,200. Bella refuses to pay, Consumer's Club brings suit, and Bella's attorney asserts that the contract is unenforceable for the reason that its terms are unconscionable. In deciding the question of unconscionability, the court should consider evidence tending to show that: (I) Bella's hearing aid was visible to Sidney. (II) The document's writing was printed in very small type. (III) Sidney had once been convicted of criminal mischief. (IV) The terms gave very little to Bella and took much from her. A. I only B. I and III only C. I, II, and IV only D. I, II, III, and IV

C ANALYSIS. The rule of unconscionability requires first that the court find compelling evidence of an unfair bargaining process. So let's see about that: The writing was set forth in very small type, depriving Bella of a meaningful opportunity to read it, and hence to understand it, thus subjecting her to unfair surprise. Option II, therefore, describes evidence relevant to the matter of unfair bargaining process/procedural unconscionability. The correct answer should include II, meaning that A and B are wrong. Sidney subjected Bella to high-pressure sales talk, even after Bella made clear that she was not interested. Bella made plain to Sidney that her hearing was impaired, and her hearing aid was visible to him. That means Sidney had reason to know of her infirmity, wherefore option I makes a true statement. The correct answer must include options I and II, which leaves us, still, with C and D. As for substantive unconscionability, Consumer Club designed its writing on the philosophy of get-the-most-give-the-least, and surely its terms are so abjectly one-sided as to shock the conscience of any (sane) judge. They are in the nature of what we colloquially call a "scam." Option IV, therefore, describes evidence relevant to substantive unconscionability, and the correct answer must include it. We're left, still, with C and D. They differ in that D includes option III and C doesn't. If option III is true, the answer is D. If option III is false, it's C. And—it's false. As to this contract, Sidney's criminal record or other facets of his background are not relevant to unconscionability/unfairness, procedural or substantive. Options I, II, and IV make true statements; III does not. C is right.

Thaddeus, Vore's employee, steals $10,000 from Vore's safe. Vore knows nothing of the theft, but unbeknownst to Thaddeus, Banya witnesses it and shortly thereafter creates, dates, and signs this writing titled "Agreement": Agreement: March 12, 2019; 8:00 a.m. Banya Banes, "Payee," hereby agrees not to report to Vore Volee or to any other person or authority the activities and conduct she witnessed on the part of Thaddeus Thames on the evening of March 11, 2019 between the hours of 6:00 P.M. and 7:00 P.M., in exchange for which the said Thaddeus Thames agrees to pay her $5,000 within 24 hours. Banya approaches Thaddeus, presents him with the writing, and says, "Sign or I'll report you to Vore and to the police. You know very well what I'm talking about." Thaddeus reads the writing and signs it. The parties: A. formed no contract, because Banya did not make her offer in good faith. B. formed no contract because Thaddeus manifested no assent to Banya's offer. C. formed no contract because Banya made only a gratuitous promise. D. formed a contract voidable at Thaddeus's option.

D ANALYSIS. The doctrine of duress provides that when an offeree accepts an offer in response to an offeror's improper threat, the parties form a contract that is voidable at the offeree's (victim's) option. One generally has a right to report another's misconduct to whomever she pleases (unless she is bound, for example, by a professional confidence). But one commits a legal wrong (blackmail) when she offers not to exercise that right and to "keep quiet," demanding value in exchange for her silence. The abuse of such a right constitutes an improper threat, which in turn means the resulting agreement between blackmailer and victim is voidable for duress. Banya has misused her right, precisely as described above (and, therefore, likely committed blackmail). Prevailing legal thought provides that the parties formed a contract voidable by Thaddeus, the victim, for duress. A is wrong for stating that the parties did not form a contract. They did. Further, as to the failure of good faith, Banya, in making her offer, likely committed the crime of blackmail, but that does not mean, exactly, that she made her offer in bad faith. She made it honestly in the sense that (as far as we know) she intended to keep her promise of silence. Further, one who proposes a bargain in bad faith—intending at the outset not to honor her own part of it—does not fail, for that reason, to make an offer. She likely commits a fraud, but her proposition stands nonetheless as an offer. Regarding B, most authorities, including Restatement (Second) §175, would hold that Thaddeus did manifest assent by signing the paper and that he did thereby form a contract. The contract is voidable at Thaddeus's option, but it is a contract nonetheless. C states, once again, that the parties formed no contract and that's wrong. Further, it's wrong to characterize Banya's commitment as a gratuitous promise. One makes a gratuitous promise when she makes it in exchange for nothing. A gratuitous promise is unenforceable because the promisee gives no consideration, meaning the parties form no contract (Chapter 12). That's not this case. In exchange for her promise, Banya took, in exchange, Thaddeus's promise to pay her $5,000. A, B, and C are wrong, so D had better be right. And it is. According to prevailing legal thought, these parties formed a contract, Thaddeus doing so under duress. The contract is therefore voidable at his option. D is right.

State X is selling tickets for a lottery it will conduct on May 2. It announces that on May 1 at 12:00 noon it will cease to sell any tickets. At one minute before noon on that day, May 1, Larry arrives at the ticket sales office and buys two tickets for $50 each. Immediately afterward, the state closes the sales office and ceases to sell tickets. Leaving the office, Larry runs into Lucy, a stranger who has come to the office hoping to buy a lottery ticket. Unbeknownst to Larry, Lucy is a wildly compulsive, uncontrolled gambler. He hears her say, "Oh, no, it's just after noon. I missed my chance to buy a lottery ticket." For $1,000, Larry offers to sell Lucy one of his tickets. Lucy accepts, and the parties consummate the sale. A few seconds later, Larry meets Victor, also a stranger who has arrived at the sales office hoping to buy a ticket. Victor is a chronic alcoholic, who at this moment is totally "trashed," "plastered," "sloshed," and "stewed," not to mention "wholly wasted," with "three sheets to the wind." Walking in a zig-zag, reaching out to the air for balance, and grossly slurring his speech, Victor shouts, "I don't know where I am, who I am, or what day it is, but it looks like I'm too late to buy a lottery ticket." For $1,000, Larry offers to sell Victor his second ticket. Victor says, "Yeah, okay buddy, here's a thousand bucks in cash." Larry takes the cash and gives Victor the ticket. Later on that same day, May 1, Lucy contacts Larry: "I paid you $1,000 for a $50 ticket because I am a compulsive, uncontrolled gambler. That was a big mistake. I hereby renounce my contract with you. I'll return the ticket to you, and I want back my $1,000." Larry responds, "No way." Still later that day, Victor sobers up. On his floor, he sees a lottery ticket and a receipt showing that he bought it from Larry for $1,000. From the receipt, he acquires Larry's telephone number and contacts him: "Apparently I bought a $50 lottery ticket from you this morning, for $1,000. I don't remember a thing about it, but I do know I was completely tanked. I didn't know what I was doing. I'll return the ticket to you, and I want back my $1,000." Larry responds, "Forget it." On the next day, May 2, the state conducts its lottery and announces that ticket number 2321 has won $20 million. That's the ticket in Lucy's possession. Ticket number 2322 has won $10 million. That's the ticket in Victor's possession. Larry contacts Lucy: "I've changed my mind. Bring me the ticket, and I'll give back your $1,000." Lucy responds, "No way." Larry then contacts Victor: "I've changed my mind. Bring me the ticket, and I'll give back your $1,000." Victor responds, "Get lost." Larry visits a lawyer and tells him the whole story. He then asks, "Am I entitled to have back the two tickets?" As to the ticket in Lucy's possession, the correct answer is: A. yes, because a mental disturbance caused Lucy to purchase the ticket. B. yes, because once Lucy disaffirmed the contract she could not reinstate it. C. no, because Lucy could not and did not disaffirm her contract. D. no, because it is Lucy's option, at her pleasure, to affirm, disaffirm, or reinstate her contract with Larry.

C. no, because Lucy could not and did not disaffirm her contract.

Thief sees Countess and her prized puppy in the corner of a public library. Thief snatches the puppy and says to Countess, "Sign this contract promising to sell me your designer diamond-studded pumps for $10 or you'll never see the little dog alive again." Thief's fingers close ominously around the puppy's throat as he says this. The puppy whimpers. Countess signs the agreement. Countess later refuses to honor the agreement, and Thief sues to enforce the contract. What result?

Countess can avoid the contract due to duress. Duress makes a contract voidable when one party's assent is induced by any wrongful act or threat, such that her assent wasn't a matter of free will. Here, the threat of violence to her puppy is enough to taint Countess's assent. As a result, she can avoid the contract if she wants to. NOTE: Here, the contract is voidable only at the wronged party's option. The wrongdoer—here, Thief—may not avoid the contract on grounds of duress if Countess wants to go through with it. Although Thief threated to kill the dog, this is not a case of physical duress, which would make the contract void as a matter of public policy. Pets are considered personal property under the law, so this is a type of economic duress. To be physical duress, it must be a threat of bodily injury to a person.

What is an "unconscionable contract," and what are the consequences of a contract's being held unconscionable?

Courts that find a contract or clause to be unconscionable at the time it was made may refuse to enforce the contract or limit the unconscionable clause to avoid an unconscionable result. Unconscionability generally requires a showing of both (1) procedural unconscionability and (2) substantive unconscionability. Courts apply a sliding scale to these two elements so that a greater degree of one element and a lesser degree of another can still result in a finding of unconscionability. Procedural Unconscionability: Procedural unconscionability can be shown by (1) gross inequality in bargaining power or (2) unfair surprise. Substantive Unconscionability: Substantive unconscionability can be shown by oppressive terms, such as great price disparity or an overly harsh allocation of risks unjustified by the circumstances. Contracts are not often found to be unconscionable, because courts normally won't look into the "adequacy" of the consideration. However, if the terms "shock the conscience," courts will (1) void the entire contract; (2) enforce all but the offending clause; or (3) limit application of the offending clause to eliminate the unconscionable effect. The common law doctrine of unconscionability has been highly influenced by UCC §2-302.

Rory owns a suburban home where zoning regulations forbid him to build a yard fence higher than five feet without first obtaining permission (a "variance") from the local zoning board. He wishes to build a yard fence six feet high and offers to pay Ben $1,000 for building it. Ben asks Rory whether he has obtained the necessary zoning variance, and Rory answers, truthfully, "no." Nonetheless, Ben accepts the offer and builds the fence. Thereafter, Rory refuses to pay. Is the contract illegal? A. Probably, because it conflicts with a lawfully enacted governmental regulation B. Probably, because it conflicts with traditional notions of sound morals C. Probably, because both parties knew of the zoning ordinance when they formed their contract D. Probably not, because it does not conflict with public policy

D ANALYSIS. A contract is not illegal simply because it contravenes some legislative statute or administrative regulation. A is wrong. A contract is illegal only if it conflicts significantly with public policy. Public policy, in turn, refers to moral values that are conventionally "good" ones and, in general, values consistent with notions of a stable, free, and ordered society as a court understands them. The zoning ordinance at issue here bespeaks no such concerns. Certainly it does not conflict with traditional notions of good moral values as stated in B. Neither is it relevant, as stated in C, that the parties knew of the zoning ordinance. A, B, and C are plainly wrong. D is right.

Gary and Charles agree that (a) Gary will steal two paintings X and Y from Museum, (b) Gary will deliver the paintings to Charles, (c) Charles will sell the paintings to Fence and share equally with Gary the moneys that Fence pays. Gary steals both paintings but tells Charles that he can steal only painting X. He hands painting X to Charles, and Charles sells it to Fence. Charles then learns that Gary had in fact stolen painting Y and was "holding out" on him. Consequently, Charles refuses to share with Gary any of the monies that Fence paid him. Gary sues Charles demanding a judgment in the amount of one-half the monies Fence paid Charles, and Charles counterclaims demanding one half the fair market value of painting Y. If the court concludes that the parties have behaved with equal wrongfulness, it will A. award Gary the money he requests as damages for Charles's breach of contract. B. award Charles the amount of money he requests as restitution for Gary's unjust enrichment. C. award no recovery to either party because they are not in pari delicto. D. deny recovery to both parties because they are in pari delicto.

D ANALYSIS. Follow the yellow brick road and you'll stop at step 3(b); the parties are in pari delicto. Neither can recover from the other. Why not? These parties formed an illegal contract, and neither, therefore, can recover under the law of contract; neither can recover for breach. Regarding then, the matter of restitution for unjust enrichment, some courts would write, "Pursuant to their contract, both parties were to commit equally poor behavior in serious violation of public policy. Hence, as for unjust enrichment, this court will make no award to either one." Other courts might reach the same result for the same reason, but state it thus: "The parties formed an illegal contract, and they are in pari delicto. Hence, as for unjust enrichment, neither is entitled to restitution from the other." A tells us that the court will make an award to Gary, so it's wrong. Furthermore, even where one party does recover for dishonor of an illegal contract, he does not recover damages for breach. He recovers, if at all, restitution for the opposing party's unjust enrichment. B correctly refers to restitution for unjust enrichment, but it reaches the wrong result. Charles gets nothing; B is wrong. C reaches the right result but misstates the relevant law. These parties are in pari delicto and that's why neither recovers anything. D reaches the right result for the right reason. These parties are in pari delicto; both have violated public policy to the same degree. That's why neither recovers restitution from the other. D is right.

Tollins operates a construction business. Santos approaches him and asks for employment. "Can you operate a back hoe?" asks Tollins. Santos says yes, and Tollins continues: "My one remaining back hoe failed the legal safety inspection, but if you're willing to take your chances, you're hired—$30 per hour, 40 hours per week, Monday to Friday, 9:00 A.M. to 5:00 P.M. You'll be paid every two weeks, on Friday at 5:00 P.M.; twenty weeks of work guaranteed if you'll guarantee me that you'll remain for those twenty weeks." Santos agrees: "It's a deal." Let's assume this: Because Tollins authorizes Santos to operate an instrument that is, by law, unsafe, his participation in the agreement violates public policy. Santos performs his work for two weeks, and the back hoe functions well. When he requests his pay of $2,400 ($30/hour × 80 hours), Tollins refuses to pay, asserting that he is short of funds. He further advises Santos that he must "let him go" for that same reason. Alleging Tollins's failure to honor his agreement, Santos sues Tollins. The court should: (I) rule that the contract is enforceable against Tollins. (II) award Santos $2,400 because that is the amount to which the contract entitles him. A. I only B. II only C. I and II D. Neither I nor II

D ANALYSIS. Set your brain upon the law. These parties formed a contract under which Santos was to operate heavy machinery that had failed to pass a legally required safety inspection. The contract is illegal—not because it happens to violate a legislative enactment but because, as we said, the operation of such unsafe machinery contravenes public policy. That means the contract is void; it doesn't exist. Hence, neither party can sustain an action or derive recovery for breach of contract. Option I is false. Tollins is a "bad guy"; Santos is not. Because Tollins dishonored his promise, Santos worked for no pay. Tollins has been enriched at Santos's expense. Santos is entitled to recover not for breach of contract but for unjust enrichment. According to option II, Santos recovers $2,400 because such is the amount to which the contract entitles him. Wrong, wrong, wrong. For unjust enrichment, the court will award Santos restitution in an amount based not on the terms of the illegal contract but according to the "benefit conferred" on Tollins, which is equal to the fair market value of Santos's services. Yes, Santos will recover the fair market value of his services, but options I and II are false. D is right.

A husband and wife from Laos immigrated to the USA because they were refugees from the Vietnam War. Neither spoke English well and could barely read. They entered into a contract with Seller to purchase a chicken farm for $120,000, which was the fair market value of the property at the time of the sale. The couple paid the purchase price, and title to the farm was transferred. Unknown to the couple, the contract also contained a provision that the couple had to give the Seller all of the chicken litter produced on the farm for 30 years after the sale. Seller was aware that the couple did not understand the complex language of the contract and did not explain it to them. The value of the chicken litter (which can be sold) for this period of time is $216,000. When Seller tries to enforce the chicken litter provision, the couple refuses to provide it. Seller sues the couple for breach of contract. How will a court rule if the couple pleads unconscionability as a defense?

Here, the court will likely find that the "chicken litter" provision is unconscionable and will refuse to enforce the provision. Unconscionability generally requires a showing of both (1) procedural unconscionability and (2) substantive unconscionability at the time of contract formation. Procedural unconscionability: The chicken litter provision is procedurally unconscionable because the buyers were unable to read a complex contract and Seller—knowing they were illiterate—did not explain it to them. Therefore, there was unfair surprise. Substantive unconscionability: The chicken litter provision is also substantively unconscionable because of a great price disparity. The fair market value of the farm was $120,000, but the buyers were also transferring an additional $216,000 of value to Seller. This sort of great price disparity and inequality in bargaining power so "shocks the conscience" that the court would likely find the provision to be unconscionable and not enforce it.

Clark, age 30, suffers from bipolar disorder, a psychiatric condition that causes extreme swings in mood, ranging from periods of depression to periods of abnormally elevated energy and enthusiasm. During these periods of elation, a person with bipolar disorder may feel energetic, excitable, and hyperactive, and may experience diminution of self-control and impaired judgment. During an elevated episode, Clark visited the website of an exclusive resort and booked an exorbitantly expensive and luxurious vacation. To complete and submit his online booking, Clark signified his agreement to the resort's standard terms by clicking on an "I agree" button on the website. Clark did not read the standard terms before clicking the button. One of the terms stated, "I understand that upon submission of my booking, my credit card will be debited with the full cost of the accommodation booked. This booking cannot be changed and if I cancel it I will not be entitled to a refund of this charge." A few days after booking the vacation, Clark's elevated episode ended. He regretted booking the expensive vacation. When the resort refused to cancel the booking and refund his payment, Clark sued to avoid the contract and recover his payment. What are his prospects of success?

In the absence of a mental condition that impairs Clark's contractual capacity, Clark would not be able to escape this contract. He signified his assent to the standard terms by clicking the "I agree" button. As explained in section 5.3, courts commonly uphold such a manifestation of assent to standard clickwrap terms. It is unlikely that any of the policing doctrines discussed in Chapter 13 would provide grounds for avoidance. The facts do not suggest any basis for claiming fraud or duress. The facts also do not support a claim of unconscionability. There were no unfair bargaining tactics and the standard terms seem to be clear and accessible, so there does not appear any basis for claiming procedural unconscionability. There is also no persuasive argument for substantive unconscionability. Although the term precluding cancellation of the booking and refund is disadvantageous to the customer, nonrefundable bookings are common and such a term is therefore not likely to be unfairly surprising or unduly harsh and one-sided. Clark's only basis for avoidance is mental incapacity. He suffers from a well-recognized mental disorder that might have deprived him of the capacity to enter into this contract. Clark must establish the existence, symptoms, and effects of the disorder by expert psychiatric testimony, possibly bolstered by evidence of friends or family who observed his behavior during the elevated phase of the disorder. If Clark can produce this testimony, it would establish motivational incapacity, not cognitive. Although the illness impaired his judgment, motivation, and self-control, it did not disable him from understanding and appreciating the nature and consequences of his acts when entering the transaction. In Proctor v. Classic Automotive, Inc., 20 So. 3d 1281 (Ala. Civ. App. 2009), the court refused to allow avoidance of a contract to lease a car, even though the lessee suffered from bipolar disorder and had behaved impulsively and irrationally when she entered the lease transaction. (She seemed to be confused about the difference between a lease and a purchase, she had gone on a spending spree just before entering the transaction, she did not test-drive the car, and she could not afford the lease payments.) The court held that despite this, the illness failed to meet the cognitive test of incapacity, which was the only test recognized in the jurisdiction, because she had enough understanding and perception to realize that she was entering into an automobile lease agreement. A court that accepts the looser motivational test of Restatement, Second, §15(1)(b) would allow Clark to avoid the booking if he can show that a mental illness or defect affected his ability to act in a reasonable manner in the transaction and that the other party had reason to know of his condition. Although bipolar disorder likely does affect his ability to approach the transaction rationally, Clark cannot satisfy the second element of the test because there is no basis for arguing that the resort knew or had reason to know of his mental condition. This aspect of the test is particularly difficult to satisfy in an Internet transaction in which the resort had no opportunity to observe behavior that may alert it to the possibility that Clark was not approaching the transaction rationally.

Will a court enforce an illegal contract or a contract that violates public policy? If not, to what extent will a party have a remedy if the contract is declared void?

It depends on the nature of the illegality. In its most extreme, an illegal contract is void. Moreover, a court won't order restitution (i.e., the return of any consideration) under the doctrine of in pari delicto (Latin for "in equal fault"). In some circumstances, a party can recover under an illegal contract. These include: 1. IGNORANCE: If one party is justifiably ignorant of the facts making the contract illegal and could have performed if the contract were legal, she can recover. 2. PARTY LACKS ILLEGAL PURPOSE: If only one party has an illegal purpose, the innocent party can recover even if he knows about the illegal purpose, as long as (a) the purpose doesn't involve serious moral turpitude, and (b) the innocent party doesn't act to further the illegal purpose. 3. UNEQUAL FAULT: If the parties aren't equally guilty regarding the illegality, the less guilty party can recover consideration from the guiltier party. 4. SEVERABILITY: If the illegality is minor and can be severed from the rest of the contract, the rest of the contract is enforceable.

Leroy, a 15-year-old, buys a beach house from an adult, Fields. He puts $10,000 down and promises to pay off the $40,000 remaining at $200/month. The week after he turns 18, Leroy decides he no longer wants the house and disaffirms the contract. May Fields enforce the agreement?

No. A minor can disaffirm a contract any time during his minority or for a reasonable period after he reaches the age of majority. Here, Leroy disaffirmed within a week of his 18th birthday; that's clearly within a reasonable period. However, because Leroy still possessed the house when he disaffirmed the contract, he will have to return it to Fields.

Roger Thornhill, teetotaler, is at a party one night. He's delighted that there's a big punch bowl full of fruit punch. He drinks a lot of it, not realizing that it's Electric Kool Aid, a very potent brew indeed. He gets completely intoxicated, and in a drunken state calls Windshear Airlines and puts a plane ticket to South Dakota on a credit card. (The ticket agent thinks Roger sounds a bit weird, but doesn't realize he's dead drunk.) The ticket is not refundable. Before Roger's due to leave, he sobers up and wants to get out of the purchase. Can he disaffirm the purchase? System Font16px

No. A party seeking to avoid a contract that he entered into when drunk must show both (1) that he was so intoxicated that he couldn't understand the nature of his transaction, AND (2) that the other party knew, or had reason to know, that this was the case. Here, the airline had no reason to know that Roger was drunk, so the second requirement isn't met.

If one of the parties to a contract lacks the "capacity" to contract, is the contract void?

No. Contracts of incapacitated people (including minors and the mentally incapacitated) generally are voidable at their option (but not that of the other party to the contract, on whom the agreement is binding).

Lizzie Borden (lol) axe murders her parents when she is sixteen years old. She is acquitted of the crime on a technicality. While still a minor, she contracts with Shyster & Shyster Publishers to write her memoirs for $500,000. When she turns eighteen, she writes to Shyster & Shyster, reaffirming her acceptance of the contract terms. Shortly thereafter, Lizzie gets religious and decides she doesn't want to relive the horror of her past. Can she avoid the contract on the grounds that she was a minor when she made it?

No. Lizzie's initial promise was voidable at her option due to her infant status. However, once she reached the age of majority, she had the right to reaffirm the contract. Once she exercised that right of reaffirmation, the contract became fully enforceable as if she had been an adult at the time the contract was made.

Player is a famous high school basketball player who is 17 years old. Player is good enough that he is going to go straight to playing professional basketball instead of going to college. Knowing this, Sport Memorabilia Company enters into a written contract with Player that requires Player to sign 15,000 autographs in return for $10,000, which was to be paid immediately. Player had five years to sign the autographs. Sport Memorabilia Company paid the $10,000. Player performed under the contract for three years until he was 20 years old. At that point, Player attempted to disaffirm the contract on that grounds that he entered it when he was a minor. Will Player be successful?

No. Player's initial promise was voidable at his option due to his minor status, but once he reached the age of majority and a reasonable time had passed, he affirmed the contract, and it became enforceable as written. This affirmation is called "ratifying" the contract.

Chickee, roadside entrepreneur, sits near busy intersections waiting for car accidents to happen. When they do, he offers to testify on behalf of the driver who pays him the most, regardless of fault. Mr. Magoo gets into an accident at the intersection, and, even though he's at fault, $500 convinces Chickee to testify for him. Magoo pays Chickee, but Chickee backs out and refuses to testify. Magoo sues Chickee, seeking "restitution" — that is, the return of his consideration (the $500). Will Magoo get back the $500?

No. The issue here is the effect of a contract to do an illegal act. The contract here is illegal because it obstructs justice. Its effect is that it's void; neither party can enforce it or seek recovery under it. There are exceptions to this "non-recovery" rule, but where, as here, the parties are equally at fault—they're in pari delicto—neither party can recover from the other. Notice that this results in a windfall for Chickee, but that's just how it is.

Gavrilo Princip walks into Al's Gun Shop and tells Al, "I want to purchase a gun that can hit a moving target at 50 feet." Al says, "Fine, I'll order it for you. It'll be $35. You can pick it up any time after tomorrow." Princip replies, "Good. I'll pick it up five minutes before that swine Archduke Ferdinand is due to drive through town in an open carriage, so I can give him what he deserves." Al assumes, correctly, that Princip intends to assassinate Ferdinand. Princip shows up, receives the gun (on credit), and shoots Ferdinand with it. He never pays Al. May Al sue to recover the $35?

No. The issue here is whether an illegal purpose of only one of the parties—Princip—means the other, innocent party may not recover under the contract. The rule is that the innocent party may recover, even if he knew about the other party's illegal purpose, as long as (1) the purpose doesn't involve serious moral turpitude; and (2) the innocent party doesn't take special action to further the illegal purpose. Here, Princip's illegal conduct involves murder, obviously a crime of serious moral turpitude, so Al can't recover.

Krullen Heartless, the same appliance store featured in the prior question, offers the same "$19/month for 10 years" deal, on the same dishwasher, to Pete, owner of Pete's Tavern. (Pete's tired of having to wash glasses in his bar by hand all night.) Sam Shyster, Krullen's sales manager, doesn't make any factual statements about the provisions of the contract — he just hands it to Pete and says, "Look, you can buy for no money down." Pete glances at the contract, doesn't realize that he'll be paying triple the cash price, signs, and then soon goes into default. Krullen sues on the contract. If Pete defends on grounds of unconscionability, what result?

Pete will probably lose. Where the buyer is a business or a businessperson, it's exceptionally rare for the court to find the contract unconscionable. Here, where there's been no affirmative misstatement of the contract's terms — and the only unfairness is the substantive one of an excessive price — the court is unlikely to depart from this general refusal to use unconscionablity in commercial disputes.

Can the mentally incapacitated disaffirm any contract they enter into? Generally, what are the rules concerning the defense of mental infirmity?

Presumption. The law presumes that everyone has mental capacity; therefore, a plaintiff must first prove their incapacity. Test for Mental Incapacity. The cognitive test asks whether the party seeking to void the contract had sufficient mental ability to understand in a reasonable manner the nature and consequences of the transaction. Two Different Applications. One way to apply the rule is to split contracts into two types—(1) executory contracts and (2) contracts that have been performed in whole or in part. (1) Executory Contracts: A party can void an executory contract if the party was mentally incapacitated (see definition above) at the time of formation. Rest. 2d §15(1). (2) Contracts performed in whole or in part: A contract is not voidable by a party's mental incapacity at contract formation if (a) the contract has been performed in whole or in part; (b) the other party did not know of the mental illness or defect at contract formation; and (c) the contract is on fair terms. Rest. 2d §15(2). Necessities and Reaffirmation. Similar to minor incapacity, the mentally infirm are responsible for necessities and may ratify the contract if the incompetent person recovers.

Seller takes his livestock to the county fair in hopes of selling it. Buyer shows a particular interest in one of Seller's cows, "Divine." Buyer asks the price and Seller says, "$10,000." That's a very high price for a cow, and Seller defends the price on grounds that this is no ordinary cow—this cow can dance. Buyer asks for a demonstration and he sees what he thinks is Divine dancing. In fact, Seller has her pen electrified and a few well-timed shocks are what create the appearance of "dancing." Buyer buys Divine and subsequently finds out she can't dance. He seeks his money back on grounds of fraud. Seller defends on grounds that no reasonable person would be justified in believing that cows can dance. Would Seller win?

Probably not. The rule for the defense of misrepresentation is as follows: A contract is voidable by the deceived party for misrepresentation if the following four elements are proven: (1) misrepresentation, (2) fraud or material misrepresentation, (3) inducement, and (4) justifiable reliance. The issue here is whether or not the innocent party's reliance on the misrepresentation was justified. The standard in most courts for justified reliance is low. If the party actually knew or should have known that a statement was false, then there was no justifiable reliance. Here, while it may be absurd to think that a cow can dance, nothing in the facts suggests that Buyer actually knew this was false. As a policy matter, courts do not want to relieve a party of liability when they intentionally committed fraud. While Buyer should have known better, Buyer will win and be able to rescind the contract.

Rob Graves plundered a 3,000-year-old bronze figurine from the tomb of an ancient king. He smuggled it into the United States for the purpose of selling it. He contacted Ann Teek, a well-known collector of antiquities, to see whether she would be interested in buying the figurine. Ann did not ask Rob how he acquired the figurine, but she suspected that he had stolen it and brought it into the country illegally. She also knew that it is illegal to deal in stolen antiquities. Nevertheless, her desire to own the figurine overpowered her scruples. She entered into a contract with Rob to buy it for $50 million. In terms of the contract, Ann had to pay a deposit of $10 million in cash to Rob on signing the written agreement and would pay the balance in cash on delivery of the figurine a few days later. Ann paid the deposit to Rob, but he never delivered the figurine. What would Ann's prospects of success be if she decided to sue Rob to enforce the contract? What would her prospects of success be if she decided not to sue Rob for enforcement but instead sued him for return of the $10 million? System Font16px

The facts indicate that all aspects of this transaction—removing the figurine from the tomb, smuggling it, and selling it—are illegal. (In fact, these actions are surely criminal offenses as well. However, the question of whether the parties face criminal prosecution is not the concern here.) The facts also suggest that both parties were aware that they were entering into an illegal sale. Ann would have no chance of successfully suing Rob for enforcement of the contract. It is inconceivable that a court would abet a seriously illegal transaction by enforcing it, either by an order of specific performance or by the award of expectation damages to compensate for the loss of the bargain. The answer is less obvious if Ann does not seek to enforce the contract, but instead claims restitution of the $10 million that she paid to Rob under principles of unjust enrichment. By awarding restitution, the court does not uphold the illegal transaction, so there is a greater possibility that the court may be willing to intervene to remedy Rob's enrichment at Ann's expense. However, this outcome is not guaranteed because Ann's claim of restitution is also subject to the in pari delicto rule. The rule does not focus only on enforcement but declares that when the parties are in equal guilt, the court will not intervene to help either of them and will leave them as it finds them. As section 13.13.2 explains, the operation of the maxim is more complicated than its language suggests. It involves a balancing of several considerations—the relative guilt of the parties, the equities between them, and the interests of society. It is difficult to choose which of these parties is more guilty—the thief-smuggler or the buyer who knowingly buys the stolen property. It seems reasonable to conclude that the parties are in equal guilt. If this was the only consideration, Ann's restitutionary claim would be dismissed. However, the balance shifts in her favor on the other factors to be weighed. As between the parties, the equities favor Ann, who has been cheated of $10 million by Rob. The question of what best serves the public interest is also difficult to answer. Is the public best served by penalizing the buyer of stolen artifacts, thereby creating a disincentive to enter such transactions, or is it best served by forcing the thief to disgorge his ill-gotten gains from the transaction? This question is close, but allowing Rob to keep Ann's money seems to be more damaging to the public interest. This answer assumes that there is no legislative pronouncement that might assist the court in its decision. However, if transactions are made illegal by statute, the statute may provide rules or guidance on the legal rights of a party to an illegal transaction. For example, a statute that bars the sale of stolen artifacts could state that the buyer has no recourse for recovery of any sums paid. If the legislation pronounces on these matters, the resolution is clearer and obviates the need for the court to perform the balancing itself.

Donatella Dynamic is running for mayor, and the election is next Monday. For the past year, she's been borrowing money from Laura Locke to buy pastries for her breakfast meetings with a promise of repayment "Tuesday." Donatella never in fact pays up, and over the course of the year she's run up a debt of $2,000. During this time, neither party mentions the topic of interest on the unpaid balance. Laura is fed up and tells Donatella, "If you don't pay me by Thursday the $2,000 principal, plus $300 in interest, I'll sue you for it." Laura believes that $300 is a reasonable rate of interest in the circumstances. (If such a suit were brought and proceeded to trial, a court would likely hold that the underlying $2,000 claim was valid, but that $300 in interest violated state usury limits.) Donatella realizes that a lawsuit branding her a deadbeat, filed just before the election, would torpedo her chances of getting elected. Donatella agrees to assign securities she owns over to Laura, which are worth $2,300. The following week Donatella seeks to revoke the assignment on grounds of duress. What result?

There's no duress, so the assignment is valid. The issue here is under what circumstances the threat of a lawsuit can constitute duress. The general rule is that a threat of the use of civil process (e.g., a lawsuit) won't be duress, as long as the threat is not made in bad faith. So when the threatener reasonably (even if incorrectly) believes that the threatened lawsuit has merit, the other party can't claim duress after giving in to the threatener's demands. See Rest. 2d §176, Comment d: "The policy in favor of free access to the judicial system militates against the characterization as improper of threats to commence civil process, even if the claim on which the process is based eventually proves to be without foundation." (But that section goes on to say that litigation threats made in bad faith can constitute duress, and that "[b]ad faith may be shown by proving that the person making the threat did not believe there was a reasonable basis for the threatened process[.]") Here, Laura honestly believed that the threatened lawsuit was valid. So her threat was not made in bad faith. The fact that she would probably ultimately have lost on the interest amount doesn't change this. So her threat did not constitute duress.

Van Gogh is mentally ill, but has not been adjudged mentally incompetent. He enters into a contract to purchase $1,000 worth of art supplies from Art-C-Tartsy Art Supplies, Inc. He pays, and the supplies are delivered. Before he's touched the supplies, he disaffirms the contract and demands his money back. Assuming Van Gogh appeared normal when he entered the contract, is his disaffirmance valid?

Yes, but only because he can make restitution (i.e., return the goods). The issue here is the voidability of contracts by incompetents when the other party has already performed. The rule is that if the other party didn't take advantage of the incompetent and had no reason to know of the incompetence, the contract is only voidable if the incompetent can make restitution. Because Van Gogh can make restitution, he can void the contract. RELATED ISSUE: If the incompetency was obvious—say Van Gogh had hacked off his ear in the store with an artist's blade—restitution need not be made if the goods have been used up (which would apply here if Van Gogh had used up the art supplies). RELATED ISSUE: Say Van Gogh had ordered the art supplies and signed a contract to purchase them, but they hadn't arrived yet—that is, Art-C-Tartsy hadn't performed yet. That would make the contract "executory," and the rule there is that the incompetent is free to void the contract, regardless of whether the other party should have realized the incompetence or not.

Shirley, age 16, is living on her own since her parents are unable to provide for her. She rents an apartment in the Apartment Complex, signing a two-year lease at $500 a month. Her first two rent checks bounce, and when the landlord starts to chase her down, Shirley wants to disaffirm the lease and move out. May she do so? If so, will she be liable for any part of the rent?

Yes, but she'll be liable for the reasonable value of the apartment for the period in which she resided there. What's at issue here is a minor's liability for "necessaries"—that is, things like food, shelter, clothing, and medical services. The rule with necessaries is that minors can disaffirm contracts for necessaries, but they'll be liable for the reasonable value of any necessaries already furnished to them. Here, Shirley has received at least two months of shelter. As a result, she'll be liable for the reasonable value of the apartment for that time. In other words, if the market value of the apartments is less than $500, then Shirley will only to pay that amount. NOTE: The nature of "necessaries" depends on the circumstances. For instance, legal services for criminal defense would be a necessary; legal services to protect a property interest wouldn't be.

Kermit takes his livestock to the county fair in hopes of selling it. Fozzie Bear shows a particular interest in one of Kermit's sows, "Miss Piggy." Kermit says the pig will cost Fozzie $10,000 because it is a special dancing pig. Fozzie asks for a demonstration, and he sees what he thinks is Miss Piggy dancing. In fact, Kermit has her pen electrified, and a few well-timed shocks are what create the appearance of "dancing." Fozzie buys Miss Piggy, and subsequently finds out she can't dance. He seeks his money back on grounds of misrepresentation. Assume that a person of ordinary credulity attending the fair would not have believed that Miss Piggy was dancing, but that Fozzie did believe that she was. May Fozzie have the contract rescinded?

Yes, probably. Courts have traditionally said that a party may recover for contractual misrepresentation only if the party's reliance on the misrepresentation was "reasonable." However, the modern trend is to hold that if the misrepresentation was intentional, and the party asserting misrepresentation honestly believed the misrepresentation, the fact that the reliance was "unreasonable" will not bar recovery. Therefore, a court following the majority approach will find in favor of Fozzie, and allow rescission.

The U.S. has a ban on trade with Iraq. The Snakeoil Pharmaceuticals Company gets an unsolicited order for $100,000 worth of medicine from Abdul Hussein. It ships the medicine on credit to Hussein in New Jersey, knowing Hussein intends to smuggle it into Iraq. Hussein doesn't pay. Can Snakeoil recover the $100,000 due under the contract?

Yes, probably. Normally, neither party to an illegal contract may recover. But where only one of the parties has an illegal purpose, the other party may be able to enforce the contract, under the "pari delicto" doctrine. Under that doctrine, the "innocent" party can recover, even if it knew about the other party's illegal purpose, as long as: (1) the innocent party is not guilty of moral turpitude; and (2) the innocent party is less blameworthy than the party with the illegal purpose. That's probably the case here: Snakeoil's behavior probably isn't deeply blameworthy (since it involves medicine), and Snakeoil is clearly less blameworthy than Hussein, who's the one who's doing the smuggling.

Tutankhamen, aged 12, contracts to purchase a burial plot from Valley of the Kings Cemetery for $10,000. Real estate becomes much more valuable in the next two years and Valley of the Kings wants to get out of the contract with Tut so it can sell the plot to someone else for a lot more money. May Tut enforce the contract?

Yes. Contracts that minors enter into are voidable at their option only. The other party doesn't have the option of voiding the contract.

Is there a time limit on when a minor can disaffirm a contract he enters into?

Yes. The minor can disaffirm the contract only during his infancy or within a reasonable time thereafter. So let's say you buy a car when you're 17 and you have to make monthly payments of $200 for five years. You go on making the payments until you're 20. You can't disaffirm the contract at that point, because you're no longer a minor and it's been more than a "reasonable period" since you turned 18 (the age of majority).