Contracts Class Notes 2/9/04


Halbman v. Lemke


Here we have the doctrine of infancy or minority.  Lemke sold a used car to Halbman for $1,250.  Halbman has paid $1,100.  Then something broke.  The repair shop took the engine out of the car on a garageman’s lien.  Then the car got towed back to Halbman’s, and it got vandalized.  All that is left is the wreck of a car.  Halbman succeeds in getting off the hook.  How come?


The doctrine of infancy is intended to keep kids from getting taken advantage of by adults.  But did Halbman really get screwed in this deal?  Did he not know what he was doing?  How could Lemke have known that Halbman was a minor?  Should it make a difference if he knew?


The standard answer is that this is a per se rule.  It doesn’t matter if you’re a “crafty” adult.  It doesn’t matter whether or not you know that the person you’re dealing with is a minor.  It doesn’t matter if it was really a bad deal.  What we’re doing is protecting the immature from the consequences of their own immaturity.  Could Halbman have enforced the contract?  Sure.  This doctrine of infancy makes the minor’s promise voidable.  The minor can enforce the return promise from the adult if that’s advantageous.  The minor can walk away from the contract if that’s advantageous.


But what price does the minor have to pay for that advantage?  People won’t want to make deals with minors!


“Miserable must the condition of minors be, excluded as they are from the commerce and society of the world.” – William Murray, Earl of Mansfield


Other things to notice about this doctrine:  It is extremely arbitrary.  Notice how mental incompetence is not arbitrary and is specifically tailored to the individual human being involved.  With minors, you are immature until the day before your 18th birthday.  Until then, you’re immature and can only make voidable contracts.  After that, you’re an adult and competent to contract, period.  But aren’t some 49 year olds immature?  Aren’t some 15 year olds mature?  There are benefits as well as costs, though.  The benefit is that this is easy to administer.  It’s not hard to find out when someone was born and how old they are.  When we get to mental incompetence, we’ll find that it’s extremely difficult to figure out whether someone is competent or not.


So in this case, Halbman can avoid the contract, make it go away, and get his money back.


One of the exceptions to this doctrine in most places is misrepresentation of age by the minor.  That’s a tort.  Minors can commit crimes and torts and be treated as adults sometimes.  In Contracts, that’s not done.  You’re a minor or an adult and that’s the end of it with few qualifications (you must actively misrepresent your age).  But if you lie and say you’re an adult when you’re not and the lie is deceiving, that is, the adult on the other side is conned by it, that can take away or qualify your right to disaffirm your contract.


The minor is incompetent to contract.  How can the minor disaffirm?  The parent or guardian can do it for him, or the minor can wait until adulthood and then disaffirm.  However, if the minor waits too long, he may be found to have ratified the contract and it may be too late to disaffirm.


If you understand the law, you will be unwilling to deal with minors when the stakes are high.


There is also the doctrine of necessities.  If you supply something that is necessary to the minor, you may be able to enforce a contract against that minor depending on how you define “necessity”.  Is a car a necessity for a minor?  Most courts say no.  What about food?  Food may not be a necessity if the minor is not emancipated and is being provided food by his or her parents.  When you get right down to it, this doctrine doesn’t cover a whole lot.  It may cover emancipated minors, such as those who are married.


Notice that this infancy doctrine, while rooted in basic common sense and fairness, creates a lot of inconveniences and may go too far in a number of circumstances.  One significant reform has been lowering the age of majority from 21 to 18.  This has now taken place in all 50 states.  The age was lowered for voting purposes first, and then came down in other areas.


Not every state follows the approach in this case.  Some states wouldn’t let Halbman avoid the contract unless he made full restitution to Lemke (if he was a good guy who didn’t defraud or oppress Halbman).  Is that good policy?  The Wisconsin court represents the majority approach, and says that we’ll protect minors from their own immaturity.  That immaturity takes more than one form: (1) the minor was immature to get into this deal, and (2) the minor was immature when he wrecked the car.  We’ll let him off the hook for both kinds of immaturity.


What about the “sword/shield” deal?  It’s easier to avoid a contract defensively.  If an adult sues you to enforce it against you, it’s easier to get out.  That would be true if Lemke sued Halbman for the unpaid $150.  In jurisdictions that go the other way, one thing the adult can do to protect himself is to insist on cash when dealing with a minor.  If you get cash, the minor must come at you with the “sword” rather than the “shield”, and it maybe harder for the minor to get relief.


The doctrine is mind-boggling with respect to a lot of services transactions.  When a minor buys a car, the minor has it and there’s some chance of restitution.  But when a minor buys services, the services are consumed and there is no chance to make restitution.  If you consume a service as a minor, you can disaffirm, get your money back, and you have nothing in your hands that you have to give back.


There is a lot of stuff marketed towards minors.  So, for example, it would seem that a kid could buy a movie ticket or a pizza, disaffirm, and get their money back.  Does that make any sense?  Maybe we can claim that the amounts involved are so small that no one cares.


Clovis suggests that you could make a lot of money representing a class of minors trying to all get their money back for stuff.


When a minor is going to make a very large deal, let say it’s Lil’ Bow Wow signing a record deal, the deal will be carefully lawyered on both sides.  States such as California allow minors to make such deals through the minor’s parents.  You can’t make these deals as secure as you could if the contract was being made with a grown-up, but you can come close.


Restatement § 14 says that infancy lasts until the beginning of the day before a person’s 18th birthday.


We have a clash of policies!  One policy is protecting the justifiable expectations that arise from an exchange.  This policy looks towards certainty and predictability.  If you make a fair deal with a minor who you don’t know is a minor, you want it to be upheld and enforced.  The other policy is to protect people who can’t protect themselves.  We presume that minors are too immature to protect themselves.


The doctrine of mental incompetence


When will mental incompetence on the part of one of the parties allow that party to void the deal?


This covers a lot of different conditions.  There are a lot of types and levels of mental incompetence.  But the vast majority of mental incompetence cases involve older people.  As people get older, they start to lose mental capacity in bits and pieces.  It can be very difficult to figure out whether someone was competent to contract in a particular situation at a particular time.


Faber v. Sweet Style Mfg. Corp.


Faber was a businessperson who had a manic-depressive psychosis.  He was in the manic phase and got really active in a whole bunch of ways.  He wasn’t an old person, so this wasn’t a senility case.  One question was whether he was incompetent.  How do you establish incompetence?


Both sides retained a psychiatrist as an expert.  The two experts testified two different ways, not surprisingly.  The judge decided that the two experts were no help.  Clovis says that’s not far from the conclusion in most of these cases.  You can hire experts who are hired guns, and psychiatry has enough vagueness in it that you can always find someone who will say a certain person is competent or incompetent.


What will carry the day?  Sometimes the nature of the deal itself is so strange, unfair, or unbalanced that the only way it can be explained is that one of the parties is off their rocker.


In this case, the deal was for a vacant lot zoned commercial and the price was fair.  There was nothing inherently nutty about the deal.  So then you look at the behavior of the person who is claimed to be incompetent.  The finder of fact makes judgments about that person’s behavior.


Faber was seen as hyperactive, doing much more than was usual under all the circumstances.  It was decided that he was suffering from a psychosis in a manic stage.  That enabled him to avoid this transaction.  Was this a good thing?


Sweet Style probably thought it was a very bad thing.  They had no clue that there was anything wrong with Faber.  He acted quite normal, if aggressive, in the negotiation of the transaction.  Is it a good idea that Faber should be able to get out of the transaction?


We protect Faber, but we upset the justifiable expectations of Sweet Style when they have done nothing wrong.


What if we were to apply § 15?  Would we get the same result?  The first test is whether you understand what you’re doing.  That’s historically where we started and historically where we stopped.  Under § 15 (1)(a), a manic-depressive person would never be found incompetent because they would always understand their actions.  A reform is to add another section, § 15 (1)(b), which asks whether he is unable to act in a reasonable matter such that the other party has reason to know of his condition.


“Infancy is a terminal condition.  You’re an infant until you’re 18 and then you’re never an infant again.”  But you can get better from mental illness, and so we treat it differently.


Competence or incompetence is a factual finding that is likely to stick even on appeal.


Ortelere v. Teachers’ Retirement Bd.


Mrs. Ortelere has trouble making any kind of decision.  She’s entitled to a pension as a veteran teacher.  She opts to have all her pension money paid out without survivorship benefits.  She dies within two months after making that election.  The husband succeeds in having her election rescinded.  What can we say about this case?


Like Faber, the party on the other side didn’t do anything wrong.  Either judgment here makes a certain amount of sense.  It makes sense for Mrs. Ortelere to make a choice and normally we want those choices to stick.  It appears that Ortelere knew what she was doing.  Her judgment was very bad because she lived for such a short time, but we don’t usually let people off the hook in hindsight.


The most important fact, according to Clovis, is that there wasn’t a big effect on the Retirement Board.  Changing the election doesn’t involve a high cost to this big actor compared to Mr. and Mrs. Ortelere.  The court can be kind-hearted to Ortelere’s husband and get away with it at little cost to the other side.  On the other hand, if Mrs. Ortelere bought tickets to a concert and promised to pay for them in the future.  If the impresario putting on the concert loses revenue from those tickets, he may be able to recover.  The retirement system can’t show that big of a loss.  That will make a big difference in how the two policies mentioned above will balance out.


Some people are obviously incompetent, like someone in a coma.  But what you have reason to know of when dealing with someone who is mentally incompetent depends on how you deal with them.


Farnum v. Silvano


This is an easier case to decide because there has been some outrageous over-reaching.  The competent party is a “bad guy” and the transaction is unfair.  The only way to explain it is by Viola Farum’s failing mental health.  The handyman who cons Farum into selling her house to him was taking advantage.


You can tell whether a person was competent when they made a contract partly on the basis of whether the contract was fair.


We’re talking about contracts, but you also need to consider gifts.  Say an old person has two children but all of the sudden decides to give everything to one.  It could be a result of incompetence, or it could be the result of undue influence on the part of a child.


Krasner v. Berk


Generally, it takes less mental sharpness to make a will than it does to make a contract.  If you’re very old and aren’t very much in your right mind, yet desperately needs to make a will, then we may be more likely to enforce the will if the will is fair on its face.  Courts will have a lower standard for deciding whether the person is competent to write a will than to write a contract.


Say you represent a developer (Dorothy Developer) who wants to buy a farm from an old person (Oliver Oldfellow).  Your client wants to make a deal that can be relied upon.  The old person doesn’t seem very competent to your client.  He’s pretty out of it.  But on the other hand, your client says that he plays poker well, has made good stock market investments, and generally has good days and bad days.  How could Dorothy make a successful deal with this guy?  A lot of the world’s wealth is held by people who are quite old and aren’t really with it, so this is an important practical problem.


What about having a court-appointed guardian?  It can be demeaning to the person subject to guardianship.  It can also be cumbersome and expensive to Mr. Oldfellow.


What else could we do?  We could get family members to sign off on the deal.  We would need to have pretty much all the family members to sign off.  You need to be careful to pay a fair price.  You also need to get Oldfellow appropriate counsel, like a real estate agent and an attorney.  You need a competent attorney who isn’t too closely connected to you.  But you also don’t want to hook him up with a shark.


What happens when someone is under stress and you take advantage of their being under stress?  Can you be “temporarily incompetent” for the purposes of the law of contract?  We’ll look at these issues in Odorizzi.


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