Contracts
Class Notes
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
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
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.
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
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.
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
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.