Dodson v. Shrader
824 S.W.2d 545 (Tenn. 1992).
Dodson is the plaintiff. Lost at trial court and won in appeal. Shrader appeals.
Question
Can the plaintiff be reimbursed from the transaction because he was a minor? In other words, is the contract enforceable due to the competency of the transactor.
Rule
A transaction with a minor is dependent on the good faith of the business and the lack of negligence from the minor.
Holding
Remanded for additional trial determination.
Facts
Dodson spent $4,900 on a truck at a dealership. He was 16 and did not hide that fact. About 9 months after purchase, the car experienced mechanical problems that was not resolved and the engine “blew up” rendering the truck useless. Some time later, the truck was hit in a hit and run on his family’s property. At this point the value of the truck was $500 and Dodson wanted to send the truck back to the dealership. When the dealership refused to take the car back and provide a refund, Dodson sued.
Analysis
The old common law approach is that if a contract harms a minor, then it is invalid. Additionally, if the contract benefited the minor, then it was valid.
This approach benefited minors but harmed businesses acting in good faith. So, the minority of jurisdictions have adopted rules to ensure the business and minor are still treated fairly. In sum, the business needs to act in good faith. If so, the contract can stand. If not, the contract is invalid. Additionally, the minor cannot be negligent. If so, they pay for the depreciated value and the contract is valid. If not, the contract can be interpreted to benefit the minor.
Additional Notes
The plaintiff is arguing that the dealership should rescind the contract and refund the price of the truck. The trial court dismissed but the appellate court granted the rescission without an offset (paying for the depreciation).
The original rule follows:
- Prejudicial against the minor is void.
- Beneficial for the minor is a good contract.
- If it is uncertain, then the minor can choose whether to void the contract.
Modern rule
- Is voidable by the minor.
Exceptions to the modern rule:
- Benefit rule – lets merchants deduct for the minor’s use of the property at the time of refund. For example, calculating the miles driven from the sell price.
- Benefit + rule – lets the merchant deduct for use, or depreciation, or deterioration. For example, calculating miles driven, or value lost from the sell price. In this case, that means the company only needs to refund 500 instead of the 4,900.
However, the seller is not allowed to overreach, or have undue influence. Additionally, the contract must be fair and reasonable. Finally, the minor must have paid for the something as well as possess and use the item.
Here, the court adopts the benefit + rule.
To avoid this issue, just sell it to the parent, not to the minor.
Statutes
Iowa Code § 599.1 says that a minor is considered an adult if they become married or are sentenced as an adult.
Iowa Code § 599.2 says that when it comes to contracts, a minor can disaffirm the contract within a reasonable time of obtaining adulthood.
Sparrow v. Demonico
960 N.E.2d 296 (Mass. 2012).
Sparrow is the plaintiff who lost in trial court and appealed.
Question
Was the defendant competent and how does one show whether or not they were competent.
Rule
A contract is voidable where “by reason of mental illness or defect, the person is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of this condition.”
Additionally, the condition does not need to be pre-existing or long-lasting but there must still be medical evidence to show that a condition existed during the period questioned.
Holding
There was no medical evidence presented. Reversed.
Facts
This case is a family dispute about who gets some land issued in a will. The plaintiff argued that he had an interest in the land. The defendant argued that the deed willed all the land to her. The plaintiff sued for an interest but the parties determined to settle during mediation. During mediation, it was agreed that the defendant would sell the land and provide $100,000 to the sister.
However, when the defendant refused to sell and pay, the plaintiff sued to order her to live up to the contract. In defense, the defendant argues that she was not emotionally present to create the contract and thus it is not enforceable.
Analysis
The court adopts the rules above. Part of the reason for the adoption of the necessity of medical expertise is to ensure that no fraudulent attacks of an otherwise valid contract are made. This ensures that the party could make a reasonable argument to show that they were not competent (because of the medical evidence requirement) while ensuring contract stability.
Additionally because there was no other evidence to show that this was not a contract a reasonably competent person would have entered, the contract is valid.
The traditional test is a cognitive test where a person lacks capacity if they are unable to understand the nature of the transaction. However, the more modern approach is a volitional test to consider whether the individual is unable to act reasonably in the transaction and the other party knows or has reason to know of that condition.
Additional Notes
A contract is voidable if the person lacks capacity. However, the party claiming incapacity has the burden to show incapacity. See the following tests.
Traditional test:
- Whether the party was incapable of understanding the nature of the transaction and was aware of consequences.
Volitional test:
- When the understanding is affected by mental illness, is the transaction one which a reasonably competent person might have made.
These tests apply whether the incompetency occurs as a long-term effect or even just at the transaction.
Here, the court adopts the traditional test. Again, there was no expert testimony to show that the defendant was lacking capacity. However, under either test, the result would have been the same (this was a reasonable transaction).
Restatement § 15 outlines these rules as well.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
