Capacity: minors and the mentally ill

Wisconsin, the middle nineteen sixties. A young man of twenty years and seven months, married, the father of a child, and working, buys a car from a dealer. The purchase contract he signs contains a sentence just above his signature. I represent that I am twenty one years of age or over and recognize that the dealer sells the above vehicle upon this representation. The age of majority in Wisconsin is twenty one.
Some months later, still under twenty one, he decides he does not want the car. His lawyer writes to the dealer disaffirming the contract, and he sues to get his money back. The dealer answers with three arguments. First, an emancipated minor over eighteen should be bound by his contracts, whatever the old rule says. Second, there was no effective disaffirmance. Third, the young man lied about his age and owes damages for the lie.
So here is the question. Every element of a contract is present. Offer, acceptance, consideration, a signed writing. Can one party simply undo it because of who he is? Think about it before I go on, because today's module is about the defenses, the reasons a court will refuse to enforce a bargain that was, on its face, properly made.
And now the question I keep asking. What exactly did these people promise each other? A car for a price, and a representation of age. For ten modules the law has been looking for the bargain. Today it looks past the bargain at the person who made it, and asks whether he had the capacity to bind himself at all.
Here is the first line for the board. The contract of a minor, other than for necessaries, is either void or voidable at his option. The minor may disaffirm, before majority or within a reasonable time after, and recover what he paid. The other party cannot disaffirm. It is a one-way street, and it is meant to be.
Second line. Disaffirmance is easy. Any act which clearly shows an intent to disaffirm a contract or sale is sufficient. A notice, a tender of the goods, even an offer to return them. And a minor who lied about his age may, in some states, be liable in tort for the lie, but only if the elements of fraud, including intent to deceive and justifiable reliance, are proved.
Third line, for the mentally ill. The contracts of a mentally incompetent person who has not been adjudicated insane are voidable. The traditional test was cognitive. Could he understand the nature of the transaction? The modern test adds a second branch. A person who understands but, by reason of mental illness, is unable to act in a reasonable manner in relation to the transaction may avoid it, if the other party has reason to know of his condition.
Now the case. Kiefer against Fred Howe Motors, Supreme Court of Wisconsin, nineteen sixty eight, Justice Wilkie. The court began with the rule and its reason. The underpinnings of the general rule allowing the minor to disaffirm his contracts were undoubtedly the protection of the minor. It was thought that the minor was immature in both mind and experience and that, therefore, he should be protected from his own bad judgments as well as from adults who would take advantage of him.
Then it admitted the rule's awkwardness, with a fairy tale and a paradox. If the beans that the young naive Jack purchased from the crafty old man in the fairy tale had been worthless rather than magical, it would have been only fair to allow Jack to disaffirm the bargain and reclaim his cow. However, in today's modern and sophisticated society the infancy doctrine seems to lose some of its gloss.
Paradoxically, we declare the infant mature enough to shoulder arms in the military, but not mature enough to vote. Mature enough to marry and be responsible for his torts and crimes, but not mature enough to assume the burden of his own contractual indiscretions. In Wisconsin, the infant is deemed mature enough to use a dangerous instrumentality, a motor vehicle, at sixteen, but not mature enough to purchase it without protection until he is twenty one.
And then it kept the rule anyway. No one really questions that a line as to age must be drawn somewhere. We suggest that the appellant might better seek the change it proposes in the legislative halls rather than this court. Minors require some protection from the pitfalls of the marketplace. And marriage did not change that. A youthful marriage, the court said, is oftentimes indicative of a lack of wisdom and maturity.
Disaffirmance was easy. The young man's testimony and his lawyer's letter clearly established it. The dealer's last hope was the tort. Wisconsin lets a minor who fraudulently misrepresents his age disaffirm the contract but pay damages for the deceit. So did he misrepresent? The trial court found he never said twenty one out loud. The dealer pointed to the printed sentence above the signature.
The court applied the elements of fraud. A false statement of fact, made with intent to defraud, relied on to the other party's injury. No evidence was adduced to show that the plaintiff had an intent to defraud the dealer. And no justifiable reliance. We fail to see how the dealer could be justified in the mere reliance on the fact that the plaintiff signed a contract containing a sentence that said he was twenty one or over.
The reason is the one every dealer should hear. The trial court observed that the plaintiff was sufficiently immature looking to arouse suspicion. The appellant never took any affirmative steps to determine whether the plaintiff was in fact over twenty one. It never asked to see a draft card, identification card, or the most logical indicium of age under the circumstances, a driver's license. The young man got his money back.
The Chief Justice dissented, and he made two points worth carrying. First, the majority, he said, doth protest too much, giving cogent reasons to abandon the rule and then keeping it.
Second, the car was a necessity. A working father of twenty who borrows his mother's car to get to work needs a car, and an automobile as a means of transportation to earn a living should not be considered a nonnecessity because the owner is five months too young. The dissent lost. The exception for necessaries is real, and it is narrow.
Now the second case, and the harder kind of incapacity. New York, nineteen sixty five. A schoolteacher of sixty, a member of the retirement system for over forty years, has been on leave for a nervous breakdown since March nineteen sixty four. Her psychiatrist diagnoses involutional psychosis, melancholia type. She also has cerebral arteriosclerosis. Her husband has given up his job as an electrician, at two hundred and twenty two dollars a week, to care for her full time.
Years earlier she had chosen a retirement option that would pay her less each month but leave the unexhausted reserve to her husband if she died first. On the eleventh of February nineteen sixty five, still under treatment, she goes to the retirement board and changes it. She elects the maximum allowance, payable during her life, with nothing payable after death.
The difference is seventy five dollars a month. Her reserve is sixty two thousand dollars. She dies less than two months later, and the whole reserve falls in.
Three days before she signed, she had written the board a letter asking eight precise questions about her options, a letter that, in the words of the dissent, reveals a mind fully in command of the salient features of the retirement system. Her husband sues to set aside the election. Was she competent?
The New York Court of Appeals, in Ortelere against Teachers' Retirement Board, nineteen sixty nine, Judge Breitel, began by conceding the cognitive point. It is not seriously disputable, however, that she had complete cognitive judgment or awareness when she made her selection. Under the old test, that ended the case. The inquiry was whether the mind was so affected as to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction.
The court found the old test wanting. These traditional standards governing competency to contract were formulated when psychiatric knowledge was quite primitive. They fail to account for one who by reason of mental illness is unable to control his conduct even though his cognitive ability seems unimpaired. Hence, because the cognitive rules are, for the most part, too restrictive and rest on a false factual basis they must be re-examined.
And it adopted the Restatement's second branch. A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. Two elements. Inability to act reasonably because of illness. And notice to the other side.
Both were met, if the husband's proof was believed. The system was, or should have been, fully aware of Mrs. Ortelere's condition. It knew of her medical leave and the board's own psychiatrists.
And the choice itself was evidence. Her selection of a no option retirement while under psychiatric care, ill with cerebral arteriosclerosis, aged sixty, and with a family in which she had always manifested concern, was so unwise and foolhardy that a factfinder might conclude that it was explainable only as a product of psychosis.
The court drew its own limit. Of course, nothing less serious than medically classified psychosis should suffice or else few contracts would be invulnerable to some kind of psychological attack. And it sent the case back for a new trial under the new standard. The dissent, Judge Jasen, thought the letter settled it, and warned that the new rule would make many contracts vulnerable to psychological attack. Forty years on, most states have followed the majority.
Put the two cases side by side. A minor is protected by a bright line, twenty one then, eighteen now, and the other party's only safeguard is to check. A mentally ill adult is protected by a standard, and the other party's safeguard is that the standard applies only where he had reason to know. In both, the contract is voidable, not void. The protected party chooses. And in both the protection ends where the other party has no way of knowing.
Now let's change one fact. The young man in Wisconsin had shown the dealer a forged driver's licence giving his age as twenty two. Does he still recover the price? Choose an answer before I go on.
He may still disaffirm, in Wisconsin, but he now pays for the lie. The elements the court found missing are present. A false statement of fact, an intent to deceive, and reliance that a dealer who checked the licence was justified in placing.
The contract is undone, and the dealer recovers in deceit the loss the lie caused him, which is the difference between the price returned and the value of the used car he gets back. In estoppel states he would simply be held to the contract.
Change one fact again. The teacher in New York had been treated by a private psychiatrist the board knew nothing about, had never taken leave, and had walked in looking and sounding well. Choose.
Then the second element fails. The Restatement rule the court adopted requires that the other party has reason to know of his condition. Without notice, the balance the court struck, stability in contractual relations and protection of the expectations of parties who bargain in good faith, tips the other way. The election stands, unless the husband can meet the old cognitive test, which the court conceded she passed.
Change one fact a third time. The Wisconsin buyer was seventeen and bought, on credit, a winter coat and boots for a job on a road crew. Choose.
Now the exception may bite. The rule excludes contracts for necessaries, and a minor who lives on his own and works may be liable for the reasonable value of food, clothing, shelter and, in some courts, the tools of his trade. He is liable in quasi-contract for what they are worth, not in contract for the price.
The dissent in Kiefer wanted a car in that category. The majority did not. A coat and boots for a working seventeen year old are a much easier case.
Here is what people get wrong here, and why it is tempting. The first mistake is treating a minor's contract as void. It is voidable, at the minor's option, and the adult is bound until the minor chooses. The second mistake is thinking a minor's lie about his age binds him. In most states it does not, though it may cost him damages.
The third mistake is testing capacity by intelligence. The teacher wrote a letter a lawyer would be proud of. The question after Ortelere is not only whether she understood, but whether illness took away her power to act on what she understood, and whether the other side had reason to know.
Here is the rule, in one breath. A minor's contract, other than for necessaries, is voidable at the minor's option, and a person who by reason of mental illness cannot understand a transaction, or cannot act reasonably in relation to it where the other party has reason to know of the illness, incurs only voidable duties. The protection belongs to the incapable party alone, and it ends where the other party had no way of knowing. Now, five questions.