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1.In the case of incapacity, what happens if both parties are incapacitated? Let’s say both were drunk when entered into a contact? There is no contract then, right? — No. These are all defenses. If both parties agree there is no contract, then there is no case. If one party alleges and proves incapacity, the contract that the other party wanted to enforce is unenforceable. In my language, whether there ise a contract or not is a Finger 1 question. Capacity is Finger 2.
2.When talking about mental illness as cause of action to void a contract, you ask us whether we are trying to do a “favor” to the mentally challenged. I think “favor” is to be read in the context of “protection.” — As you may remember from your teenage years, affording another protection also limits them. The doctrine of incapacity (esp. when restitution is not an option) limits a party from entering into contracts.
3. Regarding your “shopaholic” bumper sticker scenario. My gut-reaction was that the buyer would not be able to return the expensive suit a year later because he lacked capacity. But in reading the traditional rule for capacity, it seems like he would be able to return the suit. I understand that the traditional rule is: the one who lacked capacity only had to return so much of what they still had from the contract in order to receive back all that they gave under the contract. Therefore, the shopaholic would be able to return the suit. But if this is the case, wouldn’t that be a slippery slope? Where do we draw the line of what is conserved lack of capacity to enter into a contract? — You state the law correctly (but maybe restitution can come to the rescue). Don’t give up on your gut. The law is not always just. Your question of where should the law draw the line is the correct one. Fortunately, shopaholism is not (yet) recognized as a mental illness or defect. Maybe it should be and may be it shouldn’t. How far do we expand the periphery and in what directions?
4.After reading Mitchell, and learning the general rule of duress that if the party has a legal right to what it threatened, then it’s not duress. — No. This is a rule that some courts use. The majority doesn’t use it and neither does the Restatement. Remember, not all cases are correctly decided or state a rule that all other courts use.