Contracts : Week of October 15

Reading for

• Ganser v. Schwartz
  Commentary in class
  This was an exam question at one point.

  Claudia grants her nephew an option to purchase land. Did she know what she was doing or not? She enters a nursing home two years later.

  The option recites consideration (falsely). He didn't sign the option (or know about it). He did go back and give the $10 once he found out about it. The son informs Ganser that he's not going to honor the option.

  One reason it's not enforced is the signature requirement in WI. But the court also says there's a consideration problem. In general offers are revocable until they're accepted-- an option is a deal where I sell you my right to revoke the offer.

  Here there's no bargaining: the thing really is a gift. Consideration is something "bargained for and given in exchange" (know that phrase). There is no bargain here, so therefore no consideration (well, a phony consideration). The court says all they've done is set up a presumption of consideration: if there were no evidence other than the document, they'd enforce the document. But the presumption can be rebutted by evidence.

  Essentially this is an attempt to take a gift and make it something enforceable as a contract.

  There are forms you need to follow, and if you don't there are maybe some band-aids we can put on it, but they might not work. Restatement §90 is a last-ditch measure: it will usually not work. The down-side of having legal forms is that if you don't follow them, you sometimes get situations where your wishes won't be enforced.

• Family bait: trying to influence behavior. Is there a benefit to the uncle in Hamer v. Sidway? Well, he gets to feel powerful, maybe. Or the family's honor is preserved. Or he feels good about saving the nephew from debauchery. Or he makes a show of his munificence at a party.

  There are those who argue that all gifts are bargains. They imply a need to reciprocate. This is why distinguishing between a gift and a promise is hard: they overlap. See Maughs v. Porter.

• Statute of Frauds: certain transactions must be in writing, and must be signed.
  Signed by whom? Originally just "the party to be charged" (opens the possibility of one-way contracts. WI real estate contracts require both parties: your failure to sign might give me a defense against your suit.

  But only 8 years after the passage of the statute of fradus, the English courts were already making exceptions to it.

• What is a signature? In some cases, just initials, or even letterhead will work. Now we've got digital signatures.
• Contracts to convey land are also high-formality. This started in largely pre-literate days: priests and lawyers were the main ones who knew how to write. This was part of the value lawyers provided. And property was the source of social status.

  We start to run into "part performance" issues: someone starts to act as though they've taken possession (i.e., in a way that doesn't make sense otherwise), but form wasn't quite followed.

• Rodman v. Rodman: son (Winfield) can have the farm at the time of father's death if son works the farm and takes care of the father. Then Winfield and father have a fight. There's a will, but no witnesses, which means there's really no will. Winfield can't win on part possession (i.e., he didn't "go into possession") because the father was still boss of operations. His behavior isn't explicable only by the existence of a contract. So we can't "take the case out of the statute" for this reason. So siblings take equally from the estate.
• Estate of Powell: Sort of a soap-opera case. This gets enforced, where Rodman does not. They took possession, and they did things way beyond what a regular tenant would have done. You have to have a conveyance (i.e., identify the land and the parties, in writing, the interest conveyed-- sell or lease-- and signed by/on behalf of all parties. That's the WI law (but many places have the equivalent). Then there are a bunch of exceptions. This is WI §706.04 on p.326, by the way.
• Reformation: you prove an error in the formation of a document, and you can correct it. You can't add to things, though. It's quite a limited doctrine.
• Estate of Lade attempts to apply that §706.04, but gets told no, because it doesn't meet those very steep requirements: Ketter's activities were 100% consistent with those of a sharecropper. His lawyer didn't know the law and tried to apply old common-law logic. Malpractice.
• Now it's understandable that courts are nervy about claims asserted after the other party has died. Note that in estate cases, the interested parties include not only the plaintiff, but all other beneficiaries.
• Lawyer lesson: learn all the forms and follow them correctly. Often it's just plain dumb procedure, but it's one of the major reasons that people come to lawyers-- they are supposed to help things go the right way.
• Language with respect to sales of goods UCC §2-201. Do you need to state a quantity? Statute doesn't really say so, but official comment says yes. What does "beyond" mean in (1)? Some cases go one way, some another way. You'll have to do research based on jurisdiction.
• Fridman: let's just repeal the statute of frauds-- it just sets up games and legal sophistry. The English have ditched it; it doesn't change the substantive results in most cases, although it might mean more work. [Trivia: Bill Clinton, the only law professor thus far to be president, lost the blue books for one of his classes. And then was tried in a criminal proceeding by a judge who was a member of that class. Fun irony!]
• Contracts to provide for the elderly. You can make contracts, or gifts, or wills. But you need to do them right. Plus, demanding that your parent make a will or a contract doesn't seem like a nice thing to do. How far can we patch up failure to follow forms by using restitution, etc.
• Miller v Estate of Bell : Presumption of gratuitous services obliviates the reciprocity. Basically, we assume that family members take care of one another without an implied responsibility to compensate them.
• Grossman : same thing. She can have restitution for the the trips when she was requested to appear. But afterwards, when her dad takes ill, and she shows up unsolicited, it doesn't count.
• Often, what we're really asking is "who would benefit if we didn't have a contract? I.e., what is the difference between unequal distribution (because a contract awards some assets) and equal distribution (the default).
• In re Goldrick's Will: the officious intermeddler is almost as big a nuisance as a real villain. The court has no sympathy for this.
• Estate of Tulley: promises recognizing past services lack consideration. You'd need a will or a gift, not a contract to salvage this.
• Moral consideration cases: recognition of benefits. WI has more of these than any other common-law jurisdiction. We're not relying on a promise here (don't try this in MN or IL). The court is picky about deciding when you have moral consideration. Most other courts don't like to get involved about guessing what is moral. The other claimants to the will aren't represented in the case, but recognizing someone for moral behavior works to the detriment of the other beneficiaries.
• Consider Restatements (Second) §86 : are there any cases that would actually meet this standard? Maybe things done out of obligations and not free gifty-intentions.
• Social security, insurance, pensions, and cost barriers to litigation have drastically reduced the number of cases regarding contracts for care of parents.
• Fitzpatrick v. Michael
  Commentary in class
  Back with specific performance.

  Oral agreement, not a will. The old guy has assets but not a lot of cash. Side advice: re-do your will every year to see which of your kids has been good to you? That can be a good source of leverage.

  Again, we have the chorus: who takes if the nurse does not take? Relatives. Not relatives who are helping the old guy, but nevertheless.

  Soap opera ensues. Locking out of the house, suit for specific performance.

  Demurrer: motion to strike for failure to show a cause of action.

  In MD at this time, there were courts of equity. Part Performance would get the nurse out of the statute of frauds, and into equity (which is where specific performance lives). So can we go the part performance route? She can't get specific performance: mischief is likely to result, and it's impossible to enforce. So because specific performance is a requisite for her to get part performance (and thereby avoid the statute of frauds), it cannot work.

  So what can we do? Possibility a negative injunction? [Trivia: Lumley v. Wagner: yeah, Johanna Wagner was the daughter of that Wagner. She was enticed out of a contract to promoter #1 in order to sing at performer #2's theater. The court would not force her to sing at #1, but they did enjoin her not to sing at #2]. Anyway, can we work it this way?

  There's no comptetitive injury here, though: the fact that she's working elsewhere doesn't hurt him (the way Bette Davis working for a British studio would hurt Warner Bros.), so the negative injunction doesn't help. In general-- side note-- a negative injunction doesn't work any more, since we don't have a studio system locking stars into long-term relationships. Nowadays the sanction is that producers don't favor you any more.

Reading for 17 October

• Brackenbury v. Hodgkin
  Commentary in class
  A widow needing care has gone through all the relatives living near her, so she negotiates with daughter and son-in-law.

  Litigation becomes a way of venting. She conveys the property to her son, and he takes it with notice of the contract. That is an important piece of property law (if the contract was not recorded, a "bona fide purchaser for value" could take it, but you are deemed to know what is recorded). [BFP: abbreviation for Bona Fide Purchaser].

  A complaint in equity is called a "bill" (a "libel" in admiralty). So this is a bill in equity. They want something they can record, and ward off anyone else who might want to buy it.

  Unilateral conract (see Davis v. Jacoby, if you are really curious). 99% of contracts (or more) are bilateral: exchange of my promise to do something for your promise to do something. A unilateral contract: I make no promises to you, but if I perform the contract, you agree to do something. These are tricky: I am free to quit at any time, and you have to give me time to perform. There are some restatement §90 issues here: you've induced me to perform, and I've relied on that. (i.e., "Anyone giving me information leading to the arrest of Lightfinger Louie gets $10K").

  But here, there's no big queue of people wanting to help out the old lady. There's no promise on the part of the caretakers to perform indefinitely (if there were, it would be a bilateral contract). When is a contract formed? When an act is performed. But the mom could live quite some time, so she could revoke her promise at pretty much at any time.

  The court says there's a valid unilateral contract here. Once you start performance on a unilateral contract, the other guy can't back out: the contract creates an "equitable interest in land." When do we have the best shot at specific performance? Real estate! All tracts of land are presumed to be unique. If you can get specific performance (i.e., if it is possible), you have some property rights when the performance is begun. So mom is not free to sell to anyone else. Daughter would be well advised to record the contract.

  So the mom has implied duties: not to abuse the caretakers, fiduciary duties about the property.

  And the court says it has jurisdiction over the trust: she can't sell the property to others, she can't commit waste on it, etc. It is in trust for the daughter and son-in-law. Mom is essentially getting performance crammed down her throat by the court's order. Part of this is the technicality of what was sought: they didn't asked for Specific Performance-- they asked for the property to be "impressed with a trust," which doesn't have all the nasty limiting doctrines. That's what differentiates it from Fitzpatrick, above.

  Note that by using this form, they avoid the mess that other suits end up in (the relationship is still a mess, but there's no burden of supervision).

  This is kind of a trap. Mom breached the contract by not giving daughter a chance to perform. What are the damages? The value of the house. But if you liquidate the house, how will mom get cared for? And if you pay for her care, what is left for the son-in-law and daughter when she's gone? So this trust tactic is a neat (if not happy) solution.

• Problem 3 (p. 374): one works while the other goes to school, then the other reciprocates. That's the contract. This leads us to a discussion of alternatives to litigation.
• Interesting dynamic: US is supposed to be this terribly litigious society, but it turns out we're pretty unsympathetic to lawsuits (e.g., flowers at wedding, McDonald's cup-of-coffee, ALJ's pair of lost pants).
• Who does most of the mediation in US conflicts? Cops. Doesn't always go so well: who will milk the cows if you arrest him? Do we want the earner to be in jail? Even if they are both earners, it can still have a substantial impact.
• Some courts require you to go through some conciliation/mediation before you can proceed in your suit/appeal, etc.
• ADR (alternative dispute resolution) doesn't work so well if the parties are unequal. The option of suing can be a helpful alternative. In probate court, they say they don't want the estate's assets squandered on legal fees, and they discourage lawyers. Still, the fact that some party could sue is what forces the probate court to do something about the situation.
• Every state has elaborate franchise legislation (often auto dealers are treated separately, for historical/economic reasons). The franchisee is supposed to be running their own business, but often they are more like an employee.
• The idea of a franchise is that I get the right to look like a division of a large company. But they actually dictate many things (how I do my accounting, what products I sell, etc.). There is a lot of litigation about gas dealers, incidentally. The key to this is that the franchisee needs to put in equity (many times it is "sweat equity:" running the business on very lean margins, but there's nearly always some initial stake).
• Two kinds of assets get involved in franchise creation: real property (i.e., a site), and cash to get started (inventory, initial wages, etc.).
• The franchiser gets money/promotions by finding franchisees who are good. They have economic incentives, and are not neutral. Not only that, but franchisees take a great deal of the business risk (i.e., seasonal business).
• Hoffman v. Red Owl Stores, Inc.
  Commentary in class
  So Red Owl wants to expand into vacationland: small towns west of Green Bay, with lots of seasonal business.

  The court rules that there was no franchise contract: particulars are not set down (location, size of store, etc.). The big hang-up is over how much capital has to be invested in this thing. The UCC doesn't address franchises. UCC §2-204 (formation in general): lots of ways to form a contract-- very loosely defined. §2-201 says if a sale of goods is over $500, the contract has to be in writing. But the code doesn't draw a bright line of contract formation: contracts can gradually evolve, and a contract can exist even if some terms are left open, if the parties have intended to make a contract. Again, though, this is a UCC phrasing.

  Hoffman knows he doesn't have a contract (because the central office has not OK'd it). He would expect a document, like a contract, that both parties would have to sign. It would be a stretch to treat this as a real contract issue.

  Maybe the central office wants more of a cushion once they size Hoffman up.

  Anyway, Hoffman knew he didn't have a franchise. He might believe he'd been assured of one, but he didn't think he had been granted one.

  Is this the tort of misrepresentation? Opinions cannot be the basis of a misrepresentation-- misrepresentation requires a statement of fact. Or a promise made with no intent to carry it out. So no, not really.

  Still Lukowitz is a representative of Red Owl with a vested interest in having Joe do something.

  This is the first WI case involving Restatement §90. The first requirement there is a promise. There has been lots of advice, but there hasn't really been a promise in the conventional sense: no guarantees, etc. This is persuasion, and leading on, for sure, and the court finds that it is a kind of promise.

  The net result is that there's a duty (beyond misrepresentation) on the part of a bargaining party. The minimum is that you have to be clear what you are saying.

  The court says no expectation damages, only reliance. But what about the sale of the Wautoma store? Doesn't expectation of that store's profitability figure in the "loss" that he takes (in the sense that they'd be part of the valuation of the store for sale)?

• Subsequent case law is all over the map: some win, some lose under this precedent.