Contracts Class Notes 11-14-03

By the end of next week, we’ll try to get to the top of p. 420. We’ll pick up there in January.

Death revokes an offer, even without notice. There can be no subjective mutual assent when one of the parties dies. However, the death can be highly disruptive to the offeree’s affairs. Restatement § 48 describes this rule as a “relic” which doesn’t make much sense in the context of objective mutual assent. But why does this rule persist? What can be said for this rule?

The thing is that offers are revocable unless there’s something to change that. While alive, the offerer can revoke the offer. Once the offeror is dead, it’s too late for the offeror to revoke because he’s dead. When you’re dead, your executor can act for you and presumably revoke your offers. However, an executor may not know about all the offers you’ve made. If the executor could find out what offers you’ve made, one of the first things he would do is go around and “revoke up a storm”. These considerations support the rule. The rule has its good points and bad points.

Davis v. Jacoby

Caro Davis was Mrs. Whitehead’s niece. The Whiteheads had raised her like a daughter. When she grew up, she moved to Canada with her husband. As the Whiteheads got older, their health declined. It’s the Depression and bad stuff is going on. Mr. Whitehead’s fortunes are taking a turn for the worst. Whitehead communicates with the Davises by mail. Note that before we had modern technology, the mail worked a lot better than it does today (according to Clovis).

Mr. Whitehead writes to the Davises and makes the “definite offer”: if the Davises will come to California, Caro will inherit everything. The court interprets this as a promise to make a will in Caro Davis’s favor. Mr. Whitehead also says, “Will you let me hear from you ASAP?”

Mr. Davis answers the letter on the 14^th and says that they are coming to California. Mr. Whitehead dies. The Davises take care of Mrs. Whitehead until she dies. Then they say, where is our money? They get the bad news that Mr. Whitehead had made a will in favor of two nephews and left everything to them. Under those circumstances, the Davises file suit against the nephews, seeking specific performance.

Why specific performance here? Why would the Davises’s lawyer seek that instead of money damages? Why is specific performance available in this case? Specific performance is available here because specific performance comes out automatically when a contract for the sale of land is at issue. The nephews aren’t in breach of a promise, which makes it hard to get damages from them.

The Davises had equitable title to the land, and they’re protecting that title by specific performance. Another reason they do specific performance is that it gives them the “whole shebang”. Damages would open the possibility that the court might split the difference and do something for the nephews. Those are a few reasons why specific performance was sought.

Note that if the nephews had been bona fide purchasers, it would have all been over. The nephews don’t qualify as bona fide purchasers because they gave no value. They’re donees.

The Davises failed to establish a contract before the trial court. They find them to be losers. How does the trial court analyze the situation? The trial court found that the offer of Mr. Whitehead was an offer that could only be accepted by performance. It’s an offer to enter into a unilateral contract, in the view of the trial court. That does in the Davises because death revoked the offer and they didn’t perform until after he died.

On the other hand, the California Supreme Court finds that the offer was for a bilateral contract. Mr. Davis promised by mail to come to California. The California Supreme Court finds that this is the promise that was bargained for.

The doctrine is “at least moderately complicated”. Note how the different courts came to different conclusions.

Which court is right?

What if the Davises wrote another letter after the first one changing their mind?

The Davises are getting their expectation interest protected with a vengeance. They didn’t put a whole lot of effort into performance, but they’re going to make out like gangbusters anyway. Note that if they only get their reliance interest, a whole lot of money would go to the nephews.

Was there really a bilateral contract? Was there a promise for a promise? It seems very doubtful that the promise the Davises made would have been enforced against them if they broke it. What if Mr. Whitehead had sent a letter to the Davises saying that he didn’t want them to come? That is, what if he revoked his unaccepted offer or repudiated the contract?

We shouldn’t easily buy what the California Supreme Court is telling us. Why did the court decide the case they way it did? The court says lots of things that have nothing to do with the law. This isn’t really a law-driven decision.

The Davises had a good lawyer. The lawyer got evidence in the record that showed that the Davises were close to the Whiteheads. The lawyer also got evidence in that the nephews were not close to the Whiteheads. If you’re a human being, you may want to give the money to the Davises. Being a human being can mess up the law. You must look at pretty much every case in terms of doctrine. There would be no case for the Davises until the lawyer had mapped out a way to find for the Davises based on doctrine. But also we should think about who ought to prevail like a layperson would. If a layperson was thinking about this, they would ask: “Who gets the money?” The answer seems to be that the Davises should get the money. If you provide a route for the court to get there, they may well take advantage.

Was there really a bilateral contract between the Davises and the Whiteheads? Was it possible for the Davises to be in breach? Is it possible to have a contract that is only binding on one side but not the other? Some of the difficulties are that this is an unusual and difficult circumstances and the doctrine we have may not be all that great to help us deal with it.

Here’s a common pattern: the old folks say to the young folks, “Come and take care of me until we die, and then you’ll inherit everything.” As soon as that’s done, “various things happen and trouble results”. These situations involve large sums of money. Rarely are these situations thought through with care. There is rarely a lawyer involved; these deals are often homemade.

What do we make of this case? Courts will subconsciously or consciously manipulate manipulable doctrine to get to a result that they find palatable. As a lawyer, your goal is to show the court a path by way to doctrine to get to the desired result and to give them an incentive to get there and make them feel good about that decision.

What legal doctrines get in the Davises’s way? First, death revokes an offer. Was the offer really revoked given that Mr. Whitehead killed himself? The other doctrine that has its virtues but also its problems is the statute of wills. Why isn’t Whitehead’s letter a will? It doesn’t satisfy certain formalities, such as being witnessed, under the California statute of wills. You don’t want to say all that in terms of arguing the case, but you’ll hope the court will squirm to try to find for the Davises.

Don’t forget that the nephews and the Davises were probably trying to settle. It would have been a lot less costly to settle, but it would have been tough to settle, and in fact they weren’t able to do so.

Here’s a Restatement section we ought to know by number:

§ 45. Option Contract Created By Part Performance Or Tender

(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.

(2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

An option contract is an irrevocable offer.

Would this have helped the Davises in 1934? Is this another “road” that could have been taken to finding for the Davises? No. What the Davises did was begin preparations, not perform. This section won’t help them.

A newer doctrine that is smaller in importance is § 87(2):

An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

This rarely applies: the offeror usually has no reason to expect reliance before acceptance. The offeror supposes that the offeree will accept first and then start relying on the newly-formed contract.

Is this a good theory for the Davises? Probably not. The nephews would welcome it. They would say that this enables enforcement of the promise only as far as the reliance interest goes. The remedy would probably be limited. This theory would otherwise work, but the Davises’s lawyer would want to avoid it if it had been available at the time.

Petterson v. Pattberg

Pattberg writes that he will accept cash for the mortgage. What legal label will we put on Pattberg’s letter? If he says “I hereby agree”, is it a contract? What is it? The preexisting legal duty rule doesn’t apply here. This is an offer. No one has accepted it. There is a promise here, but it is one-sided. It’s only an offer. It’s not supported by consideration. It will become a contract when consideration is furnished. Many offers will start out with “I hereby agree”. That doesn’t make them a contract.

Sometimes a good way to make an offer is to create a form that says “contract” with a blank signature line for the other party.

So we start with an offer. What else can we say about the letter? The court says that what we have here is an offer looking toward acceptance by performance rather than by promise. It’s 99% clear that what is being sought is a performance and not a promise. Will the creditor want to reduce the size of the debt in exchange for a mere promise? No way! The creditor won’t want to alter his legal rights until a payment is made.

Clovis says that the court is right to find that the promise here is made in exchange for performance.

Pattberg is getting something: he’s getting the debt payments early. The earlier you get money, the more it’s worth because of the time value of money. There is no preexisting duty to pay early, and if you do pay early, I’m not going to make you pay as much as if you paid on time.

The offer is relative. You can read this offer as containing a promise that will be held open until a certain date: May 31^st. Pattberg successfully revokes the offer before May 31^st. Why does Pattberg apparently get away with breaking his promise? Why aren’t promises to hold offers open enforced? Because there’s no consideration for the promise to hold the offer open! When you have a promise unsupported by consideration, it’s unenforceable! Offers are revocable, even though the offeror has promised to hold it open.

We can change that. One way is with § 45. Once there is consideration or some substitute for consideration for the promise to hold the offer open, then it’s enforceable. In other words, when something has been exchanged for the promise to hold the offer open, that promise becomes a contract. In particular, it becomes an option contract as seen in § 45.

What might have been consideration? Petterson might think that his quarterly payment was consideration for the promise to hold the offer open. That’s wrong. Making that quarterly payment was a preexisting legal duty.

This is all background to the case. The question is: did the offeror get the offer revoked before the offeree accepted? Williston says as long as the offeror says “I revoke” before the offeree says “I accept”, then the offer is revoked.

Petterson is coming up the walk. He wants to pay off the mortgage early and he’s all ready to do it. Pattberg says, “Who’s there?” Petterson says “I’m Petterson, here to pay off the mortgage.” Pattberg says, “I’ve sold the mortgage.” This is a revocation of the offer.

There are three positions on this: Cardozo and three others, Kellogg, and then Lehman and Andrews.

Kellogg thinks that the offeree has to pay and the offeror has to take the payment for there to be acceptance.

Lehman says if we’re going to see it that way, then the offer is basically a trap. Lehman says that acceptance is saying that you’re ready to pay when you have money in your pocket. Lehman thinks that this was done here and the court should have found that there was a contract.

The Cardozo view is that you have to tender payment before the offer is revoked. This basically means that you take the money and stick it in the other guy’s face. “Here’s the money! Take it! Take it!!!!!!!!!”

Petterson made a formal tender after Pattberg partially opened the door. If you take the majority view, the acceptance came too late. It came after the revocation, and thus the offer had already been revoked.

Notice that even if you take Lehman’s view, which isn’t a mainline view, and decide that an offer to pay with the present capacity to do it would constitute acceptance of Pattberg’s offer, it doesn’t necessarily get you out of trouble. Pattberg could have yelled “I revoke!” as Petterson was coming up the walk. There’s always the possibility that a revocation barely beats an acceptance. If the revocation wins, then there’s no contract.

Petterson is out of luck!

Back to Class Notes