Contracts Class Notes 11/19/03

 

Brackenbury v. Hodgkin

 

Sarah Hodgkin is a mean old lady.  Sarah wrote a letter to her daughter and son-in-law.  She’s in Maine, and she writes to them in Missouri.  The letter makes a definite proposal: if the Brackenburys move to Maine and help take care of her, they’ll get income from the property and inherit it when she dies.  That’s an offer.

 

What kind of acceptance is Hodgkin seeking?  She is seeking performance: the acting of their moving in and taking care of her.  Do they give her the acceptance she’s seeking?  Not the whole acceptance in some respects.  First off, they don’t complete their performance: the dispute arose while Sarah was still alive.  They started rendering performance, but they haven’t completed it at the time of this case.  Second, she contends that their performance was half-baked and unpleasant and that therefore they aren’t holding up their end of the bargain.  Sarah decides to repudiate her offer.

 

What would Professor Wormser say?  He would say that the Brackenburys have a loser and Sarah has a winner in this case.  But that’s not what the Supreme Court of Maine does.  What’s one lesson about this case?  It’s a precursor for Restatement § 45:

 

§ 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.

 

If you have a unilateral contract and the offeree starts performing, the offeror can’t revoke the offer.  The offeree must complete performance to get the benefit of the offer, but the offer can’t be revoked while the offeree is working on getting it done.  This is what is done in the present case.  This is contrary to the position taken by Wormser in 1916.

 

Wormser’s hypothetical is silly by nature.  When you start with a silly hypothetical, you may well come out with a silly answer.  Crossing a bridge is no big deal.  But the performance done by the Brackenburys is significant.  It makes sense as a matter of fairness that the court should give them specific performance.

 

Note the distinction between this case and Boone v. Coe.  In Boone v. Coe, suit was barred by the statute of frauds.  In this case, Sarah actually wrote down the offer.

 

What would the Brackenburys get if they sued for damages?  We would protect their expectation interest, though it would be tricky to find out just how much that would be.  Equity probably provided a better avenue of relief for the Brackenburys.

 

The Brackenburys feared that Sarah would convey her land to Walter, who would evict them.  The court comes in and gives preliminary relief that will keep Walter from doing that.  That means that if the Brackenburys continue to perform and fully “pay the price”, they’ll get the stuff they were promised.  They’ll have to keep taking care of Sarah as long as she’s alive.  If and when they fully perform, they’ll get their deal.

 

Recall that in Fitzpatrick v. Michael, we would not force obnoxious personal contact.  That seems to be the case here.  After the decree, Brackenbury really did misbehave.  He was not a nice guy.  How much do you fault the court for the obnoxious association that resulted from this decree?

 

What could we say in the court’s favor?  The court would say: “What we did is make an equitable order or decree, maintaining jurisdiction.  What we were telling the parties is that they should behave themselves and try to make it work.  The Brackenburys deserve a chance to earn their way to their expectancy.  If it doesn’t work out, Hodgkin can come back to try to work something else out.”  Hodgkin never did come back to tell the court it wasn’t working.  If they really couldn’t get along, the court might have tried something else.  Today, maybe the court would have Hodgkin put into a retirement home at the Brackenbury’s expense.

 

When you think equity, think “discretion and flexibility”.

 

The Brackenburys have a lot of reliance here and a lot of expectation interest.  A remedy at common law would be severe on Sarah because it would probably leave her homeless.  Courts will scramble around to find a just solution.  A lot of cases aren’t thought through very carefully at the outset.  If the parties had a thoughtful advisor, they might have been told that there was no way they were going to get along.

 

Hypotheticals on Dickinson v. Dodds

 

Suppose that last Thursday V gave you a piece of paper written and signed in which he offered to sell you Greenacre for $350,000.  In that writing, he promised to hold that offer open until 5 PM this Friday.  The writing also says that if you accept in writing before 5 PM on Friday, closing will occur on December 15th.

 

What kind of acceptance is V seeking?  Is he seeking an acceptance by performance or acceptance by promise?  He’s asking for an acceptance in writing.  That would be a paper that says “I accept” with your name signed.  That would mean that you promise to pay $350,000 for Greenacre.  If the offeree promises to buy, they you have a bilateral contract to be performed on December 15th.  You would have an executory promise, unperformed, with a promise for a promise, until the date of closing.

 

In significant sales of land or goods, we will usually see bilateral contracts rather than unilateral contracts.  Where would the $350,000 be coming from in this situation?  Often, it would be coming from a bank or other lender lending against the land to be purchase.  For that reason and others, in any significant sales situation, the parties first want to be bound to each other by promises and then get their respective acts together so they can perform those promises.

 

The offeror is clear that they’re looking for a written promissory acceptance.

 

Suppose that the offer says it will be held open until 5 PM Friday.  Suppose two days ago, Monday, V sold Greenacre to A.  Immediately after that, V called me, the offeree, and said, “Nyah, nyah!  Too late!  I’ve sold the land to A, you can’t have it.”  Then today, on Wednesday, two days before the promised expiration date, I accept in writing.  Do I get a contract in that case?  No, because:

 

1.     In the Anglo-American legal system, offers are revocable even though the offeror has promised to hold the offer open because there is no consideration for the promise to hold the offer open, therefore that promise is unenforceable.  Is this a good idea?

2.     Revocations, when they are communicated, mean that it’s too late to accept.  Here, the revocation was clearly communicated before there was any effort to accept.  When I tried to accept on Wednesday, I already knew that the other party had changed his mind.  My understood meaning of the contract was not reasonable.

 

You can’t rely before you accept.  Reliance before acceptance won’t get you into the seller’s pocket.

 

Suppose that on Monday, V sells the land to A, but doesn’t tell me.  On Wednesday, I hand V a written letter accepting the offer.  In this case, I do get a contract and a cause of action against V.  Now my meaning of contract is quite reasonable.  It’s true that there’s no subjective mutual assent, since V has contracted to sell to another guy.  However, I get the benefit of the deal because I accepted before I knew that the offer was revoked.

 

§ 42. Revocation By Communication From Offeror Received By Offeree

 

An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

 

In the hypo we just discussed, the buyer gets a contract.

 

Suppose that the offer to sell is promised to be held open until Friday, but it is a revocable offer.  Say B comes to me and tells me that V sold the land.  On Wednesday, having heard nothing from V but knowing V already sold the land, I deliver a letter of acceptance to V.  Do I get a contract?  Not if the information from B was reliable.

 

§ 43. Indirect Communication Of Revocation

 

An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.

 

If I get an indirect communication of a revocation, and the information I get is reliable, then I can’t accept anymore.

 

You get a different answer in the hypo above depending on whether B is a reliable source of information or not.

 

The businesslike way of revoking an offer is to do it directly.

 

Say instead of getting news from B, I pick up a newspaper and I find that V is advertising the land for sale.  I drive by Greenacre and see a “For Sale” sign.  Is my power of acceptance destroyed, or can I still accept the offer?

 

Just because V has made me an offer doesn’t mean he can’t look for other potential buyers.  That’s not actually inconsistent with the continued life of the offer made to me.  I have reliable information, but it’s not reliable information inconsistent with continuing the offer.

 

What if V offers the same asset to two people at the same time?  It’s kind of like playing Russian Roulette, where you may have to make one contract and breach another and have to pay damages.

 

It’s troublesome to think that an offer that’s supposed to be held open until a certain date can actually be revoked.  What if the offeree wants a guaranteed period of time to use to think about whether or not to take the offer? 

 

Guaranteed offers serve lots of business purposes.  For example, you might be trying to buy up a whole bunch of land.  You might try to get option contracts, offers to sell that are irrevocable, from the owners of the various tracts of land you want to cobble together.  If you can get offers from all the owners, then you can accept the whole lot.

 

Thomason v. Bescher

 

Suppose that my uncle in Pennsylvania, where the seal is still enforceable, promises under seal to give me a deed to Greenacre on November 1st.  November 1st comes and goes, and he doesn’t give me the deed.  I sue for specific performance.  Do I get it?  The seal is a substitute for consideration. 

 

In Woodall v. Prevatt, the answer was given as no.  It “shocks the conscience” of a court of equity for a party to convey a $350,000 property in exchange for a blob of wax.  Basically, what you’re trying to do is enforce a gratuitous promise.  This won’t work at equity, and probably not at law either.

 

On the other hand, in Thomason, you have an offer to sell the property for $6,000.  There is a promise under seal (in a state where the seal is still effective at common law) to hold the offer open until a certain date.  The seal turns out to be an effective way to enforce the promise to hold the offer open.

 

The big is lesson is: when we’re validating a promise to hold an offer open, seals have one aspect when you’re talking about a deal, but they don’t hold up when you’re asking to have a merely gratuitous promise enforced.  How come?

 

If you’re in a jurisdiction that fully recognizes the seal, you can get an irrevocable offer by putting it under seal.  But this doesn’t do you any good in a majority of the country (by population).  This is interesting, but it won’t help you unless you’re in Pennsylvania or Massachusetts or some other such place.

 

So how do I get a viable option?  What would you do if you were a professional lawyer who wanted to get options in Ohio? 

 

Look at Restatement § 87 and UCC § 2-205 for next time.

 

§ 2-205. Firm Offers

 

An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

 

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