Contracts Exam §
4(Professor Haugen) Spring, 1998
Facts:
Vera Featherstonehaugh (“It’s
pronounced ‘Fanshaw,’” she always said.), had been a happy, wealthy, amateur
essay writer during her long and happy marriage to St. Paul fuel oil tycoon,
Wendell Featherstonehaugh. After
Wendell’s death, however, Vera began to take her writing more seriously, and
she developed a keen interest in the short story. Her goal was to write in the most “minimalist” of styles, with
stories of only a few sentences. She
hoped that soon she would be able to write a perfect short story consisting of
only one superbly crafted sentence.[1] She planned to write a whole volume of these
one-sentence gems, and to title the book
Micromini Short Stories to Read in the Rain (Sans Parapluie).[2]
Vera
began to look about for an editor, in hopes that she could get some help with,
as she called it, “ her Faulknerian tendencies,” and perhaps with her efforts
to find a publisher as well. Responding
to an ad in the back of the April issue of “The Crocus Hill Crocus Enthusiast,”
Vera phoned Ellen’s Editing and Literary Agency and asked Ellen if she could
help.
“You bet I
can,” Ellen replied. “I’m a great
editor, I know all the right publishers, and you only pay me if I find one that
will accept your manuscript. It’s a
flat $5,000 that I charge, plus editing, of course, but you don’t have to pay
me anything unless I sell your book.
I’ll fax you a short letter confirming this conversation and setting out
my usual terms,” said Ellen. “You can
just sign it and fax it back to me.”
This all
sounded great to Vera, who hovered by her fax machine till the hand-written
note from Ellen came through. She read
it quickly:
January 3, 1998
Dear Vera,
This
confirms our conversation of earlier today.
I will edit your manuscript of short stories and bill you at a
reasonable hourly rate, and you will owe me my usual $5,000 literary agency fee
only if I find a publisher for the manuscript.
Sign below if you agree.
Yours, Ellen
Vera signed the letter and faxed it
back. The next day, a messenger from
Ellen’s arrived at Vera’s to pick up the manuscript.
******
Vera’s 17-year-old grandniece Tiffany Featherstonehaugh was a
brilliant straight A student in her
second year as an undergraduate at Harvard, which was also Vera’s alma
mater. Tiffany had entered Harvard at
the age of 16, and planned eventually to attend medical school. Knowing that her niece was struggling financially,
Vera wrote to her on January 6:
Tiffany
dear,
I’m so proud of you and all the good
work you are doing at Harvard; I remember my own days there as a “Cliffie”[3]
with such fondness – (You know I met my wonderful Wendell there!) – that I have
decided I will pay your bill at “The Coop” to keep you in books and other
necessities while you keep getting those wonderful marks; I’ll drop them a note
to send your bills to me; keep up the good work!
Love from your
Auntie Vera
PS
Remember, dear, I’ll only do this if you keep getting those A’s!
Vera,
true to her word, wrote to the Harvard Coop telling them to send Tiffany’s
bills “for books and other necessities” to her, Vera, and promising to pay them
in a timely fashion. (The Coop was
thrilled, as Tiffany was a big spender there.)
******
Vera’s 82-year-old neighbor Irene,
another wealthy Crocus Hill widow, was having a house sale before moving to
Green Valley, Arizona to live in a senior citizen community there. Though in remarkably good health, Irene had
become quite forgetful, and her son felt she should no longer live alone,
especially in her large home. Vera
decided to go over and see if Irene was selling any of her fabulous antique
knick-knacks. Vera was overjoyed when
she saw that Irene had set them out on a large table bearing a sign that
read: “Your choice -- any piece here --
$25.” Vera spotted a small crystal frog
she knew to be worth nearly $1,000 on the table amid other small figurines
worth considerably less. Vera snatched it
up and handed $25 to Irene, who smiled and said, “Thank you, Sallie; you’re looking
lovely today. Give my best to
Fred!” Puzzled that her old friend and
neighbor did not seem to recognize her, Vera returned home with her treasure,
“a steal,” she called it.
Additional Facts and Questions:
1.
After several weeks went by, during which Vera had heard nothing from
Ellen regarding the manuscript, she received Ellen’s bill for $7,500 editing
charges, at $200 per hour. Vera was
horrified. She immediately phoned
Ellen. “I thought I only had to pay you
when you found me a publisher!” Vera
cried.
“Editing is
extra, Vera. Look at the letter you
signed,” replied Ellen, calmly.
“EXTRA??”
cried Vera. “This is highway
robbery! And what about a
publisher? You’ve had my book for
nearly 8 weeks.”
“The truth
is, Vera, even with my fantastic editing job, the book is lousy,” said
Ellen. “I won’t be able to find a
publisher to take it. Just pay me for the editing.”
Vera has refused to pay. (Ellen’s
editing job included doing a vile “Hemingway” treatment on Vera’s lovely long
sentences, chopping them into smaller sentences of three or four words each,
obviously defeating Vera’s whole literary vision.) She is furious that Ellen has not even tried to find a publisher for her book.
2. Meanwhile, back in
Cambridge, Tiffany had begun dating a “townie” biker, much to Vera’s dismay,
and her grades had slipped a bit.
Instead of all A’s, she had received one B. With characteristic rigidity, Vera wrote to The Coop, informing
them that she would no longer pay Tiffany’s bills there. Just before receiving that letter, The Coop
sent a bill to Vera for charges Tiffany had made to her account totaling more
than $1,500, mostly for clothes and a cellular phone (so Tiffany could chat
with “Lennie” while he was on the road with his buddies). The Coop’s bill and Vera’s letter crossed in
the mail. Subsequently, Tiffany
returned the cell phone to The Coop.
(Lennie had run over it with his motorcycle, totally destroying it). She also returned a $500 llama-hair sweater.
(“It made me look fat,” she said.) The
Coop is seeking payment of the bill from her and from Vera, and Tiffany has
been pleading with Vera to pay it.
(“You promised, Aunt Vera, and anyway, it’s not like my grades exactly
went in the tank!” Tiffany said.)
3. And last, but not least, Irene, in a moment
of fleeting lucidity, realized that her prized glass frog, worth $1,000, had
been inadvertently placed on the $25 table at the sale. Although she did not remember to whom she
had sold it, her son did, and on Irene’s behalf, he called Vera and offered to
return the $25 if Vera would just give his mother back her frog. Vera refused.
Vera has
consulted you regarding all these matters.
She wants to know what possible claims arising out of contract law she
may have against Ellen, and what her liability to Ellen may be.
Additionally,
she wants to know what her rights and obligations are with respect to Tiffany’s
Harvard Coop bill. Can Tiffany maintain
an action against her? Can The Coop do
so? Can The Coop recover from
Tiffany?
What are Vera’s
rights and liabilities with respect to Irene’s frog?
Discuss
thoroughly all contract law aspects of these matters. Be sure to consider what positions the opposing parties might
reasonably take to any claims and defenses you identify out of these facts.
Vera
and Ellen:
The first question in this exam
dealt with Vera’s claims against Ellen and any liability Vera may have to Ellen. The most obvious problem here of course was with parol evidence,
that is, any evidence, oral or written, that would vary or contradict the terms
of the writing. You should have clearly stated the parol evidence rule, and
given careful attention to defining all terms, so that your understanding of
the meaning of the rule’s language would be apparent to me. Many of you stated the rule in a less than
precise fashion, which usually resulted in a misstatement of it. It applies not to “writings,” generally, but
to integrated writings, intended as such by the parties.
In the written contract, the letter from Ellen that
Vera signed, Ellen says she will bill Vera at a reasonable hourly rate for
editing, and that Vera will have to pay the $5,000 agency fee only if a
publisher can be found. The problem is,
in her prior phone conversation with Vera, Ellen said, “…you don’t have to pay
me anything unless I sell your book.”
So, if the writing allows her to bill separately for the editing
expenses, the parol conversation certainly appears to be a contradiction to the
writing and would be excluded under the rule.
In
order for Vera to prevail on this issue of payment for the editing fees, there
has to be a way around the parol evidence rule, some exception or finding of
inapplicability. Some of you took the approach that this writing was a only a partially integrated agreement. This will not help, because the parol
testimony is conflicting, not consistent with the writing. The rule would still keep it out. A number
of you thought that since parol evidence is admissible to show fraud, an
allegation of fraud against Ellen was the way to go. It rarely is, and I don’t think there is any good evidence of
fraud here.
The better way was to argue that Vera should attempt
to persuade a court that there was an ambiguity in the writing. If the writing can reasonably be read in two
different ways, then the prior oral conversation will be admissible to help
determine which meaning was intended.
While you should at some point have discussed the matter of total and
partial integrations, and the differing ways courts deal with parol evidence
when one or the other type of writing is present, the fact is, when there is an
ambiguity in the writing, it really does not matter whether the writing is
fully or only partially integrated. Any evidence which may reasonably
elucidate the intended meaning of ambiguous written language will be allowed to
assist the jury.
Vera’s claim would be that the writing is ambiguous
on the matter of the applicability of the phrase “…only if I find a publisher for
the manuscript.” Does that phrase apply
just to the $5,000 literary agency fee, or does it also apply to the previous
term, “I will…bill you at a reasonable hourly rate” for the editing? In evaluating this claim, you should have
discussed the fact that a judge would first have to make a threshold
determination that the writing is reasonably subject to two
interpretations. To make this
determination, he or she would consider the parol conversation (as well as anything
else there might be) for what it could reveal about the parties’ intent. If the judge concluded that the writing
could reasonably bear more than one interpretation, and that the parol evidence
is helpful, he would allow the jury to hear it, to help them decide which of
the two possible meanings was intended in the writing, even though the two
meanings are contradictory, and even
if the writing itself appears to be a total integration. While there is no question that this is a
complicated and sometimes frustrating area of contract law, I was a bit
distressed that quite a number of you did not seem to understand it
sufficiently.
An underlying issue here is whether Ellen’s two
“performances” -- editing and finding a publisher -- are part of an “entire”
contract, or are “severable.” If the contract is entire, then Vera’s
interpretation of it makes sense. She
need not pay anything at all unless Ellen finds a publisher. On the other hand, if the two duties are severable,
which seems much more likely (given that they are two very different tasks),
then Ellen has a good case for getting her editing expenses even without
finding a publisher. Many of you
correctly recognized that quantum meruit is sometimes available even to a
breaching party, to avoid the unjust enrichment that may result if beneficial
work is retained by the other party to the contract. Vera will of course argue that none of the editing was of benefit
to her, and she should owe Ellen nothing for it, whether in contract or by
means of some restitutionary theory.
What is the effect of Ellen’s doing a lousy job on
the editing, as Vera believes she did?
Is this a breach? Is it material
enough that Vera need not pay her for the work? These were matters the scenario raised. The contract says nothing about payment for editing being
conditioned on Vera’s satisfaction with Ellen’s work, and it is unlikely such a
condition would ever be read into this kind of an agreement. That is, the parties had better make it an
express condition if they want that result.
On the other hand, perhaps Vera has a good argument here that Ellen
materially breached the agreement to edit, inasmuch as Vera’s goal with the
book( assuming Ellen knew it) was to produce a number of one-sentence short
stories. If Ellen chopped up her
sentences, it would defeat the purpose of the book, and would certainly seem to
be a breach of the agreement.
Vera is upset that Ellen didn’t even try to find a publisher. This raises the issue of what exactly Ellen
promised. Again, what does the writing
say? It does not appear that she is
specifically promising to try to find a publisher, though her $5,000 agency fee
depends on it. This arguably raises the
illusory promise problem, and you should have discussed that. Did Ellen promise to find a publisher or
not? Can such a promise be implied
here, as in the Lady Duff Gordon case?
A number of you appropriately raised the issue of
definiteness with regard to the written contract. What does “reasonable editing fees” mean? How much time is Ellen to be given to do
this work? I think these are terms the
court could supply, though some would argue the contract is fatally indefinite
when it fails to state a time for performance and a price for the editing
work.
This section of the facts also raised a number of
issues. First, there is Vera’s promise
to The Coop, to pay Tiffany’s bills for “books and other necessities.” Can The Coop recover from Vera on this last
bill for the cellular phone and the clothes?
Presumably not, at least as to the cell phone and the $500 sweater,
which would seem to be non-necessities.
It may appear that Vera has made a “promise to answer for the debt of
another,” with statute of fraud implications, but this is a direct promise to The
Coop, saying, in essence, “Send Tiffany’s bills to me and I will pay
them.” A true surety promise is one to
cover for the debts of another, if that
person does not pay them. There is
no statute of frauds problem here anyway, since Vera did sign a writing,
agreeing to be charged. I did not expect
you to discuss the statute of frauds here, but some of you did, which was
fine.
The main issue here required discussion of how this
contract between the Coop and Vera was formed, and how it could be
terminated. Vera’s letter was a
continuing offer for unilateral contract.
It was accepted each time the Coop sold goods to Tiffany. Many of you thought acceptance occurred when
the Coop mailed its bill to Vera. In
fact, though, Vera’s liability for the purchased books and necessities would
attach the moment the Coop sold them to Tiffany on Vera’s credit. Mailing the bill was just a means of
notifying Vera that the Coop had accepted, and telling her how much she owed.
If, as many of you thought, the contract offer were
accepted each time the Coop sent Vera a bill, then there would be a mailbox
rule problem when Vera’s revocation of her continuing offer did not reach The
Coop before the Coop had mailed its bill (ie dispatched its acceptance) to
Vera. I intended the question to raise
this issue of the mailbox rule, and expected you to tell me how it works. I hoped, however, that you would conclude
that the acceptance occurred at the time of sale to Tiffany, that is,
substantially earlier than the Coop’s receipt of the mailed revocation by Vera
of her continuing offer. In order for
the revocation to be effective, so as to relieve Vera of liability at least for
any necessities Tiffany might have bought, Vera’s letter reneging on the deal
would have had to reach the Coop before they sold the goods to Tiffany. The fact that Vera’s letter of
revocation and the Coop’s bill crossed in the mail is thus of no
importance. Still, you should have
recognized this as an issue prompting discussion of both the formation of unilateral
contracts and the mailbox rule.
As to The Coop’s turning to Tiffany for payment of
the outstanding bill, it would seem they have agreed (in fact they were
“thrilled”) to look to her Aunt for all payments for “books and other
necessities.” For these items, the
Coop’s relationship to Tiffany is more like that of a mail order company that,
on order from Y (Vera, here), sends a package to X (Tiffany, here), but charges
Y’s credit card. There would be no
basis for suing X in such a case.
Still, there are the items that Vera had not agreed to pay for, that is, all the non-necessities. For these, presumably, Tiffany would be
liable. The complication here, of
course, is that Tiffany is a minor.
This required a discussion of the doctrine that permits a minor to
disaffirm her contracts for anything other than the purchase of necessities.
She is not “incompetent to contract” as some of you said. She can honor her contracts, if she chooses,
and the other party will be bound. She
alone can choose to disaffirm the contract because of her age, however. If she does so, Tiffany is not “revoking” or
“rejecting” her contract, as many of you said.
She is “disaffirming,” a term of art you need to know and use. What this means is that she can get her
money back, and she must give back the stuff she still has. If she no longer has it, or it has been
trashed, she need not return it, but may be liable for any benefit she may have
received from it. This rule applies to
“non-necessaries,” as the courts tend to put it. This is all the Coop should be interested in pursuing Tiffany for
anyway, because Vera is stuck for the necessaries.
Can Tiffany maintain an action against her Aunt,
once Vera has refused to continue paying for her books and necessities? This raises the issue of substantial
performance and conditions. Vera’s
offer was of course subject to a condition, that Tiffany “keep getting those
A’s.” The question is, is Aunt Vera’s
promise subject to a condition of strict
performance by Tiffany, so that even one B is inadequate performance of the
condition (in which case Vera’s duty to pay would not arise), or could Tiffany substantially
perform this condition, so that her Aunt would still have to pay, perhaps
some slightly reduced amount? Generally
speaking, express conditions like
this one must be strictly performed, and substantial performance will not be enough to activate the other
party’s duty to perform.
The third part of the fact scenario dealt with
competency and the issue of mistake, in this case, unilateral mistake in Irene’s “inadvertently” putting the valuable
frog on the $25 table in the first place.
Does it matter that Vera knew (enough if she “should have known”?) the
frog was the only valuable piece there?
It may well matter, as we know a party is not permitted to snap up an
obviously mistaken bargain, even when the mistake is only on one side. The general rule is of course that
unilateral mistakes are not “forgiven” unless the status quo can be easily
restored, and the situation is not one where the mistaken party took a
conscious risk of being wrong about her judgment of the value of the
piece. This is not a mutual mistake as
to some material fact about the piece.
There was no assumption of the risk of being wrong about the value or
qualities of the frog. There was simply
Irene’s mistake in putting a known valuable item for sale with a group of much
less pricey ones. You all pretty much
identified that this was a mistake, but in many cases failed to read the facts
carefully to see where the mistake was, and who made it.
The other issue raised here is whether this contract
should be rescinded because of Irene’s lack of
capacity at the time of the sale, as evidenced by her strange remark to
Vera, and her acknowledged “forgetfulness.”
You should have discussed the cognitive awareness and behavioral control
aspects of mental incapacity when it is raised to support rescission of a
contract. Most of you recognized the
issues in this Irene scenario, but your discussions of the principles varied
considerably.
On the whole, the vast majority of you did a very
satisfactory job on the test. There
were 34 grades of B- or above, and 30 of C+ or below. Much of this is difficult material, and given the changes in
faculty and uncertainties of this year for you in Contracts, I was pleased
about your performance. I very much
enjoyed the chance to be with you all this semester, and I will look forward to
seeing you as you progress through law school.
[1] Vera
greatly admired the late Richard Brautigan, and especially this exquisite very
short story:
“ ‘It’s hard to
live in a studio apartment with a man who’s learning to play the violin,’ she
said, as she handed the still-smoking revolver to the police officer.”
Alas, Vera was
some distance from perfecting the art.
Thus far, her efforts had been less than wildly successful. Her shortest micromini story was a
one-sentence octopus that ran to eight pages of manuscript. Her only consolation was that she felt at
least she was emulating William Faulkner
[2] without an
umbrella
[3] As you all
no doubt know, until recent years, Harvard women were in fact enrolled at
Radcliffe College.