Haugen Final Exam Facts and Comments
Fall, 2001
§ 4 Contracts Exam Facts (Fall, 2001):
Bud,
a struggling college student, was trying to earn enough money during the summer
months to pay at least part of his college tuition. From his early youth, he had earned pocket money by cutting lawns
and maintaining the yards of his neighbors, so he decided to establish a lawn
maintenance business and advertise his availability. Accordingly, on April 15, 2001, he posted a flyer in a neighborhood
supermarket window and on a bulletin board on the wall of the local laundromat,
where people customarily posted notices about their willingness to provide
babysitting and similar services. Both
notices read as follows:
Bud
Hill and crew provide skilled, experienced lawn care and maintenance
service. We have several years of
experience in cutting, fertilizing, trimming and doing similar lawn work. We are available to maintain your lawn in fine
style for the modest charge of $10.00 per hour plus the cost of any seed,
fertilizer, or similar products. We
furnish all needed equipment.
Call 651-298-0706
for a FREE estimate
The
ads generated many responses, and Bud was soon busy maintaining lawns in the
local area. When Bud would receive a
call, he would arrange to look at the lawn in question and give the property
owner an estimate of how much time it might take to do the work that would be
needed to keep the lawn in tip-top shape.
If the property owner agreed, Bud would promise to do the work on a
certain day; then he would provide the service and either collect his fee or
leave a bill with the property owner.
On
Tuesday, May 1, Bud received a call from Ralph, the owner of a home at 1223
Bedford Street. Ralph told Bud during
their phone conversation that he planned to be out of town on an extensive trip
during the entire summer and that he wanted the lawn maintained until his return
in September. That afternoon, Bud met
with Ralph at the subject property and looked it over; he then said to Ralph,
“I, or one of my crew, can cut the lawn and do the usual trimming for fifty
dollars per time. Either we can cut it
when it needs cutting and bill you for each time, or we can provide the
Summer-Long Special deal. You would pay
me six hundred dollars now, and we would cut the lawn as often as needed
without further charge. This is a real
advantage to you if it is a rainy summer.”
“Let
me think it over,” said Ralph. “I will
be in touch no later than Friday.” Bud
replied, “That’s great, but I must know by that time, as I have some other
prospects, and I can take only a limited number of jobs.”
Later
on May 1, Bud also visited Aggie, an elderly woman who was a long-time friend
of Bud’s family, and who, though not a blood relative, was commonly called Aunt
Aggie. Aggie lived alone, but suffered
from arthritis, and found it increasingly difficult to do her own household
chores. When Bud came to visit her, he
said, “Aunt Aggie, you need some help around here. Your lawn is in pretty bad shape. How about if I take the responsibility of maintaining it for you
this Summer? I know that you aren’t
rich, and, of course, I will do it without charge.” Aggie’s eyes filled with tears as she placed her gnarled hand
over his. “Bless you, Buddy,” she
whispered. “You are a good boy.”
On
Monday morning, May 7, Bud, who had been busy throughout the weekend, listened to
his answering machine messages that had accumulated over the preceding three
days; he heard Ralph’s voice saying, “Hey, Bud, it’s Ralph--It is Friday night;
I am mailing you a note as I leave town.”
Later on that same day, Bud received in the mail a six-hundred dollar
check and this note from Ralph:
Friday, May 4, 2001.
Bud: I’ll take the Special. I would appreciate it if you could start
ASAP as the lawn is already looking a little shabby. Here is a check. I am
leaving town today. See you in September.
Regards,
Ralph.
Bud
put the note and check in his desk drawer, where the check became mixed with
some other documents and forgotten. Bud
then immediately called his friend, Orville.
“Orv, old pal,” said Bud heartily, “I have a bit more work than I can
handle this summer. How about it if you
cut and maintain one of my customer’s lawn for me? I’ll pay you five hundred bucks for the season to cut and trim
over at--uh, let me think--oh yeah, 1225 Bedford. The owner is out of town for the summer, so you can do it at your
convenience, just so it is well maintained.
What do you say?” Orv, much in
need of cash, agreed, and performed admirably, taking excellent care of the
lawn at 1225 Bedford. Bud, confident
that Orv would do a conscientious job, did not check on Orv’s work, and thus
failed to realize that while Orv was, as instructed, cutting at 1225, Ralph’s
lawn at 1223 was becoming an unruly and unattractive mass of weeds and
crabgrass.
Jack
and Liza, owners of 1225 Bedford, were, by an odd coincidence, spending the
entire Summer at their second home at Lake Miasma, a hundred miles from
town. On June 1, Liza, who was visiting
friends in town, stopped to pick up some more summer clothing at her home at
1225 Bedford. Pleased with the fine
appearance of the lawn, she smiled as she mounted the steps. “I was sure that Jack would forget to
arrange for lawn service,” she thought.
“His memory must be improving.”
She observed, but paid little attention to, the small, tasteful sign at
the front of the property that said, “This lawn lovingly maintained by Bud’s
Lawn Service. 651-298-0706.”
Upon her return to the Lake Miasma home, Liza said to Jack, “I stopped by the house. The lawn certainly looks good.” Jack, puzzled, furrowed his brow but did not respond. “Oh, oh! I forgot again to arrange for lawn service,” he thought. “Liza is giving me another of her sarcastic digs. Well, the heck with it. I will have it taken care of when I go to town next week.” The matter immediately slipped Jack’s mind again, and he did no more about it. Neither Jack nor Liza visited the Bedford Street house again until September.
In
September, as Bud prepared to return to Mildew U. where he was to enter his
third year as a pre-law student, he stopped to see Aunt Aggie, who served him a
glass of wine and said, “You know, Buddy, I am old, but I am not really
poor. I have a rather nice income from
a trust that Dudley, my late husband, left for me. I have no cash handy now, and I don’t know where my checkbook is
at the moment, but I will send you a thousand dollars for being so thoughtful
and for taking such good care of my lawn this summer.”
“Well,
Aunt Aggie--I am overwhelmed. Are you
sure that you want to do this?” When
Aggie responded affirmatively, Bud said, “This is really great. I can sure use the extra money.”
Bud
returned to school and threw himself into campus life and his studies. Anticipating the arrival of Aggie’s check,
he bought on credit for his personal library a set of encyclopaedias and
several other reference books, each volume of which he carefully marked with
his name and address. When, after three
months, the bookstore pressed him for payment of the $800 obligation that he
had incurred, he wrote to Aggie, asking about the promised thousand
dollars. Aggie’s reply was cold. “I have changed my mind,” she wrote in
response. “I have learned that you,
unlike your parents, are a Democrat. I
will thank you to trouble me no more.”
1. When the mistake is discovered, Ralph,
outraged, sues Bud for damages because of Bud’s failure to maintain Ralph’s
lawn. Who wins and why? Discuss fully, raising all reasonable claims
and defenses that the parties might assert.
Do not discuss the nature or extent of damages.
2. Bud wants to recover the value of a
Summer-Long Special from Jack & Liza.
Is he entitled to do so? Discuss
fully, raising all reasonable claims and defenses that the parties might
assert.
3. Bud sues Aggie for the thousand dollars that
she promised him. Is he entitled to
recover anything? Discuss fully,
raising all reasonable claims and defenses that the parties might assert.
Professor
Haugen’s Comments To § 4 Contracts Exam (Fall, 2001)
While
this was not a particularly difficult exam, a couple of issues caused some
fairly common problems, and the overall results were a bit disappointing,
though not bitterly so. The first
semester’s grade is not a final grade, as you know; it counts for 40% of the
final grade you will receive in the course at the end of the year, with the
other 60% coming from the 3-hour final exam in May. Do not despair, then, if you did not do as well as you or I had
hoped. This grade will not appear
anywhere on your transcript, and there is plenty of time and opportunity for
improvement. I hope these comments and
those I have written on your papers will help you understand what you may have
missed here, and how you can do better.
In general, most of you did a pretty good job of stating the rules,
though some did not do this consistently.
A few students discussed matters that were not raised by the questions,
e.g., the relationship between Bud and Orv.
Some writers spent too much time talking at some length about matters
that were worth only a few sentences, e.g., the fact that the posted notice was
not an offer, but a solicitation or invitation for property owners to open
negotiations. Some of you did not seem
to understand certain principles, or the way in which those principles might be
applied. A surprisingly large number of
students failed to read the facts carefully.
This caused a number of people to fail to discuss certain rules,
particularly in response to the first question.
The
answer to the first question depends upon whether there was a contract between
Ralph and Bud. Here you should have
discussed the basic principles of contract formation, defined the terms, and
stated the rules that govern offer and acceptance. A few writers spent a good deal of time wondering who might have
made an offer, some even thinking that the offer might have come from
Ralph. This is clearly not the case, at
least near the beginning of the bargaining process. It seems quite certain that Bud has made an offer to Ralph. One might cavil over the question whether
the offer was specific and definite, but, granting that “the usual trimming” is
a bit vague and that people might disagree about when a lawn needs
cutting, Bud and Ralph seem to
understand the basic terms of the proposed deal.
A
few students got mixed up because Bud gave Ralph the choice of two plans--one
involving separate payment for each cutting, another being the Summer Special
that required an advance payment of a flat amount for all of the cutting that
might be needed. A few of you erroneously
thought this choice raised an issue relating to illusory promises. Those rules come into play not, as here,
when the offeree is given the choice of accepting one or another payment plan
as part of his assent to form the contract.
The rules relating to illusory promises become relevant only when a contract has been formed, and by its
terms it permits one party to perform his part of the deal by doing either of
two things. In such a situation, if
each of the alternatives is sufficiently burdensome (ie “detrimental” ) that
it, standing alone, would constitute consideration, the promise is not
illusory. If, however, one of the
options would not be recognized by the law as legally valuable so as to
constitute consideration for the return promise, the contract would fail. All of this, however, has absolutely nothing
to do with the offer in this case.
A
few of you thought that the payment-per-time method offered a unilateral
contract, while the summer-long special offered a bilateral contract. This was clearly wrong, for reasons
discussed below.
The
most common formation problem here, surprisingly, was that a great many of you failed to read the problem
carefully. Those students did not
notice, or they did not appreciate the importance of, the fact that Bud, the
“master of the offer,” had imposed a special limitation on the offeree,
Ralph’s, ability to accept. Bud had
said that he must know by “no later
than Friday” whether or not Ralph would accept. Most people understood that the offer would remain open for the
time stated in the offer, but that it would lapse at the end of that time. A few of you wanted to discuss option
contracts and Bud’s ability to revoke the offer even before the elapse of the
stated time (a tendency I understand, given the amount of time we spent on
matters of revocation)[1], but here, this was a waste of time, as
nothing in the facts suggested that Bud even thought of doing so. If the
acceptance were to be effective before the lapse of the time stated in the
offer, a contract would be formed; if the acceptance were to be late, there
would be no contract.
As
we know, the offeree may accept in any reasonable manner. Here, Ralph attempted to accept by
mail. His vox message of Friday cannot
be an acceptance because he did not manifest an intention to be bound by the
terms of the proposed deal; he simply said that a written note was coming by
mail, essentially a meaningless phone message in the context of this formation
problem. Here a surprising number of
students, not stating, and apparently not thinking carefully about, the
definition of acceptance, jumped to the conclusion that the phone call was an
acceptance.
If
the phone call did nothing to advance this bargain, what about the mailed note
that was sent on Friday? Ordinarily the
mailbox rule would say that the
acceptance is effective upon dispatch. That rule would only apply if the mail
were, under the circumstances, a reasonable way of accepting (which, given the
timing here, it likely was not), and, most important here, if the offeror had not imposed some other
requirement on the acceptance. Almost
everyone knew the mailbox rule and stated it.
Unfortunately, it does not apply to this situation. Bud has said that he “must know by that time [no later than Friday].” Inasmuch as a letter mailed on Friday evening would not result in the recipient’s knowing of its contents on Friday, the
purported acceptance would be ineffective.
Writers who assumed that the mailbox rule applied, and who simply
resolved the problem in this way, suffered.
Students
who recognized that the purported acceptance came too late, realized that they
had to go on with the formation analysis.
Although some courts (such as the one that decided the old case in the book
involving the sale of hay) have concluded that the lateness of an acceptance
can be “waived” by the offeror, and that when that happens a contract will
result, the general rule seems to be that the late acceptance operates as a
counteroffer, or a new offer from the original offeree to the original
offeror. In such a case, the contract
would not be formed unless and until the original offeror, Bud here, accepts
this new offer.
Did
Bud accept the new (or counter-) offer from Ralph? Notwithstanding the fact
that Bud did not receive Ralph’s letter until Monday, he seems to have assumed
that they had a deal. He went ahead and
made arrangements to have Ralph’s lawn cared for (though, as we know, he made a
mistake about Ralph’s address), and, though he did not cash Ralph’s check, he
did retain it. Bud did not communicate
with Ralph, however, and the facts suggest that Ralph, now out of town, was probably not reachable anyway. A few people who went this far in the
analysis appropriately suggested that Bud accepted by beginning performance
(albeit on the wrong property), or he
accepted by his silence, since he clearly intended to do so, and Ralph did not
seem to want any further communication or confirmation that they had a
deal. Those students who resolved the
problem simply by misapplying the mailbox rule did not discuss these aspects of
the problem at all, and their answers were incomplete as a result.
Some
students had other difficulties with
this formation problem. They somehow
concluded that whoever made the offer here, the question raised an issue of
unilateral contract theory. This was
wrong. It seems obvious that Ralph
believed that he was creating a deal with Bud by his letter. Whatever Ralph was up to, he surely was not
making an offer for a unilateral contract.
Why, after all, would he leave town, having made an offer with no way of
knowing whether it might or might not be accepted? Similarly, why would Bud offer a unilateral contract to a person
who would be gone all summer, when each would certainly need to be able to rely
on the promise of the other during those three months of
non-communication?
A
few students also thought the check raised accord-and-satisfaction rules. While, had Bud obtained payment of the
check, that might have been a clear manifestation of his willingness to enter
into the bargain that would have been proposed by Ralph’s letter and check, the
check was emphatically not an offer of an accord. Those rules apply only in cases of a dispute on an unliquidated
claim.
This
question called for an analysis of some of the other methods we studied for
getting to a contract, or for becoming entitled in some other way to
recovery. Specifically, you should have
discussed implied-in-fact contracts,
such as that found in the Day v. Caton
case at p 55 of our text, and the
non-contract theory called quasi-contract
[or, “implied-in-law” contracts – a misleading term), to which we compared it at several points during the
semester.
You
will remember that an implied-in-fact (or simply “implied”) contract is formed
in some non-verbal way. It is founded
on mutual assent and is as good and binding as an “express” contract; it is
simply created by conduct of some sort (including, sometimes, inaction), rather than words. It often raises, as it does here, a §69 “silence as acceptance” issue. Many of you saw that §69 was implicated in
question 2, but you did not identify the “offer” to which silence might operate
as acceptance, nor locate both within this important doctrine of implied
contracts.
The
rule as set out in the relevant subsection of Restatement §69 says that silence can
operate as acceptance of an offer if an offeree (a) knows that the offeror is
providing the offeree with a valuable benefit, (b) has a reasonable opportunity
to decline that benefit, and (c) knows or should know that the offeror expects
to be paid for providing the benefit.
The “offer” to which the silence assents in such a case is the provision
of the “valuable benefit” to which the section refers. Many students argued that silence may
constitute acceptance, and correctly identified the relevant part of § 69, but then went on to say
that there was no contact at all between Bud and Jack & Liza. This demonstrated a failure to understand
this important doctrine of implied contracts.
In
any event, it was important to analyze the facts here to determine the
applicability of §69. When, on
June 1, Liza saw that the lawn was being well maintained and noticed the sign
for Bud’s lawn service, she surely knew
that the services were being rendered, and by whom; furthermore, she certainly
ought to have known that what seemed to be a professional lawn-care business
would expect to be paid for maintaining the lawn. Although until that time she might not have had a chance to know
about the service or to be able to decline, once she saw the sign with the name
of the service-provider and the phone number, she should have known how to call
and decline the service. Of course,
the somewhat mystifying communication methods of Liza and Jack resulted in
their not notifying Bud of the mistake and telling him that they did not want
the service. Had they had a less
dysfunctional manner of communicating, they could have made a decision about
whether to terminate the service, but their poor communication style should not
result in their receiving this benefit at the Bud’s expense.
Quasi-contract, as we discussed, provides
a remedy that is based not on mutual assent, but rather, on the prevention of unjust enrichment. It involves the law’s “raising an obligation
to pay” the reasonable value of
benefits received, even when there
has been no assent to them by the recipient.
As you recall, we talked about cases that seem quite obviously to
fall within this concept, eg: the
doctor who comes upon the unconscious patient, administers services, and then
sends a bill.[2] We also talked about the cases in which the
law would not raise such an
obligation to pay for benefits received,
that is, those cases in which the benefit was conferred either gratuitously [as a gift, or otherwise
without expectation of payment], or officiously [without request from the recipient, or
any reasonable basis for believing that the recipient would want the benefit or
be willing to pay for it. We sometimes
referred to a person providing benefits to another in this situation as a “mere
volunteer” or an “officious intermeddler.”]
Here,
certainly Bud was not providing the service gratuitously. While he was mistaken about the property, he
believed he had an agreement with the owner to perform professional
services, for which he would be paid,
on the lawn. It is also fairly certain he
was not an “officious intermeddler,” again, because he believed he was acting
at the owner’s request. Even if he were acting “officiously” as to Jack and
Liza, he could have been informed, as
of June 1 at least, that his services
were not wanted. Under all of the
circumstances, it seems only fair that Jack and Liza, having received the
benefit, should bear the cost, at least of the work done after June 1, lest
they be “unjustly enriched” owing to Bud’s mistake and their failure to take
simple action to correct it.
Many
cases, this one and the Day case
among them, suggest by their facts both
an implied contract analysis and a quasi-contract analysis. Sometimes the facts of a case seem to point
to a sort of silent assent by the recipient of the benefit [implied contract];
other times, when assent is less clear, to a sense that, under all the
circumstances, it would be unfair – a case of unjust enrichment – not to
require the beneficiary to pay for what’s been received (quasi-contract). The conclusion is far less important than
your recognition that both theories might be argued in a case like this one.
This
question was about consideration and promissory estoppel. Many of you chose to discuss the elements of
consideration in the first question when you wrote about contract formation and
what’s required for a valid contract.
That was fine so long as you recognized that the presence or absence of
good consideration was not an issue
in the facts of the first question, and any general description of
consideration you wrote there did not relieve you of the obligation to analyze
the subject thoroughly here, though of course you needn’t have repeated
definitions of terms and general statements of explanation of the
doctrine.
You
should first have explained (either in question one or here) the principle that
gratuitous promises are generally not enforceable, and that the law only
enforces promises made as the result of a bargain. That is, a promise must be supported by what is called consideration – something of legal value for which the promisor has
exchanged his promise, or “bargained.” In order to have legal value, the thing sought and received by the promisor must
result in a legal benefit to the promisor or a legal detriment to the
promisee. Many people began the
discussion of question three with this explanation, though some of you then
jumped precipitously into an exegesis on the subject of promissory estoppel
without resolving the consideration question.
In
this case, Aggie promised to give Bud money in appreciation for the good work
that he had already done on her lawn.
While the work provides plenty of legal value, it was not bargained for,
since it had been done before Aggie’s promise was made. The promise was not made in exchange for the
work. This would be an example of what
is sometimes called past consideration. Perhaps the promise arose as well out of a
feeling of moral obligation. Neither
“past consideration,” as it is inaccurately called, nor moral obligation
constitutes consideration under ordinary circumstances. Thus, Aggie’s promise was gratuitous and
normally would not be enforceable.
A
few of you correctly considered the possibility that Bud might argue that the
rule set out in Restatement §86 should apply.
This is the rule that allows enforcement of a promise made in recognition
of a moral obligation arising because the promisor has received a valuable
benefit from the promisee in circumstances where injustice would occur if the
promise were not enforced. This would
probably be a losing argument, as the rule seems to be limited to situations in
which the promisee has, in providing the benefit, suffered some serious
detriment, such as a personal injury.
In any case, by its own terms, §86 does not apply when the promise is made in recognition of a past
benefit that was originally conferred as a gift or when the promisor is not
“otherwise unjustly enriched.” In this
case, Bud did not suffer a serious detriment, and his original promise to cut
Aggie’s lawn certainly appears to have been a promise of a gift. This is really the only context in which Bud’s promise is relevant to discuss at
all. Some of you spent considerable
time and wasted energy talking about Bud’s promise and the fact that it was
gratuitous, and meant as a gift, as indeed it was. Other than as an element in the analysis of § 86, however, Bud’s promise had little to do with
the question that was raised. It
certainly did not raise any
discussion of the pre-existing duty rule, into which a number of you
wandered. That rule is entirely
inapplicable here, as Bud had no pre-existing duty to Aunt Aggie at all.
The
focus of the question is on Aggie’s promise,
and whether it was supported by anything other than moral obligation and past
consideration, which it appears not to have been. Only after this consideration analysis, should you have gone on
to recognize, as nearly all of you did, that her promise may give rise to a
recovery based on promissory estoppel.
This doctrine allows a court under certain circumstances to enforce a
promise that is not supported by consideration when it seems unjust not to do
so. The elements of Restatement Second
§ 90 must, however, be satisfied if the promisee is to invoke this
principle. (1) There must have been a
promise; (2) the promisor must
reasonably have expected that the promisee would change positions in some way –
that he would act or forbear from acting – as a result of the promise; (3) the
promisee must then indeed act or forbear, and be “justified” or reasonable in
doing so; (4) finally it must be
necessary to enforce the promise to avoid injustice. You should have laid out these elements and applied them to the
fact situation.
Aunt
Aggie clearly made a promise to pay Bud a thousand dollars. One might argue about whether she reasonably
should have expected that Bud would be induced to act on that promise. She had no reason to believe that he would
do anything in particular, but he did tell her that he could “sure use the
extra money.” This ought to have
suggested to Aggie that he might well do something in anticipation of receiving
the money. (Many writers thoughtfully,
and no doubt correctly, observed that students always need money, and that
anyone ought to have understood that a student might go into hock in anticipation
of receiving such a gift.) Bud did, indeed,
act by committing himself to the purchase of expensive books. Although, as some writers suggested, perhaps
he could have used these books in the library rather than buying them for his
personal use, the acquiring of reference books for a student seems
reasonable. Some people argued that it
would never be reasonable for Bud to spend money before he received it, and
that per se his actions were not
justified or reasonable, while others, citing the long-standing friendship
between Aggie and Bud’s family, took the opposite position. Certainly either conclusion is
supportable.
Finally,
the most serious question is whether injustice could be avoided only by
enforcing the promise. This involves
considering the facts and weighing values.
Aunt Aggie seems to have the money to fulfill her promise, and there is
nothing to explain her sudden change of heart, other than her awareness of
Bud’s shocking political persuasion. On
the other hand, the amount involved is not large, and Bud will probably not
suffer too much by being dunned for the money for a while. He will have to pay for the books at some
point, but he does have them and will benefit from them, and he likely will be
able to scare up some money at a future date.
In any case, the court might limit the extent of any recovery from Aunt
Aggie to the $800 that Bud agreed to pay for the books, as this was the extent
of his reliance, and it might be a way for the court to limit recovery to the
amount necessary to avoid injustice, as the rule allows it to do.
As
“injustice” is central to the whole doctrine of promissory estoppel, you should have analyzed these factual
matters thoroughly and reached a conclusion, as a court would do, about what
would best prevent or at least minimize injustice. A number of students were quite hasty at this point in the test
and stated conclusions without any real supporting argument. Some of you, for example, stated that it
would be unjust to refuse to enforce the promise, but then failed to give any
explanation of why that might or might not be so. Others were not very thorough in discussing promissory estoppel
at all and slid very lightly over the elements. Promissory estoppel was such an
obvious issue in question three that there really was no excuse for not discussing
and analyzing its elements thoroughly.
[1] Certainly no one was penalized for adding a paragraph demonstrating that he or she had mastered this concept, so long as the student recognized that it was not really an issue raised by the facts of the problem.
[2] Once again, we must acknowledge the fine character of our own Dr. John, who indicated he would not send a bill in such a case, whatever the law would permit him to do.