ContractsII
Knapp
SP11
Basic Contract Law
Public Policy
· Public policy can be the reason a court’s role is limited, rather than the reason a court has its power
· Rest 2d talks about “unenforceability” (rather than illegal Ks that were criminal or tortious)
o §178 – courts must balance interests
§ is unenforceable on grounds of public policy if legislation says unenforceable or interest in enforcement is clearly outweighed by public policy
· interest in enforcement – take into account:
o parties expectations
o forfeiture that would result if enforcement were denied
o special public interest in enforcement of particular term
· interest in nonenforcement – take into account:
o strength of policy as manifested by legislation/judicial decisions
o likelihood that refusal to enforce will further the policy
o seriousness of misconduct and extent to which it was deliberate
o directness of xtion x misconduct and term
Rights of Cohabitating Couples
RULE: Policy in favor of marriage dictates that we not recognize marriages that haven’t been formalized. Exception only for where one person reasonably believes he or she is in a lawful marriage because of deception/mistake.
Hewitt v. Hewitt
Cal. Ct. App. (1967)
π got pregnant while in college, Δ said they would live as h + w, she supported his career as pediatric dentist @ which he now earned more than $80k/yr
Issue: whether π who lived w/ Δ for 15 yrs in unmarried, family-like relationship w/ 3 kids may recover “an equal share of the profits and properties accumulated by the parties”
· π cites Marvin v. Marvin where CA Sup Ct said ≠ against public policy to recognize nonmarital contractual relationships unless K founded on meretricious sexual relationships
· Court looks @ Illinois Marriage and Dissolution Act saying the act will be liberally construed – there had been CL marriage before 1905, but no longer has it b/c legislative intent in enacting this act is that they want to encourage/formalize marriage
o Rationale: CL marriages could be a source of fraud to assert rights that don’t actually exist
· The Δ’s promises don’t matter enough to do away with other policy concerns
· Act provides that unmarried person may acquire the rights of a legal spouse only if he goes through a marriage ceremony and cohabits w/ the other person in the good-faith belief that he is validly marriage – when he learns that marriage ≠ valid, his status is terminated
RULE:
Salzman v. Bachrach
Sup. Ct. of CO (2000)
Issue: whether π can recover funds when transfer of money was in consideration, partly or wholly, for a cohabitation agreement
Couple lived apart for 1st 2 yrs of relationship, then agreed to build dream home
She paid roughly 2/3, he paid roughly 1/3, but then quitclaimed his interest to her – got her a better mortgage rate and tax advantages, also to keep her ex-husband from terminating his monthly maintenance payment of $1800
couple lived together for a year, and then she kicked him out
Ct. App said it was unjust enrichment but said that in determining how much π was owed, they must consider that he lived there rent free while the couple was together
Δ argument that π gave $ to her in exchange for cohabitation agreement
Rule: nonmarried cohabitating couples may legally K w/ ea other so long as sexual relations are merely incidental to the agreement BUT mere cohabitation ≠ trigger any marital rights
In contrast w/ Hewitt, this case has a male π – eliminates concerns about a vulnerable female π being taken advantage of
Here, cohabitation did not bar suit in equity b/c he quitclaimed his interest in the house largely for bene of Δ, and rec’d larger home and reduced living expenses
Outcome: Remanded
w/ instructions for trial court to consider whether π’s quitclaim to property should bar π from suit via doctrine of unclean hands
Notes
Modern courts generally do not find that recognizing potential rights of cohabiting parties against each other is against public policy where there is an otherwise enforceable agreement
RULE:
Della Zoppa v. Della Zoppa
CA. Ct. App. (2001)
Parties here were h+w, had property agreement
Public policy issue: concern re: sexual services in exchange for money – policy against this related to policy in favor of traditional marriage
Lived together for a long time before getting married, but before that lived by mutual agreement as h+w – got married after first child was born but before second two children (twins) were born
Complaint (w v h) incl coas for constructive trust and resulting trust covering all h’s assets and adjucation that w held equitable title to undiv 50% ox of all real/personal property acquired by the couple
h filed MSJ saying that their agreement incl the bearing of children and was based upon meretricious sexual relationship, rendering the consideration unlawful
trial ct granted MSJ saying agreement to bear child is unenforceable
Outcome – reverse and hold for w
nonmarital partners can enter into an enforceable agreement to share property
the policy issue against agreements based on sexual relationship was based on the meretricious part of it – likening it to prostitution
per Hill, sexual activity is only meretricious if inseparable from the K
Notes
Opinion doesn’t focuse on whether enforcements should be denied to As x nonmarital cohabitants b/c it might conflict w/ public policy encouraging marriage. Court focuses on Marvin exception – nonenforcement of meretricious sexual consideration.
Whorton v. Dillingham – same sex couple – π Whorten included some services that might be part of a romantic relationship incl performing sexual services, but also many other services that would normally be financially compensable (bodyguard, chauffeur, business secretary)
Parts of the agreement passed the Marvin test – those which were compensable for monetary value were considered consideration
What about commercial pornography – shoud contracts entered into as incident to pornography be unenforceable b/c essentially founded on meretricuos consideration? People v. Freeman (1988) – CA Supreme Court held that Δ could not be convicted of pandering b/c he didn’t procure another person for the purpose of prostitution when he hired actors to work on pornographic movie – the court characterized the film as nonobscene but portraying “explicit sexual acts.” Court said the Δ didn’t pay the money in exchange for sexual arousal or gratification. Corut says that nonenforcement would impinge on First Amendment values.
suggests that in CA the policy in favor of freedom of speech trumps the policy against prostitution.
RULE: Courts won’t be the paymaster of the wages of crime. You can’t recover if you got the K immediately.
McConnell v. Commonwealth Pictures Corp.
Ct App. NY (1960)
Defendant agreed in writing that, if plaintiff succeeded in negotiating a contract with a motion-picture producer whereby defendant would get the distribution rights for certain motion pictures, defendant would pay plaintiff a sum on execution of the contract between defendant and the producer, and would thereafter pay plaintiff a stated percentage of defendant's gross receipts from distribution of the pictures. Defendant paid plaintiff the promised sum but later refused to pay him the commissions or to give him an accounting. Plaintiff sued for an accounting. The lower courts held that defendant's defenses were insufficient to defeat plaintiff's suit. Defendant appealed. Reversing, the court held that proper and consistent application of a prime and long-settled public policy closed the doors of the courts to those who sued to collect the rewards of corruption.
OUTCOME: Decision reversed because plaintiff could not utilize the court system to enforce his illegal contract with defendant.
Dissent: He didn’t use the royalties as bribe money, he just got that K illegally.
Statute in Question: “Corrupting influence of agents, employees or servants. – whoever gives, offers or promises to an agent, employee or servant, any gift or graduity whatever w/o the knowledge and consent of the principal, Er or master of such agent, ee or servant, w/ intent to influence his action in relation to his principal’s, er’s or master’s business; or an agent, ee or servant who, w/o the knowledge and consent of his principal, er or master, requests or accepts a gift or gratuity or a promise to make a gift or to do an act beneficial to himself, under an agreement or with an understanding that he shall act in any particular manner to his principal’s, er’s or master’s business; or an agent, ee or servant who, being uahtorized to procure materials, supplies or other articles either rby purchase of K for his principa, er or master, or to employ service or labor for his principal, er or master, receives directly or indirectly, for himself or for another, a commission, discount or bonus from the person who makes such sale or K, or furnishes such materials, supplies or other articles, or from a person who renders such service or labor; and any person who gives or offers such an agent, ee or servant such commission, discount or bonus shall be guilty of a misdemeanor and shall be punished by a fine of not less than ten dollars nor more than five hundred dollars, or by
s done by a licensed Kor, the fact that the Kor wasn’t licensed at the time the K was entered into makes the K okay as long as licensed for the whole performance. But if they had done any work w/o license, probably a different outcome b/c the statute here is regulatory and public policy wants people to properly renew their licenses.
· Restatement distinguishes x Ks that are regulatory and those that are merely to raise revenue – the second kind is less important to strictly enforce
Rest 2d §181 Effect of Failure to Comply w/ Licensing or Similar Requirement
If a party is prohibited from doing an act b/c of his failure to comply w/ a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do so it is unenforceable on grounds of public policy if
(a) the requirement has a regulatory purpose, AND
(b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement.
Rights of Third Parties as Contract Beneficiaries
· 2 people may validly K for performance to be rendered to a 3d person. The question normally raised is whether that 3d person, who was not party to the K and gave no consideration for the promise, may enforce the promise made for his benefit
o @CL, third parties could not enforce Ks b/c not in privity
o Modern rule – 3d party may normally enforce the promise made for his benefit
· If a K was made for the benefit of a 3d party, that party’s status as a beneficiary must be determined
o intended vs. incidental beneficiaries – to enforce the promise, the 3d party must be more than a mere “incidental beneficiary.” [Rest. §302]
§ Test: Unless the K is made primarily for the benefit of the 3d party, the 3d party is only an incidental beneficiary and cannot enforce the K. Therefore, to be enforceable by the 3d party, it must appear that a major purpose of the K was to benefit the 3d party.
§ Factors considered: In determining whether the 3d party is an intended beneficiary or is merely an incidental beneficiary, the courts attempt to determine the intent of the promise (i.e. did the promise intend the promisor’s performance to be rendered to the third party?). The following factors are looked at:
· 1) is performance to be rendered directly to the 3d party?
· 2) do express provisions of the K purport to create rights in 3d parties?
· 3) are 3d parties specifically named in the K?
· 4) is there a close relationship x the promise and the 3d parties?
o Creditor and third party beneficiaries
§ Test: whether the promise intended to confer a gift on the 3d party (donee beneficiary) or to discharge some obligation owed to the 3d party (creditor beneficiary).
§ Creditor beneficiaries: If promisse’s primary intent was to discharge a duty he owed to the 3d party, the 3d party is a creditor beneficiary. The older view was that there actually had to be a debt owed to the 3d party. Modern view – the test is whether the promise intended to satisfy an obligation that he believed was owed to the 3d party (even though there might not be such a debt).
§ Donee beneficiaries: If promise-s primary intend in King was to confer a gift on the 3d party (i.e. to confer some performance neither due, asserted, nor supposed to be due from the promise to the 3d party), the 3d party is a done beneficiary.
§ Rest 2d position: substitutes the term “intended beneficiary” for both creditor and donee beneficiary, in order to eliminate the distinctions that currently exist x the vesting rights for creditor and donee beneficiaries. Most states still recognize a difference and use the old terminology.
