B. Making contracts (finish)

    3. Implicit contracts

    contracts implied by law

    Cotnam (d,app) v. Wisdom (p), 104 S.W. 164 (1907)
    Wisdom = P (doctor); Cotnam = D (administrator)

1. What are the facts of the case?
2. Why did plaintiff file this case?
3. Why did defendant wish to refuse to pay it?
4. What did the court decide?
5. Suppose you become a doctor. You treat an unconscious accident victim, who then recovers.
       Would you feel entitled to payment?
6. Suppose the patient you treat dies.
       Would you feel entitled to payment?
7. It turns out that the patient you treated is very rich, able to afford the best available care.
       Would you feel entitled to a larger payment?
8. You decide not to help the unconscious victim, who survives but permanently disabled.
       Should the victim be able to sue you?
9. The victim is conscious and you offer to treat the victim at an above-market price. The victim agrees and then falls unconscious. You treat the victim who nontetheless dies.
       Would you feel entitled to the price you charged?
10. Court decision? -- reversed and remanded to reconsider size of damages

    implicit contracts allow providers of emergency services to collect "fair compensation" for "time, service, and skill."

    a "negative liability rule" (a Pigouvian subsidy). (F160)

    increases incentive for assistance during emergencies when bargaining is costly or impossible

    Current fashion: to base case on "unjust enrichment" (P135)

    Ordinarily must get permission, since "a property rule usually moves services to their highest-valued use more cheaply and reliably than a liability rule." (F160)
    "But now suppose that a man stands under my window, playing the violin beautifully, and when he has finished knocks on my door and demands a fee for his efforts. Though I enjoyed his playing I nonetheless refuse to pay anything for it. The court would deny the violinist's claim for a fee--however reasonable the fee might appear to be--on the ground that, although the violinist conferred a benefit on me (and not with the intent that it be gratuitous), he did so officiously. Translated from legal into economic terminology, this means he conferred an unbargained-for benefit in circumstances where the costs of a voluntary bargain would have been low. " (P136)

    C. Enforcing contracts

    Recall that court enforcement is not always necessary

    Alternatives:
    (1) Reputation and desire for repeat dealings, etc.
    But, in order for reputation with third parties to be relevant, third parties must have some way of knowing which party to the contract failed to live up to his agreements.
    Places an advantage on small, closeknit societies.

    (2) Arbitration
    either after the fact with an arbitrator who has a good reputation, or
    by the parties agreeing on the arbitrator when they sign the contract--and making the fact public then
    Ex: former dominance of the diamond industry in NY by orthodox jews Who were forbidden by their religion from suing each other, but had good arbitration/reputation institutions.

    (3) Commitment
    Formally: posting a bond with a bonding agency that has a good reputation.
    Informally: giving hostages
    Public announcement of a joint project; if it later falls through, both parties look bad.
    Generally, making it possible for the other party to injure you--in a way which isn't profitable for them but available when you break the contract.

    The fundamental question then becomes: is the contract legally enforceable?
    The courts may say no for a variety of reasons

    1. Unacceptable parties
    2. Unacceptable purpose
    3. Unacceptable conditions

    1. Unacceptable parties

    Incapacity of contracting parties:

    Children: Ex: Bowling v. Sperry, 133 Ind.App. 692, 184 N.E.2d 901 (1962): a minor was allowed not only to disaffirm a contract (for purchasing a car) but to get his money back

    Mental incompetent: Ex: Heights Realty, LTD. v. Phillips, 106 N.M. 692, 749 P.2d 77 (1988): an exclusive listing contract between a mental incompetent and a broker was held invalid.

    2. Unacceptable purpose

    Contracts which impose costs on 3rd parties

    Ex: Goodier v. Hamilton 172 Wash. 60; 19 P.2d 392; (1933): refused to enforce payment of a "broker's fee" for locating an attorney that procured government authorization for a trucking service route: "Where, as in the case at bar, the agreement suggests the use of sinister and corrupt means for the accomplishment of the end desired, 'The law meets the suggestion of evil, and strikes down the contract from its inception.'"
    The court leaves the party where it finds them

    3. Unacceptable conditions

    Key situations: fraud and situational monopoly

    a. Fraud

1. What are the facts of the case?
2. Why does defendant claim ownership of the property in question? has a signed deed
3. Why does plaintiff claim retention of title to the property? signature was a forgery; claimed to sign something other than the deed that was attached to the deed
4. Suppose someone signs your name on on a pink slip for a car you own.
   Does an innocent buyer then gain valid title? no--it's a forgery
5. Suppose you sign a unspecified signature page with the understanding that it grants a road easement through your property, and the page is later attached to the deed as a signature page for the deed itself.
   Does an innocent buyer then gain valid title? no--it's a forgery (in this case, the deed had been transferred by Ja Laur to other appellees)
6. Suppose you are told by your lawyer that you are signing a document that grants a road easement through your property, but what you are actually signing is the deed itself.
   Does an innocent buyer then gain valid title? yes--it's a fraud, not a forgery
7. What is the justification for the different treatment under the law? participation of the deceived
8. Which situation does plaintiff claim is applicable to the case? forgery
9. Does the court grant plaintiff the chance to substantiate the claim? yes--overrules demurrer (admission of action by defendant but claims a lack of actionable grounds)

    Illustrates fraud: providing false information voids a contract only between the original parties
    Illustrates forgery: voids original and subsequent contracts

    Stambovsky (p) v. Ackley (d) 169 A.D.2d 254; 572 N.Y.S.2d 672 (1991)

1. What are the facts of the case?
2. What is caveat emptor?
3. How does caveat emptor apply to sales of homes? nondisclosure of relevant defects is not usually a fraud unless disclosure is required by statute
4. Can nondisclosure be a possible fraud in this case? Why? it was a material omission that could not be discovered via due diligence by a prudent buyer
5. Is there any evidence that the plaintiff believes in ghosts?
6. Is it reasonable to presume that ghosts exist?
7. If not, then why refuse to enforce this contract? it is haunted as a matter of law since defendant claimed it is true, and that condition reduces market value.

    Illustrates fraud by withholding relevant and obscure information