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| A dollar and a donut can make a contract |
By Elizabeth Kruska
This case is like a first-year law school contracts class in a divorce case’s clothing. There’s a final divorce order that included a maintenance provision. And the maintenance provision is important, but it’s not really what the case is about. Sort of like how the song is called Alice’s Restaurant but it wasn’t about Alice or the Restaurant, it was always just the name of the song.
Sidenote: I can find an allusion to Alice’s Restaurant in almost any situation. My law students always complain about the fact they’re assigned to listen to Alice’s Restaurant over Thanksgiving. And then, often a year or two after the fact, I get an email here and there from a former student that says, “hey, Elizabeth, so, remember when you told us Alice’s Restaurant pops up everywhere? Well, the other day . . . .” and then there’s a tale and usually a thank you.
Anyway, the situation here started when the parties got divorced and Husband was ordered to pay Wife spousal maintenance, subject to periodic cost of living (COLA, not C-O-L-A) adjustments. Husband and Wife also had a side agreement where they’d share their children’s college tuition expenses. Husband would pay 75% and Wife would pay 25%. This was not in the divorce order. People can make all sorts of agreements with each other that don’t have to be in court orders. People can rely on these agreements to their benefit or to their detriment, as we shall see.
Husband went about paying Wife’s maintenance payments, but didn’t do COLA adjustments for two or three years. Wife didn’t object to this until their youngest child went to college and tuition bills were due. Wife sent Husband a note saying Husband needed to address the COLA adjustments and also that she didn’t want to pay 25% of the tuition. Husband got caught up on all the payments, and the two made a new compromise that Wife wouldn’t have to pay tuition payments if Husband didn’t have to do COLA increases as under the final order.
This is the kind of thing they probably should have at least written down. (Yes, there is a passing reference to the Statute of Frauds in this opinion, but it’s not the most important part.) But maybe that wasn’t necessary because both Husband and Wife followed this new agreement for about ten years. And then one day . . . .
Wife became physically and mentally incapacitated. Her representative by power of attorney filed a motion to enforce to get the outstanding COLA payments, as well as attorney fees and court expenses. Nobody ever filed a motion to modify the maintenance provision, because to do so would have required showing a real, substantial, and unanticipated change of circumstances just to get in the door, and that probably wouldn’t have been shown here.
The COLA enforcement motion was denied and Wife appeals.
SCOV reverses and remands, not necessarily because there were questions of law that were wrong, but because the trial court would have needed to have made clearer (and maybe additional) findings.
This all has to do with the contract made between Husband and Wife after the divorce concerning the kids’ college tuition payments and how that’s connected to the maintenance order and the related cost of living adjustments to the maintenance payments.
The Court finds there were two different contracts here. Well. Maybe.
First was the initial tuition agreement, where Husband would pay 75% of the tuition and Wife would pay 25% of the tuition. Wife argued that this wasn’t actually a contract at all, because they were theoretically agreeing about something that neither actually had the obligation to do. It’s nice to pay your kids’ college tuition, but there was no legal obligation for either of them to do it. The beneficiaries of the contract were the kids, not the parties – it’s the kids who get their tuition paid. Wife says because of this there was no consideration and thus no contract. The question then becomes whether this first agreement was enforceable, because if it wasn’t, Wife contends that the modification to that agreement – which came later – could also not be enforceable because there would have been no contract to begin with. That was a terrible sentence and it ended with a preposition. Sorry ‘bout that.
The trial court found that it was enforceable, so that’s where the Supreme Court starts in its review.
In order to have a contract there needs to be a promise and consideration. We do this all the time without even realizing it. Anytime we buy anything we make a contract. Seller is offering something for sale. Buyer wants it. Buyer gives the money, seller gives the thing. End of transaction. It could be as simple as buying a donut.
Arguably, splitting college tuition costs between divorced parents is a little more complicated than buying a donut (though likely less delicious). For starters, parents have no legal obligation to continue to support their kids beyond the age of minority. Parents might agree during a divorce or separation to include payment of tuition into their final orders, but a court can’t include that on its own. Parents might also agree to pay for their kids’ post-secondary schooling separately from any court order. They’re allowed to do this.
SCOV says Wife is wrong about consideration. Consideration just needs to be enough that the party receives something he or she wants for his or her own advantage. The expectation or hope of a benefit is enough. Here, the hope was that the kids would have their tuition bills paid. Both parents wanted that to be the outcome, so they agreed to their own financial detriments that they’d pay the tuition and how they’d apportion it between them. It doesn’t matter that the consideration—here, the hope the kids would have their college educations funded—was slight to the parents, they still each got the benefit of getting what they wanted by making the payments.
This all has to do with the contract made between Husband and Wife after the divorce concerning the kids’ college tuition payments and how that’s connected to the maintenance order and the related cost of living adjustments to the maintenance payments.
The Court finds there were two different contracts here. Well. Maybe.
First was the initial tuition agreement, where Husband would pay 75% of the tuition and Wife would pay 25% of the tuition. Wife argued that this wasn’t actually a contract at all, because they were theoretically agreeing about something that neither actually had the obligation to do. It’s nice to pay your kids’ college tuition, but there was no legal obligation for either of them to do it. The beneficiaries of the contract were the kids, not the parties – it’s the kids who get their tuition paid. Wife says because of this there was no consideration and thus no contract. The question then becomes whether this first agreement was enforceable, because if it wasn’t, Wife contends that the modification to that agreement – which came later – could also not be enforceable because there would have been no contract to begin with. That was a terrible sentence and it ended with a preposition. Sorry ‘bout that.
The trial court found that it was enforceable, so that’s where the Supreme Court starts in its review.
In order to have a contract there needs to be a promise and consideration. We do this all the time without even realizing it. Anytime we buy anything we make a contract. Seller is offering something for sale. Buyer wants it. Buyer gives the money, seller gives the thing. End of transaction. It could be as simple as buying a donut.
Arguably, splitting college tuition costs between divorced parents is a little more complicated than buying a donut (though likely less delicious). For starters, parents have no legal obligation to continue to support their kids beyond the age of minority. Parents might agree during a divorce or separation to include payment of tuition into their final orders, but a court can’t include that on its own. Parents might also agree to pay for their kids’ post-secondary schooling separately from any court order. They’re allowed to do this.
SCOV says Wife is wrong about consideration. Consideration just needs to be enough that the party receives something he or she wants for his or her own advantage. The expectation or hope of a benefit is enough. Here, the hope was that the kids would have their tuition bills paid. Both parents wanted that to be the outcome, so they agreed to their own financial detriments that they’d pay the tuition and how they’d apportion it between them. It doesn’t matter that the consideration—here, the hope the kids would have their college educations funded—was slight to the parents, they still each got the benefit of getting what they wanted by making the payments.
Therefore, SCOV concludes this was a contract.
The second contract is the COLA modification issue. This is much more interesting.
In the second contract, Wife agreed to waive the yearly COLA adjustments to her maintenance payments if Husband paid 100% of the college tuition. Remember, we’re here because Wife had filed a motion to collect back payment of the COLA adjustments that Husband hadn’t paid in about ten years. Husband’s position was that she gave that up in exchange for paying 0% of the tuition. Wife makes a number of arguments, which I’ll do my best to explain.
First, Wife argues that a portion of her spousal maintenance award was meant to be compensatory in nature. That is to say, it was meant to compensate her for her years in the marriage where, perhaps, she didn’t earn a financial living outside the home. We see compensatory maintenance sometimes where one spouse spent a fair amount of time during the marriage at home raising children. Because her contention was that some of the maintenance was meant to be compensatory, that the court was deprived of the ability of Wife to agree that she had waived the COLA.
Wife also argues that even if there was an agreement to waive the COLA, it was unenforceable because it offends public policy.
Third, she argues that a finding made by the trial court underlying the COLA modification was erroneous.
Last, she argues that even if the agreement to waive the COLA was valid, the agreement was unconscionable.
SCOV finds the first two arguments to be meritless, but reasons there was an erroneous finding with respect to the third. SCOV reverses on this point, so they don’t need to weigh in on whether or not the agreement was unconscionable (although, this doesn’t strike me as something that would so shock the brain that it would be invalid as a matter of law, but that’s just me).
Quite simply, the high court recognizes that people have the freedom to make contracts. It’s a rare case that a contract is of the character that it’s voidable because it violates public policy. There’s a lot to this, but I’ll boil it down. The trial court ordered maintenance and COLAs. The recipient of the maintenance/COLAs had something of value. Money. Money is something of value. The promise of money is something of value. It doesn’t really matter that the money was partly considered “compensatory maintenance.” The recipient of that money—or the promise of that money—can do with it whatever she wants. Or, she could give up that promise of the COLA (so, promise of less money to her) and stop paying the tuition.
But SCOV remands this, not because the contract principle was incorrect, but because the findings made by the trial court didn’t exactly support that there was a modification to the contract. The trial court, in part, relied on a note written by Wife to Husband. It’s short and basically said, “Here’s a check. X amount is for tuition and the tuition balance is Y. I haven’t gotten a COLA increase in a long time.” And then asked Husband to look into the situation.
The trial court construed this note to support the contention that Wife agreed to a modification of the tuition agreement. However, there was other testimony around the parties’ behavior regarding tuition payments, including a ten-year period of Wife receiving maintenance payments without COLA adjustments. The trial court ruled that there was “waiver by performance” by Wife, and it’s not clear whether that was in the context of an oral agreement to waive the COLA, or if the waiver was because Wife didn’t move to enforce the COLA provision sooner than she did.
So, sort of an interesting legal case, and it’s headed back to the trial court for further findings.
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