Feature

Burying Contracts of the Dead

William A. Drennan
Contracts of the Dead

Contracts of the Dead

Impersonal contracts of the dead generally survive, but numerous reported cases may provide opportunities to bury these contracts and avoid economic senselessness.

This article highlights cases in which the decedent’s remaining contractual duties appeared impersonal, but the court characterized those obligations as personal services or otherwise discharged the obligations. These precedents may help attorneys steer their clients away from economic senselessness.

Presumptions About Contract Survival

In the absence of dispositive evidence of the parties’ intent, courts tend to resolve these disputes using presumptions established in Shakespearean England. In Hyde v. Windsor, 78 Eng. Rep. 798, 798 (Q.B. 1597), a party to a “covenant” died, and the covenant failed to specify post-death obligations. The court stated that “unless [the covenant was] to be performed by the person of the testator . . . [and the executor] cannot perform,” the contractual obligation survives.

This approach reflects a fundamental tension in contract law continuing today. On the one hand, in support of the general rule of contract survival, is the belief that serious agreements should be enforced. Each party should receive their expectations or the so-called benefit-of-the-bargain. The fundamental maxim is “pacta sunt servande: agreements must be kept.” Joseph M. Perillo, Contracts § 13.02, at 502 (7th ed. 2014). In this context, the consequence of the general rule is “death does not absolve a man from his engagements.” Shutt v. Butner, 303 S.E.2d 399, 401 (N.C. App. 1983).

On the other hand, in support of the personal services exception, which terminates a contract at death, is the notion that a party should not be forced into a contract with a stranger, such as the decedent’s executor or other successor. “Delectus Personae was the Law Latin catch phrase to indicate that a party had a right to choose the person with whom to deal.” Perillo, supra, § 18:28, at 668.

Personal Services Exception

Courts have revised and restated the personal services exception in many different ways since the 16th century. Sometimes courts described the exception narrowly, such as when courts stated: “All painters do not paint portraits like Sir Joshua Reynolds, landscapes like Claude Lorraine, nor do all writers write dramas like Shakespeare or fiction like Dickens. Rare genius and extraordinary skill are not transferable, and contracts for their employment are therefore personal, and cannot be assigned.” Macke Co. v. Pizza of Gaithersburg, 270 A.2d 645, 648 (Md. 1970). Some courts indicate the exception is broad, applying as long as there is a “personal contract, or an agreement creating a personal relationship.” See, e.g., Frankel v. Bernstein, 334 So.2d 37, 39 (Fla. App. 1976). Other authorities latch onto key words or phrases, such as “necessary,” Restatement (2d) of Contracts § 262, the “exercise of discretion,” id. § 262 cmt. b., or the “essence” of the contract. Blakely v. Sousa, 47 A. 286, 286 (Pa. 1900).

Contract Obligations Often Treated as Impersonal

Courts have treated the following types of contacts as impersonal: contracts to purchase property, guarantee contracts, agreements to rent property from another, shareholders agreements, contracts to sell or rent property to others, contracts to deliver property, and contracts to execute supplemental documents. In these situations, the executor or other successor may be able to simply use the decedent’s assets to fulfill the contractual duties.

Courts also treat building, logging, and some farming contracts as impersonal. For listings of cases in this area, see James P. Nehf, 14 Corbin on Contracts § 75.1 (2001); Richard A. Lord, 30 Williston on Contracts §§ 77:70, 77.75, 77.76 (4th ed. 2004); 17A Am. Jur. 2d Contracts § 656.

Nevertheless, drawing the line between impersonal contracts and personal services contracts is not always easy. In a case when “the contract . . . is not one that falls readily into one category or another,” the Seventh Circuit stated, “Its classification must be determined not as a matter of law, but upon a consideration of all the facts and circumstances.” Carlock v. La Salle Extension Univ., 185 F.2d 594, 595 (7th Cir. 1950). The next section discusses contracts that appeared impersonal, but courts concluded the contracts terminated at death.

Courts Terminating Contracts that Appeared Impersonal

Even when the executor simply could use the decedent’s assets to fulfill contractual obligations, such as paying money or renting property, some courts have discharged those obligations.

Purchasing Property. In Browne v. Fairhall, 100 N.E. 556 (Mass. 1913), Browne agreed to deliver $1,375,000 in cash, a $200,000 promissory note, and a warranty deed for certain real estate in Chicago, all at closing, to purchase stocks and bonds of a particular corporation. The parties scheduled the closing within 90 days, but Browne died approximately 50 days later. Browne’s executor refused to pay, and the seller sued to enforce, arguing this was a contract to purchase property and not a personal services contract. The court declared that the contract died with Browne, in part, because under the contract Browne had discretion to designate when, within a three-year period, the $200,000 under the promissory note would be payable. Also, the seller should not be required to look to anyone other than Browne himself for payment because the promissory note was to be unsecured. As a result, the executor could not give the promissory note required by the contract. “Performance of the whole agreement became impossible because it had become impossible to carry out one of its essential terms.” Id. at 557.

The Browne court refused to bifurcate the transaction and treat only the portion relating to the $200,000 promissory note as personal. Instead, Browne’s executor was excused from even making the cash payment due at closing. Contra Mullen v. Wafer, 480 S.W.2d 232 (Ark. 1972) (bifurcating the promises under an agreement to acquire an accounting practice). More recently, in Vogel v. Melish, 203 N.E.2d 411, 413-14 (Ill. 1964), the Illinois Supreme Court endorsed the approach in Browne that if the contract allowed the buyer to make installment payments, the contract was personal between the parties and terminated upon the buyer’s death.

Renting Real Estate. In Warnecke v. Rabenau’s Estate, 367 S.W.2d 15 (Mo. Ct. App. 1963), Rabenau was renting office space in Warnecke’s high-rise office building at the time of Rabenau’s death, which was five months into a two-year lease. When Warnecke sued to collect rent from Rabenau’s executor, the court recited the general rule that “a lease for a term of years is not terminated by the death of the lessor or the lessee.” Nevertheless, the court concluded the lease terminated on Rabenau’s death.

Under the terms of the lease, the tenant could use the space only as an office for a CPA, and Rabenau’s executor was not a CPA. The court believed these circumstances indicated that the lease was intended to be only a personal obligation, so the court implied a condition that the tenant’s death would terminate the lease.

Frankel v. Bernstein, 334 So.2d 37 (Fla. Ct. App. 1976), may provide authority to terminate many leases. In Frankel, although the lease provided that the word “tenant” included “any person to whom the tenant’s interest passed by operation of law,” the court affirmed the trial court’s holding that the lease was a “personal contract,” created a “personal relationship,” and terminated upon the tenant’s death. In support of its conclusion, the court asserted the clause in the lease that the tenant would use the premises “only as her residence” evidenced the parties’ intent that the lease was “intended to be only a personal obligation of the lessee.”

Shareholders’ Agreement. In Vogel v. Melish, 203 N.E.2d 411 (Ill. 1965), the two equal dominant shareholders of a corporation entered into a shareholders’ agreement providing for a right of first refusal if either party desired to sell, transfer, assign, convey, or otherwise dispose of all or part of their shares. As a preliminary matter, the court concluded that upon one shareholder’s death, the right of first refusal was not triggered because restraints on alienation should be strictly construed, and there was no express restriction on intestate or testamentary disposition in the agreement.

In considering whether the shareholders agreement survived one shareholder’s death, the court noted the agreement called for each shareholder to have custody of the other’s shares, the agreement had no provision for performance by heirs or devises, and the trial court determined that the agreement was “personal to the parties.” The court concluded the shareholders agreement terminated at the first shareholder’s death and was no longer binding on the surviving shareholder or the decedent’s executor.

Guarantee. In Fort M Development Corp. v. Inland Credit Corp., 388 N.Y.S.2d 603 (N.Y. App. Div. 1976), Inland Credit agreed to lend $320,000 to assist the construction of a garden-apartment complex in Fort Myers, Florida, induced in part by personal guarantees from Levin, his spouse, and four other couples. After Levin died, Inland Credit refused to make the loan. The surviving aspiring borrowers sued to either compel Inland Credit to make the loan or require Inland Credit to pay damages for breach.

The court concluded Inland Credit’s contractual duties terminated on Levin’s death, asserting the parties contemplated that Inland Credit’s performance was dependent on Levin’s survival. The court referred to language in the agreement that “as a condition precedent to obtaining the mortgage, personal guarantees would be provided by five persons (including one Murray Levin) and their respective spouses.” One judge in dissent argued contracts should not “become unenforceable by reason of a guarantor’s death,” particularly when his entire estate, plus $50,000 in insurance proceeds, passed to his spouse who also agreed to guarantee the loan.

Other Contract Terminations. In Unit Vending Corp. v. Lacas, 190 A.2d 298 (Penn. 1963), Kole Soter owned and operated a Philadelphia diner and contracted with Unit Vending Corporation to install and maintain cigarette vending machines in the diner for a term of five years. Soter died about five months later, and his executors sold the diner to a third party but failed to obtain an agreement from the buyer that it would assume the contract with Unit Vending. When the buyer refused to pay commissions to Unit Vending, Unit Vending sued Soter’s executors for breach of contract.

The court noted that personal services contracts terminate at death, but this contract did not involve Soter’s “peculiar skills” nor was it “based on distinctly personal considerations.” Nevertheless, the court held that the contract terminated on Soter’s death because this was a “reasonable interpretation absent specific language to the contrary.” The court “adopt[ed] the interpretation, which under the circumstances . . . ascribed the most reasonable, probable and natural conduct of the parties bearing in mind the objects manifestly to be accomplished.”

Courts sometimes hold that farming contracts survive the death of the farmer. See, e.g., Cal. Packing Corp. v. Lopez, 279 P. 664 (Cal. 1929) (“Contracts for cultivation of the soil are not generally held to be contracts terminable upon death.”). Nevertheless, courts can reach the opposite result based on the facts of the case. In Ames v. Sayler, 642 N.E.2d 1340 (Ill. App. Ct. 1994), property owners hired Whitney Ames to farm the land. Unbeknownst to the property owners, Ames hired his son, and later an unrelated party, to take his place and farm the property for a few years. Although it seemed the person farming the land in this situation was interchangeable, the court concluded the contract was a personal services contract and terminated upon Whitney Ames’s death. The property owners did not know that anyone other than Whitney Ames had farmed the property, and the property owners “had relied heavily on [Whitney Ames’s] advice.” See also In re Estate of Sauder, 156 P.3d 1204, 1213 (Kan. 2007) (stating that “the majority of jurisdictions have noted that considerable skill and judgment are required in farming”).

Practical Implications for Executors and Their Attorneys

These precedents terminating apparently impersonal contracts at death may allow the executor or other successor to avoid economic senselessness. First, in the case of leases, the decedent’s heirs, beneficiaries, or other successors may have no need for the demised premises for the remainder of the lease term. Although the general rule is that neither the death of the lessor nor the lessee terminates a lease, the Frankel case suggests if the contract provides that the property can be used “only as the [tenant’s] residence,” it should terminate upon the original tenant’s death. This might prevent the estate from paying rent on property that might remain vacant for the balance of the lease term, such as when subleasing is prohibited.

Second, when the decedent had contracted to purchase property, the decedent’s heirs or beneficiaries may have no need for the property and re-selling would be time-consuming, inconvenient, and expensive. Browne v. Fairhall and Vogel v. Melish indicate that the contract could terminate at death if it called for installment payments over time, and the obligation was unsecured.

Third, the court in Fort M Development implied that a guarantor’s estate is not liable on a guarantee executed by the decedent. As the dissenting judge pointed out, this result appears dubious because the estate or other successor acquired the decedent’s wealth which could satisfy the guarantee obligation. Nevertheless, perhaps the majority’s decision in Fort M Development is consistent with the principle in Browne v. Fairhall that in the case of an unsecured obligation to pay in installments over a significant period of time, the parties intended that only the decedent could generate or manage the wealth needed to make the payments.

Fourth, Unit Vending Corp v. Lacas may provide an argument for terminating almost any contract when post-death attempted performance would be economic senselessness, unless the parties clearly evidenced an intent for contract survival. In Unit Vending, the court held that a contract merely requiring the decedent to permit vending machines in his diner terminated upon his death because a court should “ascribe the most reasonable . . . conduct of the parties.”

Although these authorities can provide opportunities to avoid the decedent’s contractual obligations, they also add uncertainty and potential risks. For example, an executor may be second guessed for either completing the decedent’s contracts or not. In one case, the executor completed the decedent’s contracts, and an unpaid creditor sued the executor because the estate lost money in completing the contracts. In re Estate of Burke, 244 P. 340, 341 (Cal. 1926); see generally Bogart’s Trusts and Trustees § 571 (regarding the continuation of a decedent’s business). This uncertainty suggests that executors should seek probate court guidance on whether to complete particular contracts, including contracts that appear impersonal.

Practical Implications for Contract Drafters

As described in a previous Probate & Property article titled Can Boilerplate Raise Contracts of the Dead from the Grave? (Jan./Feb. 2019), if a court finds written evidence of the parties’ intent about post-death survival of the contract, generally the court will carry out that intent. Indeed, the Kansas Supreme Court has urged drafters to be explicit to avoid post-death complexities. In re Estate of Sauder, 156 P.3d 1204, 1214 (Kan. 2007). A leading commentator echoes that advice. Tina L. Stark, Negotiating and Drafting Contract Boilerplate 90 (2003).

In addition to clearly stating that the contract obligations terminate at death, a drafter could achieve the same result by specifying that only the individual party can perform the work. For example, in Buccini v. Paterno Const. Co., 170 N.E. 910, 911 (N.Y. App. 1930), the contract specified that only Albert Buccini could perform the “decorative” work on the project. The court held the obligation terminated upon Buccini’s death.

Conclusion

The 400-year-old general rule indicates that an executor must perform impersonal contracts made by the decedent regardless of the inconvenience, expense, and commercial senselessness for the parties. Courts have held that obligations to pay money, rent property, serve as a guarantor, and various other types of obligations, are impersonal and must be performed by the executor. But, as discussed in this article, whether a contract is impersonal can depend on the facts. With certain facts, precedents are available to treat even the decedent’s obligations to pay money, rent property, and serve as a guarantor as personal obligations that terminated upon the decedent’s death.

Generally, contracts of the dead survive to haunt the living; the executor or other successor must perform the decedent’s remaining contractual duties. A major exception is that personal service obligations die at death. As a result, executors, their attorneys, and courts may need to decide if contractual obligations are personal or impersonal. Sometimes, performing a contract that appears to be impersonal would be economic senselessness for one or both sides. This may occur if the executor or other successor is unskilled at the business of the dead, or the deal simply makes no sense post-death for one or both sides.

William A. Drennan

William A. Drennan is a professor at Southern Illinois University School of Law and formerly was an editor for the RPTE Books & Media Committee from 1999 to 2009.

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