In four recent opinions, the highest courts of three different states across the country have adopted various Sections of the Restatements of the Law as the law of their respective states.
The Supreme Court of Washington, relying on Restatement Second of Contracts § 45, has adopted the doctrine of substantial performance in the context of unilateral contracts. In April of 2009, a state university, faced with a recession and budget cuts, decided to suspend its policy of awarding annual merit raises to its faculty for the 2008-2009 and the 2009-2010 academic years. A professor filed a class action on behalf of the faculty against the university, claiming that the university’s retroactive retraction of the policy for the 2008-2009 academic year, after the faculty had already substantially performed meritorious work in that year, constituted a breach of a unilateral contract between the university and the faculty. The state supreme court adopted the reasoning of Restatement Second of Contracts § 45 in concluding that, although a unilateral contract could only be accepted through performance, substantial performance in effect created an option contract mandating that the offeror keep the offer open, in recognition of the offeree’s reliance interest in commencing performance; thus, the faculty accepted the university’s offer by working for most of the 2008-2009 academic year in reliance on the promise of a raise in the 2009- 2010 academic year. Unfortunately for the faculty, the court held that, while an enforceable unilateral contract had been created, the university did not breach that contract. Storti v. University of Washington, 330 P.3d 159 (Wash. 2014).
In an opinion interpreting Nevada’s Mechanics’ and Materialmens’ Liens Statute, the Supreme Court of Nevada has adopted the definition of actual authority set forth in Restatement Third of Agency § 2.01. The case involved a dispute over the validity of materialmen’s liens that a steel supplier filed against six properties to recover payment for steel it provided for construction projects on the properties. The general contractor for the projects and various other defendants argued that the supplier waived its lien rights as to two of the properties, because its bookkeeper had executed unconditional waiver and lien release forms for those properties; the supplier claimed that the bookkeeper lacked authority to sign the forms. The state supreme court concluded that the bookkeeper was not the supplier’s authorized agent for purposes of the statute’s provision governing waivers and releases. Adopting the language of Restatement Third of Agency § 2.01, the court held, among other things, that the bookkeeper lacked actual authority, because she had no reasonable basis for believing that she was authorized to execute the forms. The court pointed out that the supplier had a company policy under which only corporate officers had the authority to sign lien releases, that the bookkeeper admitted that she lacked authority to execute the forms, and that, although the supplier’s chief financial officer (CFO)/corporate secretary had sent the bookkeeper an e-mail directing her to prepare the forms at issue, nothing in his e-mail suggested that she should or could sign them. Simmons Self-Storage Partners, LLC v. Rib Roof, Inc., 331 P.3d 850 (Nev. 2014).
In another matter of first impression in Nevada, the Supreme Court of Nevada has adopted the majority approach to unilateral mistake in the donative-transfer context, as set forth in Restatement Third of Property (Wills and Other Donative Transfers) § 12.1 and Restatement Third of Restitution and Unjust Enrichment §§ 5 and 11. In the underlying action, a mother, who had executed a deed gifting her condominium to an irrevocable inter vivos trust that she had established for the benefit of her daughter, rescinded the gift by transferring the condominium back into her own name, alleging, among other things, that she had mistakenly believed that the deed would allow her to retain control over the condominium; the daughter petitioned for an order requiring her mother to transfer the condominium back into the trust. The court, relying on the Restatement approach, remanded for additional proceedings, after concluding that, depending on the circumstances, a donor could potentially obtain either reformation or rescission of a donative transfer based on a unilateral mistake, if the mistake and the donor’s intent were proven by clear and convincing evidence. The court reasoned that the Restatement’s discussion of when rescission or reformation might be appropriate corresponded with Nevada’s overall treatment of mistake and its application of the remedies of rescission and reformation in the contract realm. In re Irrevocable Trust Agreement of 1979, 331 P.3d 881 (Nev. 2014).
In resolving a dispute over who had standing to enforce restrictive covenants encumbering real property, the Supreme Court of New Hampshire has adopted Restatement Third of Property (Servitudes) § 8.1, which abandons the traditional rule under which a restrictive covenant could be enforced only by a beneficiary who owned land that would be benefited by enforcement, in favor of a rule providing that a beneficiary of a covenant in gross can enforce the covenant if it can establish a legitimate interest in enforcement. The property in question was an 18-acre parcel located in the town’s center that a private entity had conveyed to the town, subject to restrictions requiring, among other things, that all buildings constructed on the property be built in an architecturally consistent “Colonial” style. The private entity sought to enforce the restrictions against the town, alleging that the town’s proposed construction of a new fire station on the property would not comport with the covenants; the town argued that the private entity lacked standing to enforce the covenants, because it no longer owned any land near the property. The state supreme court relied on the Restatement Third of Property (Servitudes) §§ 4.1 and 4.5 to determine that the covenants at issue were in gross and “personal” to the entity, rather than appurtenant to the property, and adopted the Restatement Third of Property (Servitudes) § 8.1 in holding that the private entity had standing because it had a legitimate interest in enforcing the covenants as the original grantee of the property. The court reasoned that § 8.1 addressed legitimate concerns that opportunistic parties might use servitude violations for extortion or other improper purposes, while striking a reasoned balance in permitting enforcement of covenants in gross under limited circumstances. Lynch v. Town of Pelham, 2014 WL 5395008 (N.H. 2014).