Formalizing gratuitous and contractual transfers: a situational theory.
By tradition, gifts, wills, and contracts are formalized according to protocols established within each legal category. This Article examines the policies that underlie these "formalizing rules " and concludes that the utility of those rules depends fundamentally on the background conditions under which a gift, will, or contract occurs. Those background conditions, rather than the category into which the transfer falls, dictate the optimal formalizing rule for a transfer. In light of this observation, this Article proposes an integrated approach to formalizing rules that varies the required formalities for a transfer on the basis of situational criteria rather than the prevailing categorical ones.
Table of Contents INTRODUCTION I. THEORETICAL PROLOGUE A. The Progenitors B. The Successors C. Analysis II. SPOT TRANSFERS A. Contracts B. Gifts III. ANTICIPATORY TRANSFERS A. Wills B. Gifts C. Contracts IV. ELEVENTH-HOUR TRANSFERS A. Gifts B. Wills C. Contracts V. CATEGORICAL FICTIONS CONCLUSION
An owner who intends to transfer property into the hands of another must employ a legal vehicle suitable to the occasion. When a transfer occurs during the owner's lifetime, and is made without material compensation, the transfer takes the form of a gift. The same gratuitous transfer, when planned to take effect at death, instead comes about via a will. Finally, a transfer of ownership made in exchange for ownership of different property occurs by virtue of a contract. These represent the three voluntary carriages of property. (1) And each is formalized--that is to say, rendered legally operative--according to its own, unique requirements: gifts are formalized classically by delivery of the gift corpus; wills, by a writing and an execution ceremony, conducted in the presence of witnesses; contracts, in many instances, by a mere parol agreement
between the parties. (2) Considered structurally, the "formalizing rules" for transfers, as we shall call them, thus vary by legal category. (3) In theory, those categories have defined boundaries and cover mutually exclusive sets of transfers.
This Article proposes a different organizing principle for formalizing rules. It assays prior discussions of the jurisprudence of legal formalities and distills from them various situational criteria that dictate the need, vel non, for particular aspects of formality in any given instance. As we shall see, those situational variations cut across the traditional categorical lines. My thesis is that formalizing rules for transfers would better serve their purposes if lawmakers broke down the rules not by legal category, but by other characteristics of the transfers in question. Transfers that share the same situational characteristics should be treated alike from the standpoint of formalizing rules, irrespective of whether those transfers fall under the rubric of gifts, wills, or contracts. In the process, we could unify the three categories of transfer, at least insofar as formalizing rules are concerned. (4)
We may rate this reorientation as particularly useful in those instances where categories of transfer have become distorted. Lawmakers have seen fit to permit certain types of transfers to masquerade as different ones--allowing these transfers to operate, so to say, under assumed names. Formalizing rules divided by legal category may be suboptimal in general; those tied to nominal classifications become arbitrary and dysfunctional in particular. A new framework for formalizing rules based upon a transfer's objective characteristics would avoid such arbitrariness, a considerable fringe benefit when categories of transfer have become corrupted by fiction.
As usual, the analysis shall progress in stages. In Part I, we lay our theoretical foundation by rehearsing and examining the accepted (and not-so-well accepted) visions of the functions of formalizing rules. The next three parts explore how formalizing rules operate in a variety of settings that might affect the benefits that various modes of formalization bring to the table. Part II looks at transfers that occur hard on the decision to make them. Part III addresses transfers that take place, by contrast, only after an interval of time has passed. Part IV completes the trio by considering transfers that again unfold rapidly, but near the death of the transferor. Finally, in Part V, we turn to the special problem of formalizing transfers that are not what they seem--transfers whose properties belie the legal category to which they are conventionally assigned.
I. THEORETICAL PROLOGUE
A. The Progenitors
The problem of formalizing rules has attracted a modicum of scholarly attention over the years and inspired two articles widely recognized as classics in their respective fields. Both appeared, coincidentally, in the same year--1941--and as a consequence neither cites to the other. These are Dean Ashbel Gulliver and Catherine Tilson's Classification of Gratuitous Transfers, focusing on wills, (5) and Professor Lon Fuller's Consideration and Form, focusing on contracts. (6) A comparative reading reveals that these two sets of scholars, working independently, had been thinking along similar, if not quite parallel, lines--and in one instance even lighted on the same nomenclature.
As Gulliver and Tilson emphasized from the outset--and Fuller surely agreed--formalities "should not be revered as ends in themselves." (7) Because a failure to meet formalities can invalidate transfers and hence frustrate intent, they require substantive justification. Gulliver and Tilson identified, first of all, what they called the "ritual function" of formality. (8) "Casual language, whether oral or written, is not intended to be legally operative," and lawmakers would thwart intent if they gave language merely contemplating a transfer greater effect. (9) By requiring transferors to engage in "some ceremonial" in order to render a transfer effective, lawmakers help to clarify transferors' "finality of intention." (10) Calling this instead the "channeling function," Fuller elaborated the point: Formality both "signalize[s]" and "canalize[s]" intent to render a transfer enforceable, furnishing "a simple and external test of enforceability," as well as an indication of the kind of transfer intended. (11) Formalities serve not only to clarify intent to a court, Fuller pointed out, but also afford parties a simple means of making their intentions known to each other, thereby facilitating agreements "out of court," without the need for a state proceeding to ratify transfers. (12) Translated into economic jargon, formality reduces error costs in the understanding and adjudication of what sort of transfer, if any, the transferor sought to make, while simultaneously offering him or her an efficient means of clarifying intention.
The other principal purpose of formality is to provide reliable proof of a transfer's authenticity and substantive terms, thereby again conducing to adjudicative accuracy when a court sets about reconstructing those terms. Both Gulliver and Tilson, and Fuller dubbed this purpose the "evidentiary function" of formality, and both in common acknowledged its centrality. (13)
Beyond that, the authors parted company. Gulliver and Tilson identified what they called the protective function of formality--that is, protecting a party from undue influence or duress by ensuring that other persons witness the transfer. (14) Gulliver and Tilson deemed this function significant only for dying transferors, whose "normal judgment and ... resistance to improper influences may be seriously affected by a decrepit physical condition, [or] a weakened mentality." (15) Others subjected to momentary influence or duress retain the power to challenge (or, in the case of wills, simply to revoke) the transfer ex post facto. (16)
Undue influence and duress likewise constitute grounds for overturning a contract. (17) Nevertheless, Fuller ignored the protective function altogether. Instead, he brought up another purpose of formality that, for their part, Gulliver and Tilson had failed to identify. By infusing transfers with symbols of "weightiness," formalities cause transferors to take heed and thereby "act as a check against inconsiderate action." (18) Fuller termed this the "cautionary function" of formality, serving to produce the degree of "circumspecti[on] ... appropriate in one pledging his future." (19) Again translated into modern jargon, Fuller here accepted that formalities can serve paternalistic ends, protecting a transferor against the hazards of subsequent regret. Fuller did not, however, take the occasion to advocate any mandatory regulation of the behavior of transferors. Formalizing rules operate, in Fuller's conception, simply to cause transferors to think twice. In this connection, he became an early advocate of what we would today call libertarian paternalism. (20)
B. The Successors
These two treatments of the problem of formalities appeared over seventy years ago. Nothing lasts forever, of course, but some intellectual fashions wear better than others. Both Gulliver and Tilson's, and Fuller's studies remain widely cited to this day. (21) Nevertheless, a number of subsequent scholars have expanded on, or reacted to, these works, offering up an assortment of analyses that merit consideration.
In unison, Professors Lawrence Friedman, John Langbein, and Bruce Mann, all focusing on wills, identify another virtue of formalizing rules in their potential to promote standardization: "Compliance with the Wills Act formalities for executing witnessed wills results in considerable uniformity in the organization, language, and content of most wills." (22) On first sight, the suggestion seems surprising; after all, the manner in which a transfer is executed has no direct bearing on its content. In theory, uniformity of execution could be accompanied by a cacophony of expression. But in practice, laypersons often recognize that formalizing rules exist without fully comprehending how to satisfy them. Their desire to meet the requirements leads them to seek professional counsel, and that counsel knows how to structure a transfer (and express an intention). (23) At least one court made the same supposition years before any of these scholars did. (24)
To be sure, this molding of expression comes at a price. Ordinarily, we achieve efficiency by reducing transaction costs; encouraging professional intervention instead causes those costs to increase. But transaction costs here are tied to, and function to diminish, the eventual administrative costs of implementing transfers judicially--a cost that the state traditionally subsidizes. (25) In this context, the immediate cost borne by parties is, by hypothesis, more than made up for by subsequent savings to the state. It would appear that courts, which bear the burden, agree with this assessment. Homemade wills are notorious litigation breeders, (26) and courts can be found (wearily) complaining about them between the lines of their opinions. (27)
In economic terms, then, we can justify the imposition of expensive formalities on parties as functioning to avoid spillover costs--internalizing the negative externality created by state-supported construction proceedings for transfers formulated in ambiguous ways. Given the inefficiency of spillover costs, lawmakers might go a step further and require either professional drafting or the use of statutory forms (currently made available for will-drafting as an option in a number of states (28)). Alternatively, lawmakers could eliminate spillover costs by discontinuing the subsidy for construction proceedings. (29) Either move would comprise a major break with tradition, however, and would entail significant transition costs. (30) By merely encouraging standardization indirectly, lawmakers avoid those costs.
Professor Mark Glover suggests a quite different purpose served by will formalities, at odds with the functions addressed so far, and implicitly distinguishing formalizing rules for wills from those applicable to other transfers: namely, to obstruct rather than to facilitate testation. (31) In Glover's analysis, formalities serve as "barriers" to will execution, by making the process more tedious, time consuming, and costly. (32) In "making the exercise of testamentary power difficult," Glover asserts, "the formal execution process serves a family-protection policy," (33) because only the surviving spouse and blood relatives take as intestate heirs. Glover contrasts the elaborate requirements for executing a will with the simple rules for revoking one, achieved by nothing more than the physical act of destroying or cancelling the document with intent thereby to render it ineffective. The law makes formal execution relatively difficult and revocation relatively easy, Glover submits, in order to render intestacy the path of least resistance--and lawmakers have "designed" (34) these rules with this bias in mind.
The perversity of Glover's analysis is readily apparent. His suggestion that formalities function to discourage effective will-making contradicts the longstanding ideology of inheritance law, whose central tenet is freedom of testation. (35) Lawmakers and courts at least purport to view formality as a sort of necessary evil intended to realize freedom of testation by ensuring that only the testator's true wishes are put into operation, while recognizing that some testators will nevertheless trip over the formalities and forfeit that freedom. At times, lawmakers may have failed to get the balance right. Remarking on an English act of 1677 which required at least three attesting witnesses for a will devising land, Lord Mansfield observed--hardly approvingly--that "many more fair wills have been overturned for want of the form, than fraudulent have been prevented by introducing it." (36) At the same time, Mansfield maintained, Parliament "did not mean to restrain testamentary dispositions of land" but rather had "thought [the rules of attestation] would soon be universally known, and might very easily be complied with." (37) The act's effect was unforeseen. More recent courts likewise object to formalities that serve, in Mansfield's words, to "spread a snare." (38) "The philosophy underlying the provisions on execution of wills ... is to allow every citizen the right and privilege of disposing of his property as he sees fit," one court insists, and "[t]his absolute right would be a solemn mockery, if any mere arbitrary rules were suffered to frustrate and defeat that intention." (39) Other courts echo this sentiment, claiming that the formal requirements "are not intended to restrain or abridge the power of a testator to dispose of his property.... [They] are not designed to make the execution of wills a mere trap and pitfall...." (40)
To the extent that he is right, then, Glover has identified a policy that lawmakers pursue surreptitiously. That need not make it any less real. When confronted with legal principles that they wish to override, some lawmakers might be tempted to tackle those principles covertly, as Karl Llewellyn noticed long ago in connection with encroachments on freedom of contract. (41) To turn around an old adage, some things are easier done than said. But Glover's interpretation fails to account for the modern statutory trend in favor of rolling back testamentary formalities that appear superfluous. (42) Nowadays, as the Uniform Law Commissioners observe, "formalities for a ... will are kept to a minimum," in order "to validate wills whenever possible." (43) Under Glover's model, superfluity should comprise a virtue, and the formalities of execution should remain thick and robust.
The asymmetry between will formalization and revocation that Glover finds so telling in fact conforms to a more widespread pattern identified earlier by Fuller: "There is in our law a noticeable, though not consistently expressed tendency to treat the surrender of rights differently from the creation of rights.... In general it may be said that it is easier to give up a right than to create one." (44) Fuller surmised that a lower threshold of formality can often accomplish its purposes in connection with the surrender of rights, (45) and that, in fact, appears to be the case here: Revocation by act involves an action that the testator performs upon an executed will, one that lay culture recognizes as imbued with symbolism, and which bespeaks finality without the need for a ceremony, expressing the withdrawal of intent to make whatever distribution the will specified.
The testator can perform no comparable action initially to express intent to make any one of an infinite number of alternative distributions by will. He or she can only do so by using words--words that then require solemnization in some more elaborate way.
As a prescriptive model, even putting aside the propriety of legal subterfuge, Glover's analysis stands vulnerable to criticism. At a functional level, freedom of testation and protection of the family are not incompatible policies. On the contrary, one of the accepted virtues of freedom of testation is that it exploits the comparative advantage of testators to craft estate plans benefitting successors, taking into account the unique circumstances of each family; by comparison, intestacy law operates mechanically and inflexibly. (46) At another level, the pattern of inertia that would result if lawmakers placed needless obstacles in the way of testation invites criticism. In economic terms, formalities make intestacy law a so-called "sticky" default rule (47)--but the burden falls disproportionately on testators of lesser means, for they are more apt to be deterred by, or to fall prey to, punctilious formalities. We can question the equity of a system of succession that discriminates along socioeconomic lines, defeating the intent of the poor while giving free rein to the preferences of well-heeled testators. (48) Only mandatory rules, applicable to all, can afford equal protection for the families of testators. (49)
We should therefore reject this account of formalizing rules as unsound, both descriptively and prescriptively. (50) The public policy in favor of protection of the family fails to justify any difference between the specification of will formalities and other transfer formalities.
In another provocative critique, shifting back to the contracts side, Professor Eric Posner argues that most of the functions of formality identified by Fuller fail to withstand analysis. (51) Relating formalizing rules to the mandatory and default rule paradigm, Posner argues that formalizing rules should become mandatory (as they traditionally are) only when they serve some clear economic purpose--otherwise, parties should retain the right to bargain around them, avoiding the transaction costs that they impose. Although the principal functions of formality that Fuller lighted on aid and abet contracting parties, "they do not explain why the Statute of Frauds and other formalities should [be] ... immutable." (52)
Hence, in respect of the need to signal the finality of a contract, "there is no reason that the use of a writing should necessarily count as a signal." (53) Parties to a contract "could send such a signal by simply stating orally whether they desire legal enforcement or not. If they want to increase the likelihood of the result they desire, they might write it down." (54) No interests other than those of the contracting parties are implicated. Likewise, if they could decide for themselves whether or not to undertake the expense of memorializing their agreement in order to reduce evidentiary error costs, parties would make the choice that better served their interests in any given instance. (55) The one component of the evidentiary function that Posner acknowledges as justifying a mandatory rule is the avoidance of fabricated agreements, which harm innocent third parties. (56) Accordingly, "[t]he optimal formality is a rule that prescribes an act that is cheap for a promisor to engage in but costly for a wrongdoer to mimic." (57)
Posner makes a valuable contribution when he points out how the market itself could, in theory, sort out optimal levels of formalization. In some respects, the process might efficiently regulate itself, at least among sophisticated parties who understand the costs and benefits. But for those who do not--including many gratuitous transferors--information costs would create an imperfect market for formalities, again justifying state intervention in the shape of mandatory formalizing rules. (58) What is more,
Posner fails to perceive the difficulties inherent in finalizing transfers without a mandatory formalizing rule. Words alone fail to denote finality unless we already have some external, accepted means of distinguishing what the philosopher J.L. Austin called "performative" words from communicative ones. (59) A formalizing rule creates such a bright dividing line. If parties sought merely to say when their words were final, in the absence of a required formality, the finality of those assertions about finality would remain ambiguous, leading to an infinite regress. (60) In connection with transactions, like contracts, that parties engage in frequently, social customs might nevertheless crystalize in the absence of legal rules to permit parties unambiguously to finalize deals. In the United States, the proverbial handshake, when coupled with words, would appear to operate in this capacity as an "informal" formalizing rule.
What conclusions can we draw from this overview of formalizing rules? Individual modes of formality (such as witnessing) can serve multiple purposes simultaneously, and those purposes also appear complementary. Hence, we have no need to introduce balancing tests here. Furthermore, and crucially for purposes of our analysis, the uses of formality appear contextual. Whether any given formality will prove efficacious, in light of its ends, depends on the circumstances. Fuller was first to propound the idea: "The need for investing a particular transaction with some legal formality will depend upon the extent to which the guaranties that the formality would afford are rendered superfluous by forces native to the situation out of which the transaction arises...." (61) Examining the problem inter-categorically, we can expand on Fuller's insight. The need for, or superfluity of, any given formality depends more fundamentally on "forces native to the situation" (62) than on the type of transfer at issue. Put otherwise, the category into which a transfer falls does not, in and of itself, alter the circumstances in consequential ways, although certain types of transfers may be statistically associated with particular circumstances that, in turn, either augment or diminish the utility of a given formalizing rule.
Consider again the principal functions of formality. Lawmakers can clarify the finality of intent by introducing a ritual or action of some sort to accompany, or even to substitute for, words expressing a transfer. Such a ritual or action serves to distinguish the final word from preliminary contemplations as concerns any variety of transfer. But at the same time, the events leading up to, or attending, a transfer could already function to draw the desired distinction, producing what Fuller called "natural formality." (63) In the presence of natural formality, the artificial sort becomes redundant and therefore unnecessary for lawmakers to require. (64)
More concrete variables present themselves in connection with other aims of formalizing rules. As Gulliver and Tilson observed, the need to protect testators from duress or undue influence depends upon their vulnerability. (65) Those in good health with a strong will are, we might say by analogy, "naturally protected." Likewise, the benefit of lawyer-generated standardization varies with the complexity of the terms of a transfer. (66) A simple transfer is "naturally standardized." And in respect of both variables, the type of transfer at issue again appears irrelevant. Complex wills, gifts, and contracts all profit from professional drafting; simple ones, not much.
Lastly, the value of the evidence generated by a formality--be it a writing, or the presence of witnesses--also depends on several factors: (1) the availability of the parties themselves to substantiate the relevant facts about a transfer, (2) the space of time that elapses before such a factual reconstruction becomes necessary, and (3) the complexity of the terms that require reconstruction. Because "forgery may be more difficult to achieve than perjury," (67) and certainly requires greater effort, writings provide a bulwark against fraud. And they also protect against lapses of memory concerning complicated or bygone facts.
This last point, however, we should not accept too hastily. The popular notion that memory decays over time, like a radioactive isotope, was exploded as early as the 1930s. (68) Items of fact may be forgotten at one point in time and then called back to mind at another. The process does not unfold along a constant slope, or even necessarily a continuous line.
That said, psychological studies of memory do raise the concern that temporal distance can endanger the accuracy of recollection. The accumulation of memories of similar episodes interferes with a subject's ability to recall accurately any single one of them. (69) Here, we might expect to find some variation among different sorts of transfers, stemming from their variable frequency. Parties who make or witness wills probably stand at less risk of memory loss caused by episodic interference, because will execution occurs so rarely. (70) By contrast, business persons who make deals for a living, embarking on more contractual transfers than they can count, should have greater difficulty recalling any one of them. Eventually, though, the onset of old age causes organic changes in the brain that can damage long-term memory for every elder, even in the absence of cognitive pathology. (71) Donors, testators, witnesses, and contracting parties alike are bound to become forgetful sooner or later. In addition, the routine experience that complicated data are more difficult to remember than simple data--a function of our limited capacity to process data into memory--is well-accepted today and confirmed by any number of formal studies. (72) Again, this phenomenon relates to every kind of transfer. Finally, and with finality, death erases all trace of a subject's memory.
If we are to pursue a minimalist approach to the formalities of transfer, accepting (to recall Gulliver and Tilson, but pace Glover) that they are not ends in themselves, (73) and recognizing that they contribute to transaction costs, we need to take situational variables into account when we fashion formalizing rules.
II. SPOT TRANSFERS
Let us begin with the simplest of all situations: immediate transfers, occurring in the prime of life. Memorialization of a transfer, while always useful, is not vital in this context. Evidentiary confirmation or disconfirmation of a transfer becomes a straightforward process when the transferor and transferee can each testify as to what one did, or did not, communicate to the other, and this information will remain fresh in their minds. If parties' testimony conflicts as to immediate facts, the jury steps in as our lie detector to ferret out fraud. Only if the terms of an immediate transfer are complex, making honest discrepancies of recollection more likely, does memorialization become paramount. The value of standardization likewise rises in direct proportion to complexity. And whereas rituals are not indispensable with respect to spot transfers, given that parties can report whether they intended their words to be legally operative, rituals do serve to signal finality, and thereby to avoid mutual misunderstanding, if no natural or customary rituals already lie at hand.
Under existing doctrine, the formalizing rules applicable to spot transfers have become fragmented, varying by category, and even by subcategory. Although long accepted, the prevailing configuration of these rules merits reexamination.
In the transactional realm, spot transfers take the form of short-term contracts. Under the statute of frauds, the applicable formalizing rule for a contract depends upon its subject matter. Short-term contracts for services fail to come within the statute, and hence parol agreements for those services are binding; no memorialization or ritual of any sort is required. (74) By comparison, the statute of frauds demands a signed writing for contracts covering real property. (75) Finally, with respect to contracts for the sale of personal property, the statute of frauds further distinguishes goods of small and large value. As codified in the Uniform Commercial Code, contracts for goods worth $500 or more require a signed writing; contracts for goods worth less than that do not. (76) Originating in England with the enactment of the first statute of frauds in 1677, this tripartite framework prevailed in the United States for most of its history. (77) The U.C.C. adds a further refinement, distinguishing from the sale of goods contracts for intangible securities, which require no writing. (78) On top of these subject-matter distinctions, several more discrete classes of contract based on the nature of the contractual obligation--specifically, contracts establishing a suretyship and those made in consideration of marriage--require a signed writing, again tracing to the English statute of frauds. (79)
From a policy perspective, distinctions of formality based on the subject matter of (or the nature of an obligation under) a contract appear arbitrary. (80) Contracts covering real or personal property, tangibles or intangibles, and goods or services, pose identical problems of ritual and evidence. (81) Hence, the formalizing rules that apply to them, whatever they may be, ought to operate symmetrically.
Turning to the formalities themselves, the virtues of a writing requirement for short-term transactions, even for contracts involving large sums (which represents a subjective standard), seem doubtful. In the commercial arena, the bargaining table lends a kind of natural solemnity to the occasion, lessening the need for an artificial ritual to clarify parties' intent to be bound. (82) In any event, those engaged in business, and even lay parties dealing with commercial actors, have evolved customary gestures for signaling agreement, enabling parties unambiguously to cement a deal. (83) As for evidence, the parties themselves can bear witness to their dealings. Memorialization and standardization become important only insofar as the terms of a contract are complex, likewise complicating their reconstruction and interpretation. But the parties to business contracts already know all of that, and lawmakers can count on them to bring in the typists and the lawyers when they serve a purpose. As Posner perceived, (84) formalization becomes a self-regulated process when sophisticated actors are involved.
The only other arguable merit of a writing requirement is to diminish the risk of fraudulent evidence. (85) But when parties can defend themselves in court, submitting sworn testimony and threatening cross-examination, and when criminal penalties operate concurrently to deter fraud, we may rate this risk as relatively small. It was not always thus. In the period when the statute of frauds first came into effect, and continuing until the second half of the nineteenth century, rules of evidence barred interested parties from testifying in open court. (86) From an evidentiary perspective, that made spot transactions (as of then) indistinguishable from those (as of now) where parties have died, thus again precluding their testimony--which presents a different situational problem, with a greater risk of evidentiary error and fraud, that we shall return to later on. (87) The demise of the old common law of evidence changed the nature of the problem, but the statute of frauds failed to change along with it. (88)
In sum, laborious formalities attached to short-term contracts implicate unnecessary costs, hindering and delaying transacting parties who hold time dear. Time is money, and parties themselves can decide whether formalizing a spot transaction is, so to say, time well spent. All else being equal, lawmakers should build this carriage of property for speed.
Meanwhile, in the gratuitous realm, spot transfers take the form of inter vivos gifts made by parties who may lack commercial actors' professional sophistication. Again, the formalizing rules for gifts have splintered along lines similar to the ones discovered within the law of contracts. Once more, one finds little evidence that these rules have evolved methodically.
Under the common law, gifts of all forms of personal property are formalized by delivery and--in contradistinction to contracts--no contemporaneous (or, for that matter, non-contemporaneous) communication is required to render the gift complete, although the transferor must intend the transfer to comprise a gift for it to take effect as one. (89) Under the traditional view, delivery must be "manual," a literal movement of the gift corpus into the hands of the donee (or the donee's agent), unless manual delivery is impossible or impractical. (90) In that event, the donor can substitute an alternative form of delivery--either constructive delivery of something (such as a key) that opens up access to the gift, or delivery of a writing describing the gift. (91) The modern view, acknowledged nowadays by many courts, permits these alternative forms of delivery irrespective of the ease of manual delivery. (92)
At the same time, and for no substantial reason, gratuitous transfers of services are excluded from the law of gifts. (93) Hence, a donor can only finalize a gratuitous transfer of personal services by performing them, not by formalizing them as gifts. (94) In at least one respect, the substantive rules of these two subcategories also diverge. (95) But when we turn to gifts of services that a donor undertakes to supply but that a different party will perform, the law of contracts becomes implicated. A donor can formalize such a donative third-party beneficiary contract by mere parol agreement with the service provider, and the donor can simultaneously finalize the gift by disallowing discharge or modification under the terms of the contract. (96)
Finally, the statute of frauds again distinguishes gifts of real property, which a donor can only effect by preparing a written deed of gift, coupled (at a minimum, depending on the state) with a signature, and "delivery" of the deed. (97) But in the context of gifts of real property, as one commentator observes, delivery becomes a term of art: "the definition..., as applied to deeds, is not the same as the 'traditional' concept of delivery. The touchstone for delivery in deed cases is the intent of the grantor...," (98) Physical transfer of the deed to the donee need not occur, although such a transfer can suffice to manifest intent. (99) Essentially, in the context of real property, lawmakers have traded one formality--the writing requirement--for another. (100) Yet, no attribute unique to real property justifies its distinction from personal property in this regard. (101)
In fact, no one argues that a gift's subject matter matters as concerns the public policy of formalizing rules. Like the analogous distinctions within the realm of contract law, those discovered within the law of gifts answer no material purpose--although they do serve as a reminder, if one were needed, of the universality of Justice Holmes's legal equation that "a page of history is worth a volume of logic." (102)
Not only are the formalizing rules for gifts internally inconsistent, but in several instances they are also inconsistent with their counterparts within the law of contracts. Whereas contracts for tangible goods may be made by parol agreement below a value threshold, and above that threshold only by a signed writing, gifts of tangible goods are formalized by delivery in all instances. (103) Whereas contracts for intangible securities are effective by parol agreement irrespective of their value, gifts of intangible securities require delivery of either the share certificates themselves or a writing describing the securities. (104) Parties can formalize contracts for services by parol agreement but cannot formalize gifts of personal services at all. (105) And while contracts in consideration of marriage come within the statute of frauds, gifts in anticipation of marriage do not; hence, gifts in anticipation of marriage are formalized no differently from other gifts. (106) The statute of frauds has operated to consolidate only the formalizing rules for contracts and gifts of real property, and for suretyships, which ordinarily operate as enforceable contracts, even when they are gratuitous, (107) all of which require a signed writing. (108)
Should the formalizing rules for gifts correspond with those applicable to classical contracts? Should a gift, in other words, become enforceable via an objective offer ("I hereby give you my Porsche" (109)) and acceptance ("Thank you!" (110)) by donor and donee? If necessary, parties can testify as to what they said, or failed to say, irrespective of whether the transfer at issue is a gift or a contract. In an early study of gift formalities, predating by a decade and a half the contributions of both Gulliver and Tilson, and Fuller, (111) Professor Philip Mechem defended the delivery requirement for gifts as corresponding with the "ordinary experience and the fundamental habits of the human mind." (112) By virtue of its "normality," delivery clarifies that the donor intended an enforceable gift and avoids misunderstanding by the donee. (113) Put into the theoretical context of Mechem's successors, delivery provides an unambiguous ritual for finalizing gifts. (114) Mechem observed that a delivery requirement also provides evidence helpful in forestalling fraud, "it [being] easier to fabricate a story than to abstract the property." (115) Finally, Mechem anticipated what Fuller went on to call the cautionary function, (116) insofar as it related to the delivery requirement for gifts, which "forces upon the most thoughtless and hasty at least a moment's acute consideration of the effects of what he is proposing to do." (117)
None of these points is overwhelmingly persuasive. Just as negotiations provide natural formality for contractual agreements, (118) the context of gift declarations can also imbue them with ritual significance. When verbalized on traditional gift-giving days--such as birthdays, Valentine's Day, certain religious holidays, and graduation days--gift declarations come with a natural solemnity indicative of finality. Even when made on other occasions, gifts ordinarily are accompanied by some gesture of affection, analogous to the contractual handshake, that, when made along with a declaration of gift, should suffice to distinguish it from a careless remark. (119) Arguably, current law is more callous to the risk of misunderstanding, in that delivery suffices to formalize a gift without any accompanying communication. (120) Lawmakers apparently consider delivery itself an adequate form of expression--an action that speaks as loudly as words. Still, one can point to instances where deliverees have allegedly misconstrued deliverers' intent, leading to litigation. (121) Actions may be loud, but they are not always clear. A declaration requirement for gifts would help to clarify intent to make a donative transfer, as opposed to a loan or a bailment. But, of course, neither requirement (even if combined) offers complete immunity from ambiguity. (122)
As far as evidence is concerned, as in connection with contracts, parties' testimony can overcome fraud. If fear of fraud were paramount, then a writing requirement for all gifts, expanding on the statute of frauds, might do more good than a delivery requirement. (123) Nor does a delivery requirement force parties to think twice before making an uncompensated transfer. People can either speak or act on impulse, and handing something over takes only a trifle longer than blurting out words. Again, a writing requirement would appear to serve the cautionary function more assuredly.
Under existing doctrine, lawmakers allow donors to formalize gifts by virtue of an objective declaration, without any act of delivery--in other words, in a contract-like manner--under some circumstances. Suppose the corpus of a gift already lies in the donee's possession as a bailment. The donor now wishes to make a gift of that item to the donee. How can the donor accomplish the transfer? Physical delivery of an object to someone who already possesses it is impossible. Under these conditions, we might expect delivery of a writing or manual redelivery to serve as the operative formality. The law requires neither: rather, a donor can make the gift by oral declaration to the donee. (124) Mechem defended this exception as corresponding with ordinary social practice and so producing "a minimum of friction [with] the mechanism of ordinary life." (125) Furthermore,
where the res is already in the hands of the donee, the significance of his ... words will be emphasized to the donor, and he will be a little less prone to an ill-advised donative expression than in the case where the res is safely in his hands. (126)
As Fuller would have put it, a declaration of gift under these circumstances implicates "natural formality," (127) although not uniquely so. The fact that lawmakers are prepared to carve out this exception suggests at least the plausibility of its generalization.
At the same time, another existing exception to the delivery requirement appears problematic within its situational context. Whereas the donor (or "settlor") of a gift in trust must ordinarily deliver the trust property to the trustee to complete the gift, such an act becomes meaningless when the settlor is the trustee. Here again, lawmakers have waived the delivery requirement without substituting another ritual, allowing the settlor to create an enforceable trust by mere verbal declaration--to anybody. (128) In this connection, though, some risk exists that a layperson will fail to appreciate the potential significance of his or her words. Declarations of trust are not typically made on gift-giving days and, because they need not be declared to the beneficiary, they might go unaccompanied by any gestures of affection. (129)
But the problem goes deeper than that. By its nature, any inter vivos trust, including one for which a third party serves as trustee, could feature more complex terms than apply to basic gifts. The trustee (and even settlors themselves) might have difficulty recalling the mass of those terms if communicated orally. Complex trusts call for memorialization, as well as standardization. Yet, unlike sophisticated actors, lay settlors might know no better than to do it all themselves. Here, a writing requirement, coupled perhaps with more arcane formalizing rules to encourage professional drafting, hold a certain appeal.
The traditional rule, endorsed both by the Uniform Law Commissioners and the Restatement, draws no distinction between the formalization of simple gifts and complex trusts: Whether or not a settlor doubles as trustee, and hence whether or not coupled with delivery, inter vivos trusts are valid even when their terms are communicated orally. Only nine states today subject inter vivos trusts to more exacting formalization requirements. (130) Such requirements, we should note, need not distinguish gifts from inter vivos trusts, if organized situationally. The element that would typically complexify a traditional inter vivos trust is the inclusion of future interests, which carry trusts out of the sphere of spot transfers and into the sphere that we shall call anticipatory transfers--an area demanding greater formality for additional reasons, as we shall presently see. (131)
A final trend in the law of gifts of personal property merits noting. Many modem (and even some early) courts have put forward what is best described as a remedial doctrine of gift formality, holding gifts valid where donors have died before they could complete delivery, at least if evidence of donative intent appears unequivocal. Courts have accomplished this outcome by stretching to find an effective delivery where none exists, or (more rarely) by misconstruing the attempted gift as a declaration of trust. (132)
The public policy of waiving delivery in this context is complicated by another situational variable: The absence of the donor when the issue goes to court. It is this factor that creates pressure for remediation, since the donor has missed the chance to take the necessary steps to effect the gift. But the very same factor also heightens the risk of error and fraud, even when the court is convinced otherwise. (133) However we ultimately weigh these competing considerations, we ought to resolve the tension consistently. A similar problem arises in connection with gifts of real property where the would-be donor failed during his or her lifetime to observe scrupulously the statute-of-frauds formalities. This issue is not exactly analogous, because the risk of fraud presented by a defective deed could differ from the risk of fraud posed by a defective delivery, a distinction lawmakers need to weigh in the balance. (134) At any rate, curative statutes do exist for certain violations of the statute of frauds applicable to transfers of real property, although they vary in scope from state to state. (135)
In sum, a case can be made for consolidating the formalizing rules for gifts and contracts, both intra- and inter-categorically. The latest iteration of the Restatement proposes judicial steps in both directions. It suggests that written declarations of gift for personal property, like deeds of gift for real property, should require no delivery. (136) And the Restatement also suggests that in those cases where evidence of donative intent is clear and convincing, that evidence alone should suffice to give effect to a gift of personal property, despite a lack of delivery, even (apparently) where the donor remains alive and might wish to change his or her mind after expressing a gift, a rule reminiscent of the common law of contracts. (137) Both of these moves merit consideration, but both remain aspirational; neither one "restates" existing law. (138)
III. ANTICIPATORY TRANSFERS
The mirror image of a spot transfer is one that parties render legally operative in advance of its maturity. A transferor may preconceive a planned transfer--or an inevitable one--and seek to formalize it long before the transferor intends it to become possessory. Nowadays, of course, that is the standard practice for making a will. The transferor executes the will at an early or middle age, anticipating by years or even decades the time when the transfer eventually, but ineluctably, comes to fruition.
Here, the evidentiary problems so easily dismissed in connection with most spot transfers grow more formidable. An extended period of latency raises the specter that the star witness in any trial over a transfer's authenticity, finality, terms, or construction will prove unavailable to testify. When a transferor schedules a transfer to occur at death, his or her disappearance becomes a condition precedent, and not merely a risk. Under these circumstances, we need some substitute for the transferor's testimony. And note well: this problem crops up in connection with every conceivable sort of anticipatory transfer, not just with regard to wills.
Lawmakers demand greater formalities for a will than apply either to garden-variety gifts or contracts. State statutes of wills require testators to commit their wills to writing. (139) And (with an intriguing exception in some states that we shall address presently (140)), the statutes require testators to execute their wills in front of witnesses. (141)
The writing and witnessing requirements for wills serve as substitutes for the testator's testimony. Witnesses alone could not do the job; if a testator verbally declared his or her will years before it matured, witnesses' recollections in old age of what a testator had (or had not) said might have dimmed, and in any event a will's complexities might tax anyone's memory. At the same time, a writing without witnesses would suffer from its own deficiencies. The authenticity of the document could be called into question. And, with no ceremony surrounding the document's execution, fact finders could not know for sure whether the testator considered the document as final and legally operative, as opposed to merely a preliminary draft. (142) Like trusts, wills are not traditionally made on holidays--hence, no natural solemnity attaches to the words of wills. (143)
Even so, the statute-of-wills formalities are not fool-proof. Over a protracted space of time, a written will can become lost. By the same token, witnesses may vanish, or they may perish. Historically, lawmakers have not required both, or even either, to survive. If necessary, beneficiaries can prove a lost will with other evidence, and they can also substitute other evidence for unavailable witnesses. (144) Yet, lawmakers could easily enough impose a regime of formalizing rules designed more stringently to protect against the loss of documents and witnesses. Testators could be obliged to file a will with the probate court for safekeeping, for example--now merely an option made available to testators in many states. (145)
Lawmakers could also enact a statute of limitations for the probate of wills, as applies to many other sorts of claims. Statutes of limitations operate to protect against the risks of adjudicative error that arise when parties postpone a cause of action until a time when "evidence has been lost, memories have faded, and witnesses have disappeared," as Justice Jackson once put the matter generally. (146) In fact, many states have adopted such a rule for wills. Under the Uniform Probate Code, beneficiaries can submit a will for probate only within three years of the testator's death; otherwise, they can only petition for intestacy. (147) States that have adopted statutes of limitations for wills have invariably structured them in this way, although the period of time within which probate of a will must occur varies from jurisdiction to jurisdiction--in one state, the deadline is so strict as to require probate within six months of the date of death. (148)
That lawmakers have chosen to start the clock on the date of death is understandable. Statutes of limitations for other causes of action--breach of contract, for instance--begin to run when the claim arises. Modern statutes of limitations for wills conform to this pattern. (149) The difference, though, is that little time typically separates contract formation from breach, making them functionally simultaneous events. Not so in the case of wills; will execution and maturity are, in all probability, distinct events. The quality of the evidence of a will's authenticity hinges on when it was executed, not on when the testator died. Authenticating a half-century old will that parties promptly submit for probate represents a far thornier task than authenticating one executed shortly before death, even if beneficiaries delay probate for a number of years. Under late Roman law, wills became ineffective if they failed to take effect within ten years of their execution. (150) Some sort of similar rule, making execution the trigger for a statute of limitations, and hence requiring periodic re-execution of wills, would better suit the purpose of ensuring a will's evidentiary integrity, although such an innovation (its radicalness aside (151)) would add to the transaction cost of will making.
An exception to the witnessing requirement appears in the twenty-seven states that allow holographic wills in lieu of executed ones. (152) In these states, if a testator writes out the substantive provisions of a will in longhand and signs the document, it can be probated even without witnesses. In concept, holographic wills function to simplify, and to cheapen, the process of will execution without sacrificing evidentiary integrity. Here, witnesses become unnecessary as a means of authentication "by virtue of the recognized difficulty of forging an entire handwritten instrument," (153) as opposed to a mere signature. At the same time, holographic wills can present courts with other evidentiary challenges. In the absence of professional drafting and standardization, these lay documents often require construction proceedings to clarify their meaning. And in the absence of a ritual will execution ceremony, much litigation has also revolved around whether an alleged holographic will was intended to be a final, legally operative document. (154)
Yet, in the twenty-first century, all of this may be about to change. Once upon a time, people corresponded by posted letter, often written out longhand. Expert witnesses could compare the handwriting found in a holographic will with other documents shown to have been penned in the testator's hand. In an age of e-mail and telephonic texting, however, the handwriting that appears in a holograph could lose its probative value-- the testator might leave behind few other samples of his or her handwriting with which the holograph can be compared. Meanwhile, ironically, the very emergence of this problem could ease the second evidentiary task of establishing the finality of a holograph. When handwritten documents turn into anachronisms, they could take on a ritual value that they lacked heretofore. A will laboriously drawn out in longhand could then become as exceptional as an executed will. In short, technological and social change could well stand the evidentiary attributes of holographic wills on their head.
At any rate, holographic wills are probably doomed to extinction in this century for another reason: most Americans will lose the ability to handwrite documents altogether. In the wake of modern information technology, schools in the United States no longer make more than a token effort to teach cursive handwriting, and it is fast becoming a lost art. (155) Today's rising generation is destined to regard holographic wills as a historical curiosity.
When testators fail to formalize their wills properly, a court may still have power to give effect to them in many states today under either of two remedial doctrines. In some jurisdictions, the judicially-developed substantial compliance doctrine allows courts to waive minor, technical failures to comply with the statute of wills. (156) In several other jurisdictions, a statutory harmless error power grants courts leave to waive failures of formality altogether, where parties can produce clear and convincing evidence of donative intent. (157) (The Restatement endorses the harmless error power but, in a bizarre oversight, fails to identify it as an exclusively statutory doctrine. (158)) Nevertheless, a fair number of states continue to acknowledge neither power, (159) and the virtues of introducing one remain controversial. The harmless error power might tend to encourage carelessness and breed litigation, or open up avenues for fraud. (160) At any rate, if lawmakers create such a power, it should with equal logic apply to other sorts of transfers, (161) as Jeremy Bentham once proposed in a critique of English formalizing rules overlooked by modern scholars. (162)
In sum, the formalizing rules for wills respond, at least in a rough-and-ready way, to the situational challenges posed. (163) Whether they respond optimally is difficult to judge, for we must weigh the benefits of formalities against the costs they impose on testators. Viewed broadly, writing and witnessing appear logical requirements when a transfer becomes anticipatory. The fact that lawmakers require neither to comprise an element of proof for a will if it happens to become lost, or if witnesses disappear, or (in some jurisdictions) if a testator bungled the will execution process, hardly justifies scrapping the formal requirements a priori. (164)
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Abstract through III. Anticipatory Transfers A. Wlls, p. 797-830|
|Author:||Hirsch, Adam J.|
|Publication:||Washington University Law Review|
|Date:||Jun 1, 2014|
|Previous Article:||Misconstruing Graham & Miller.|
|Next Article:||Formalizing gratuitous and contractual transfers: a situational theory.|