Even More About Bargains . . .

1. Even More About Bargains . . . Contracts – 1.24.2011 Prof. Merges

2. Bargain vs. Performance • The bargain or exchange • May be “promise for promise”, or • Promise for an action, i.e., performance

3. Promise for promise • X promises to work for Y for one year • Y promises to pay X monthly

4. Promise for performance • X says, “if you carry this package to the UPS office I will give you $10.00 • The promisor bargains for an action, seeks an action to “close the bargain” or exchange • Unilateral K

5. Performance • Often separate in time from the promise • Bilateral K: The return promise may be for a performance far in the future • In a bilateral K, a return promise binds the parties.

6. When is performance required? • X promises to work for Y for a year, conditioned on Y’s payment to X at the end of each month • Y misses two months’ payments • X is not required to work the next month

7. Rights and duties • Under the K, X has the right to receive payment for his work • And Y has a duty to pay • After Y’s non-payment, X’s duty is suspended, perhaps at an end

8. Wesley Newcomb Hohfeld. Fundamental Legal Conceptions, As Applied in Judicial Reasoning and Other Legal Essays . Yale University Press, New Haven, 1923.

9. Strong v. Sheffield

10. Strong v. Sheffield • Procedural History

11. Strong v. Sheffield • Procedural History • Trial court: judgment for P; General term reversed

12. Strong v. Sheffield • Promissory Note? • General Term?

13. Strong v. Sheffield • Promissory Note? • General Term? • Maker or endorser • Payee

14. Facts • P, Benjamin Strong, sold a business to Rard Sheffield, his niece’s husband • “Later,” Rard’s debt was embodied in a promissory note, or a “demand note” • This converted the contractual debt from Rard to B. Strong into a negotiable instrument -- due on demand to the note’s holder

15. Charles Andrews1827-1918

16. What is “the general rule” Andrews recites at p. 69?

17. What is “the general rule” Andrews recites at p. 69? “. . . The general rule that a promise, not supported by consideration, is nudum pactum . . . “

18. What exception does he mention?

19. What exception does he mention? • “The contract between the maker or endorser of a promissory note forms no exception” to this general rule

20. Why is there a “no inquiry into consideration” rule for promissory notes?

21. Negotiable Instruments – Quick Summary • Before the UCC, “negotiable instrument” was generally viewed as synonymous with negotiable paper or bills and notes. • “Simple forms of contract long recognized in the world's commerce and governed by the law merchant." 1 Joseph F. Randolph, A Treatise on the Law of Commercial Paper § 1, at 1 (2d ed. 1899).

22. "Defined most broadly, commercial paper refers to any writing embodying rights that are customarily conveyed by transferring the writing. . . .” Richard E. Speidel, Negotiable Instruments and Check Collection in a Nutshell 1 (4th ed. 1993).

23. Consideration and commercial paper • “The law governing commercial paper precludes an inquiry into the consideration as against bona fide holders for value before maturity . . . .”

24. Why? “A large subset of commercial paper consists of such writings that are negotiable, which means that the law enables a transferee to acquire the embodied rights free of claims and defenses against the transferor."Richard E. Speidel, Negotiable Instruments and Check Collection in a Nutshell 1 (4th ed. 1993).

25. commercial paper. 1. An instrument, other than cash, for the payment of money. • Commercial paper -- typically existing in the form of a draft (such as a check) or a note (such as a certificate of deposit) -- is governed by Article 3 of the UCC.

26. Credit and economic activity, growth • Negotiability allows merchants to get their cash faster, buy new inventory faster, sell more goods – all of which increases the velocity of economic activity

27. Why not relevant here? • “Has no application where the suit is between the original parties to the agreement” • No bona fide purchaser (BFP) issue • Policies favoring negotiability, flow of credit, are not implicated here

28. What was “the original deal”?

29. What was “the original deal”? Promise to repay Mr. Sheffield Mr. Strong $$

30. What was “the second deal”? Promise to repay Mr. Sheffield Mr. Strong Business Promissory Note Endorsed: Mrs. Strong

31. Promissory Note Mrs. Sheffield Mr. Strong

32. Promissory Note Mrs. Sheffield Mr. Strong ????

33. What is the consideration issue?

34. What is the consideration issue? • What did Mr. Strong promise Mr. and/or Mrs. Sheffield?

35. What did Mr. Strong say? “[I]f you will give me a note, with your wife’s endorsement I will not pay that note away; I will not put it in any bank for collection, but will hold it until such time as I want my money.”

36. Why wasn’t this consideration?

37. Why wasn’t this consideration? “There was nothing on the face of the note to prevent an immediate suit on it to recover the debt” – p. 70

38. Wife’s endorsement • Essentially a guarantee of payment • Says in effect, “I will back this debt with my assets”

39. “Illusory Promises” – Rest. 2d § 77 A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless (a) each of the alternative performances would have been consideration if it alone had been bargained for; or (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.

40. Mattei v. Hopper

41. Fee Schedule – Contra Costa County 1959 Office work or consultation:$20.00 per hour (down from $25.00 in the 1957 Schedule) Drafting Real Property Purchase Agreement:$50.00Drafting miscellaneous contract:$25.00Drafting a General Partnership Agreement:$100.00Ordinary Will:$15.00Trust Will:$50.00Trial Per Diem:$175.00Depositions in defense cases:$50.00Adoption:$150.00Default Divorce:$250.00 (Property Settlement Agreement $50.00 extra)Handling Quiet Title action:$200.00Drafting Lease:$50.00 or 5% of the first-year's rent Handling a civil or a criminal appeal,from filing through oral argument:$250.00

43. Procedural history

44. Terms of the deal

45. Terms of the deal • Deposit on full payment amount • Closing w/in 120 days • “Subject to Coldwell Banker & Co. obtaining leases satisfactory to the [plaintiff].”

46. Who wants to negate (renege on) the deal?

47. Who wants to negate (renege on) the deal? • Why? • One theory: “economic holdout” or “holdup”

48. Assembling parcels for development Separately owned parcels

49. Economic Advantages to Being the “last holdout” • Entire value of project is “at risk” for the party assembling the parcels • Can lead to “extortionate pricing”

50. Defendant’s 1st Argument