January 12, 1999

Office hours – Tuesday and Thursday from 1-2:30

NEW BOOKS:

Keating, "Sales"

California Commercial Code

New topics:

• consideration (offer and acceptance)
• defenses
• UCC Article 2

Review of Consideration

Sec 17 Restatement – need both consideration and mutual assent for a contract

• or can have a substitute for consideration (§17(2))
• §71 – consideration – a promise is supported by consideration if a return promise or act is bargained for

Kinds of things that can be bargained for:

• a return promise (Mattei v. Hopper)
• performance

1. an act (can bargain for an act – such as a chance to win something (Maughs))
2. forbearance – promise to do something if the other person refrains from doing something that they have a right to do (Baehr)

• adequacy – courts will not question the adequacy of consideration – but if there is a gross disparity in consideration, then the court may invoke a different doctrine and strike it down as an unconscionable bargain; also there is sufficiency of consideration – a synonym for if there is any consideration at all (Embola)
• past consideration – a promise to do something because someone did something in the past for you is not supported by consideration (Mills, Webb)
• statutes (page 236-37) Pesante v. McWilliam – baseball card paper case; example of past consideration; judges and lawyers frequently overlook statutes

reaffirmation agreement – a promise to pay a past debt (such as if person went bankrupt, and then later said they would pay the debt anyway)

§ 73 Restatement – preexisting duty rule

also see comment B to § 73

Denney v. Repert – a preexisting duty case

• lots of people made a claim for reward in a bank robbery case
• only one person got the money though because everyone else had a pre-existing duty to protect the bank’s money
• would be unfair to give the bank employees the reward for something they are already obligated to do

Modification of contract – question of consideration often arises

Schwartzreich v. Bauman-Basch, Inc. – there was no consideration for higher wages; there was a preexisting duty so there was not consideration for the promise to pay $100 per week.

• court got around pre-existing duty rule by saying there was mutual rescission of the old contract – therefore there was no preexisting duty because the duty would have been eliminated
• there was a "middle contract" which eliminated the first contract, then the new contract was drawn up
• as the dissent argues, the middle contract was just a fiction – there was no break between the contracts; the rescission was a fiction – but the court says the rescission and the new contract can happen simultaneously
• this does not mean that all rescissions are fictional

Next reading: Watkins case – figure out what the "other fiction" is; and develop a third theory to figure out another fiction that might have been used. See Mineral Park case on page 663 to see if there is another argument that the contractor could have made (based on the Mineral Park case). Also finish 4b4 Clark, Consolidated Edison; takes facts of Consolidated Edison case and apply statute to it from page 277

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January 14, 1999

Every promise must be supported by consideration . If there was already a contract, there is usually a "pre-existing duty" so the new modification usually does not have consideration. A way to get around this is to cancel the first contract and then go ahead with the modification as a second contract.

JNOV – judgement notwithstanding the verdict

Discusion of this case.

Instead of a rescission, the court said there was a gift that released the parties from the original contract. Then they entered into a new contract for a lot more money.

• this was to try to get around the pre-existing duty rule
• but they ALSO had to get around another rule: an oral gift of a chose in action is legally ineffective, in respect to a transfer to one not the debtor

3 theories here

• rescission
• gift
• doctrine of impracticability – can discharge the original duty

Restatement § 89 – A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made

§ 17.1 – includes requirement of consideration

§ 17.2 - special rules that apply to a bargain

common law exception to consideration – if there is a substitute for consideration; also if there is a statute that can get around the consideration rule

liquidated – has a specific sum been determined

unliquidated – a specific sum owed has not been determined

when contract is unliquidated and disputed, it is very hard to tell if there was a duty or not – therefore the pre-existing duty rule is very hard to apply. There was no pre-existing duty.

Three issues to consider:

1. mutual assent
2. consideration
3. form of the settlement contract; accord; substitute contract

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January 19, 1999

Types of stuff we have studied so far:

Mutual assent

Consideration

Form/consequences of the settlement agreement

• accord and satisfaction -
• substitute contract – does not always mean there was a previous contract; can be substituting a contract for a duty

accord – an agreement for the future discharge of an existing claim by a substituted performance

Folks v. Beer is the leading case on this – still the case

Clark v. Elza review: was an accord not substitute contract

Consolidated Edison Co. v. Arroll review:

A question of mutual assent

No question of consideration because the duty to pay money is not disputed

Arroll had a good faith claim that the amount owed was less

Con ed says there was not acceptance of the offer.

Act of depositing the check is a sign of Con Ed’s acceptance.

If a check with a restrictive endorsement is tendered, that constitutes an accord; and if check is actually paid that constitutes satisfaction

§1-207 – talks about reservation of rights. Such as putting "without prejudice"

in 1990 code was amended to add subsection two

Cal Civ Code 1526 – says the opposite of 3-311

1526. (a) Where a claim is disputed or unliquidated and a check or

draft is tendered by the debtor in settlement thereof in full

discharge of the claim, and the words "payment in full" or other

words of similar meaning are notated on the check or draft, the

acceptance of the check or draft does not constitute an accord and

satisfaction if the creditor protests against accepting the tender in

full payment by striking out or otherwise deleting that notation or

if the acceptance of the check or draft was inadvertent or without

knowledge of the notation.

(b) Notwithstanding subdivision (a), the acceptance of a check or

draft constitutes an accord and satisfaction if a check or draft is

tendered pursuant to a composition or extension agreement between a

debtor and its creditors, and pursuant to that composition or

extension agreement, all creditors of the same class are accorded

similar treatment, and the creditor receives the check or draft with

knowledge of the restriction.

A creditor shall be conclusively presumed to have knowledge of the

restriction if a creditor either:

(1) Has, previous to the receipt of the check or draft, executed a

written consent to the composition or extension agreement.

(2) Has been given, not less than 15 days nor more than 90 days

prior to receipt of the check or draft, notice, in writing, that a

check or draft will be tendered with a restrictive endorsement and

that acceptance and cashing of the check or draft will constitute an

accord and satisfaction.

(c) Notwithstanding subdivision (a), the acceptance of a check or

draft by a creditor constitutes an accord and satisfaction when the

check or draft is issued pursuant to or in conjunction with a release

of a claim.

(d) For the purposes of paragraph (2) of subdivision (b), mailing

the notice by first-class mail, postage prepaid, addressed to the

address shown for the creditor on the debtor's books or such other

address as the creditor may designate in writing constitutes notice.

Review of Dec. 1996 midterm question 2(a)

Jogger would give biker $1500 + $1000

Biker in return agreed to give release from further damages and indemnification

Jogger does not pay the money.

Choices the biker has:

• file suit for damages arising out of accident – tort suit (possible more money, no liability to indemnify / maybe no money, relinquish certainty of $2500)
• file suit for $2500 in contract (get $2500, money / less money, liability to indemnify)

if accord, original contract obligation was suspended; if substitute contract all biker could do is sue for $2500.

Indemnify – if it turns out you owe motorist damages, I will pay for those damages

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January 21, 1999

Review of midterm question Dec. 1996

Accord v. substitute contract

Entering into a substitute contract has discharged the liability and ability to sue in tort.

If an accord, she has option to sue on accord or suspended obligation.

Accord – an agreement for future discharge of an existing claim by a substitute performance; if substitute performance is not performed, then the parties have the option to sue for the original contract

Substitute contract – a new contract is substituted for the original contract; the original contract was discharged and all claims for enforcement of the original contract are lost

Drafting exercise – in small groups will be doing a settlement agreement. Subject will be same as on midterm – will be between Tykes and Wol

Review of Ricketts v. Scothorn

Ricketts is estopped from asserting no consideration principle because the court says there was no consideration.

Promissory estoppel – the promise to do something becomes enforceable because the other party is estopped to deny the consideration. Based on a promise.

Equitable estoppel – when someone should be estopped from doing something because they told you something and then went back on their word. Based on a fact. EXAMPLE: teacher says something is so at the beginning of the term, then gives a test on material and marks person wrong for saying what they were taught at beginning of year. Teacher should be estopped from marking test wrong.

Estoppel to deny to claim absense of consideration

Promissory note – a kind of contract in which a promise is made to pay money back at some time; is unique because it is negotiable – means that is almost like cash, can pass freely in commerce without any question as to its history (a check is a good example of a negotiable instrument)

Advertisments – often questionable as to whether an ad is an offer or not. Most of the time courts hold that ads are not offers.

Clear, definite and explicit and leaves nothing open for negotiation – rule to determine if an ad is an offer.

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January 26, 1999

Review of Nebraska Seed CO. Case:

Reasons that the court concluded there was no offer:

• letter was only a request for bids
• no time for delivery specified
• quantity was somewhat uncertain
• language was not specific enough: he said "I want" should have been "I offer"
• sounds like it wan an advertisement (see Rest. 2d. § 22 p.226)

§ 33 – terms of contract must be reasonably certain, basis for determining the existence of a breach and for giving an appropriate remedy, must be completed within a reasonable time

Remedy for this farmer:

• hard to calculate because we do not know the exact amount

Review of Elvin Associates v. Franklin:

Crown made a contract with Springer

Crown promised that it would supply Franklin’s services for the show

Springer promised to pay money

There were some independent promises between Franklin and Springer

Consideration for a promise can be through a third party (I agree to give you money if you agree to pay the bank)

Assuridy – similar to an idea of a guarantor

If parties do not intend to be bound until they sign a final contract then they are not bound.

§ 27 – sometimes you can have a signed document as a written memorial as a testament of your agreement

the court used doctrine of promissory estoppel.

Remedy is difference between reliance damages and expectation damages

Expectation damages could not be established here with reasonable certainty

GENERAL RULE: No specific performance of a personal service contract.

Extensive negotiations usually lead up to a contract in business. These cases are suggesting that at some point in the bargaining process one of the parties may have created so much reliance on the other side that basically you have to go through with it or be liable in some way. Puts the parties in a difficult position – how does one protect self from going past point of no return – time when you have to go ahead with contract because you have created so much reliance. May be held liable even though technically a contract has not been formed.

Steps in forming a contract:

1. was an operative offer ever made, and who made it?
2. was that offer still operative when what is claimed as an operative acceptance was made?
3. was there an operative acceptance?

Review of ERES hypotheticals:

1. Romero knows that a long time friend, Jane Souza, has expressed

interest in buying the house. He calls her and says that he will sell her the

house for $325,000. She says that she isn't interested. A day later she calls

him back and says she will buy the house for that price, but he says that he

has taken the home off the market. Is Romero bound?

2. Same as above except that Souza initially says that she will think about it.

A day later she calls him back and says she will buy the house for that price,

but he says that he has taken the home off the market. Is Romero bound?

What if Romero told Souza that he had taken the home off the market

before Souza told Romero that she would buy the house for $325,000?

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January 28, 1999

Review of offer problems:

1. no contract
2. is a contract

counter offer – an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer (§ 39, p228).

Offeror is master of the offer.

Receipt of goods means taking physical possession of them.

§ 25 defines an option contract