Presentation on theme: "Even More About Bargains... Contracts – 1.24.2011 Prof. Merges."— Presentation transcript:
Even More About Bargains... Contracts – 1.24.2011 Prof. Merges
Bargain vs. Performance The bargain or exchange –May be “promise for promise”, or –Promise for an action, i.e., performance
Promise for promise X promises to work for Y for one year Y promises to pay X monthly
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
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.
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
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
Wesley Newcomb Hohfeld. Fundamental Legal Conceptions, As Applied in Judicial Reasoning and Other Legal Essays. Yale University Press, New Haven, 1923.
Strong v. Sheffield Procedural History Trial court: judgment for P; General term reversed
Strong v. Sheffield Promissory Note? General Term?
Strong v. Sheffield Promissory Note? General Term? –Maker or endorser –Payee
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
“The contract between the maker or endorser of a promissory note forms no exception” to this general rule
Why is there a “no inquiry into consideration” rule for promissory notes?
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).
"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).
Consideration and commercial paper “The law governing commercial paper precludes an inquiry into the consideration as against bona fide holders for value before maturity....”
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).
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.
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
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
What did Mr. Strong promise Mr. and/or Mrs. Sheffield?
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.”
“There was nothing on the face of the note to prevent an immediate suit on it to recover the debt” – p. 70
Wife’s endorsement Essentially a guarantee of payment Says in effect, “I will back this debt with my assets”
“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.
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
Deposit receipt was merely an offer Obtaining high-quality lessees and informing defendant of that would constitute acceptance of the offer
Offer-Acceptance Without proper acceptance of a binding offer, there is no contract Differs from consideration, in which there is at least the appearance of a completed deal – the only question is whether the completed deal is a “true bargain”
A contracts with B to install a heating system in B's factory, for a price of $20,000 to be paid "on condition of satisfactory completion." A installs the heating system, but B states that he is not satisfied with it and refuses to pay the $20,000.
B gives no reason except that he does not approve of the heating system, and according to experts in the field the system as installed is entirely satisfactory. A has a claim against B for $20,000 since it is practicable to apply an objective test to the installation of the heating system.
Fancy, taste or judgment Different standard applies – difficult to apply objective test in these areas
A contracts with B to paint a portrait of B's daughter, for which B promises to pay $5,000 "if entirely satisfied." A paints the portrait, but B honestly states that he is not satisfied with it and refuses to pay the $5,000. B gives no reason except that the portrait does not please him, and according to experts in the field the portrait is an admirable work of art. A has no claim against B since it is not practicable to apply an objective test to the painting.
A contracts with B to paint a portrait of B's daughter, for which B promises to pay $5,000 "if entirely satisfied." A paints the portrait, but B refuses to even look at the portrait or to pay the $5,000.