Oakland Judge compels parties to abide by settlement agreement

Grant Gilmore Photo Courtesy
of Yale Law School

Federal Judge Saundra Brown Armstrong entered a judgment against several former owners of a gas station in Vallejo, CA.  The judgment was to enforce a settlement agreement which the defendants breached in 2009.

According to court documents ConocoPhillips entered into several agreements with Milestone Pacific Properties, LLC who owned a Union 76 gas station in Vallejo.  One of those agreements was a deed of trust which provided that Milestone was the grantor, First American Title Insurance Company is the transferor, and ConocoPhillips is the beneficiary.  Milestone defaulted in the agreements and ConocoPhillips sued for breach of contract.

That suit never went too far and was settled in exchange for a promissory note to pay $800,000 in equal installments of $100,000.  The defendants made the first payment but stopped stating that the promissory note was not a valid contract since either 1) there was no consideration for the agreement or 2) the agreement was procured by economic distress.

In his book the Death of Contract, Grant Gilmore laments the current state of contract law and how easy it is get out of a contract based on theories by Oliver Wendell Holmes and Samuel Williston, which Gilmore berates as, "no one should be liable to anyone for anything."  He contrasted that with the contract theory of Arthur Corbin, who sought to find contracts created from promises in daily human interactions.  Basically, that's the conflict here, Milestone says it has a Holmes-Williston excuse for not abiding by the settlement agreement and ConocoPhillips argues that it doesn't.

Consideration is legal detriment sufficient to support an agreement.  Here, Milestone claims that its officers signed the promissory note but not the settlement agreement, therefore the settlement agreement is invalid and cannot be used as legal detriment to support the promissory note.  The court cited Rancho Santa Fe Pharmacy, Inc. v. Seyfert (Cal. App. 1990) ("When, however, the guaranty is made coincidentally with the promissory note, the guaranty is supported by the same consideration as the note and is enforceable.") The actions of the parties show that they entered into both agreements at the time rendering them enforceable.

Economic duress occurs when a party is coerced into modifying an agreement and would now like to avoid the consequences.  Rich & Whillock, Inc. v. Ashton Development Inc. (Cal. App. 1984).  In Rich & Willock a contractor used a subcontractor for part of a job, once completed the contractor told the subcontractor he was lowering the price he would pay the subcontractor and he could "take it or leave it" knowing that it would ruin the subcontractor if he took no money and chose to wade through the courts to get paid.  The subcontractor took the money and sued for the remainder, winning it under the doctrine of economic duress.  The Court explained "Defendants have submitted no evidence of wrongful conduct of the Plaintiff in connection with the agreements.  To the contrary, Defendants admit it was their own contractual breaches that lead to the initial lawsuit."

The Court entered judgment foreclosing the gas station in favor of ConocoPhillips and entering judgment for the balance of the promissory note owed.  The case is ConocoPhillips v. Mileston Pacific Properties No. C 10-0079 and the opinion is below the jump.