The Korean Blood Contract Case: The Appellate Brief.

Here is the verbatim text of the appellate brief (sans names) filed last month in Court of Appeal regarding "the Korean blood contract" case that has generated some media attention.

"I. INTRODUCTION AND SUMMARY OF ARGUMENT

Blood may be thicker than water, but here it’s far weightier than a peppercorn.

Respondent ["R"] solicited from Appellant ["A"] investments and loans for corporations he solely owned or controlled. After investing and loaning 1.7 million won (about $170,000), [A] learned what [R] had told him to induce him to part with the money was not truthful. Accordingly, [A] began to blame [R] personally for the losses he sustained. To appease [A] and to cause [A] not to sue him, [R] wrote out promissory notes, including ones written in his own blood, saying that he would repay [A] personally.

Respondent [ ] promised Appellant [ ]: “I hereby swear [promise] that I will pay back, to the best of my ability, the estimated amount of 170,000,000 Wons to [A].” (English Translation submitted by Defendant [ ], Trial Exhibit 10, p. 10-003; and Trial Exhibit 105; emphasis supplied.)

In addition, on that same date, Defendant [ ] ramped up the solemnity when he wrote, in his own blood no less, “Sir, please forgive me. Because of my deeds you have suffered financially. I will repay you to the best of my ability.” (English Translation submitted by Defendant [ ], Trial Exhibit 10, p. 10-005; and Trial Exhibit 106; emphasis supplied.)

And upon receipt of these documents, [A] agreed to and actually refrained from suing [R] at that time. (RT 66:8-13.)

The unusual presence of blood does not occlude the underlying words conveying [R’s] crucial admissions about his role in [A’s] losses and his promises to pay for them, and it should not obstruct the conventional legal doctrine—applicable to all contracts—that even a peppercorn is sufficient to constitute consideration. “What is a valuable consideration? A peppercorn.” (Hobbs v. Duff (1863) 23 Cal. 596, 603.) A peppercorn is something very small or insignificant, according to Random House’s unabridged dictionary. In other words, the legal test for consideration can scarcely be any lower.

The consideration in this case far exceeds a mere peppercorn. Forbearance has been recognized as sufficient consideration in California law for many decades and can be satisfied by a delay of even one day. “Even though the forbearance is for one day only, there is sufficient consideration as the law does not weigh the quantum.” (Krobitzsch v. Middleton (1946) 72 Cal.App.2d 804, 809 [165 P.2d 729] [forbearance in serving notice of default, though for no specified time, held sufficient consideration].)

The sole ground on which the trial court rejected [A’s] breach of contract claim was that it “lacked sufficient consideration.” (AA 18.) Notably, this was not even a point Respondent asserted. (AA 11-13.)

In so ruling, however, the trial court crucially failed to consider or apply the uncontroverted evidence of [A's] forbearance-- in agreeing to forbear and his actual forbearance--in not suing [R] earlier for [R's] wrongful inducements in 2003, upon receipt of [R's] promissory notes.
Accordingly, this Court should reverse the trial court’s judgment in favor of Respondent [ ] on Appellant['s] first cause of action for breach of contract/default of promissory note.

II. ISSUES ON APPEAL

1. Whether the trial court erred by failing to consider or apply [A's] forbearance as consideration for [R's] blood- and ink-written promissory notes admitting his earlier liability?

2. Whether the trial court erred in finding a “lack of sufficient consideration” in the face of uncontroverted evidence of Appellant’s forbearance from suing [R] earlier for his conduct?

3. Whether the trial court failed to provide an adequate statement of decision addressing forbearance as consideration?

III. STATEMENT OF APPEALABILITY

This is an appeal from a final judgment and appealable under C.C.P. §904.1, subd. (a)(1). Judgment was entered on July 26, 2007 (Appellants’ Appendix [“AA”] 33), and notice of appeal was timely filed on January 18, 2008. (AA 36.)

IV. STATEMENT OF FACTS AND PROCEDURAL BACKGROUND

A. Pleadings

On January 23, 2006, [A] brought a lawsuit against [R] for default of promissory notes/breach of contract, fraud, and money had and received. (AA 45.) The last cause of action was dismissed prior to trial. (AA 48.) [R] answered on or about September 6, 2006. (AA 11 and 48.)

B. [R’s] Inducement of [A] to Invest In and Loan Money to Corporations He Controlled

These two gentlemen first met in the early 1990s. (RT 7:13-16; 68:2-4.) After various discussions and meetings, [R] eventually approached [A] about investing in his South Korean company called, [ ], Inc. (and later renamed [ ] [hereafter collectively referred to as “[Inc.]"]) (RT 8:9-9:8.) The name [Inc.] was derived from [R's] legal name, [ ]. (RT 67:23-26.) [R] owned about 70 percent of [Inc.] (RT 71:10-11.)

[R] told [A] that if [A] invested 100 million won in [Inc.], [A] would receive ten (10) percent ownership of a 500 million won capitalized entity, [Inc.] (RT 9:18-10:22; 70:26-71:9; 72:4-18; 73:2-14.) [A] provided the 100 million won to [Inc.] in February 2003. (RT 70:12-15.) [R] conceded the company was never worth 500 million won. (RT 74:1-3.)

After the initial 100 million won infusion, [R] came back to [A] for more money in or about April, 2003. (RT 77:2-10.) This time, [R] requested that [A]loan his company, 30 million won. (AA 17 and RT 11:1-6.) In making this request, [R] told [A] that there would be money to repay this loan “easy” and “pretty soon,” when, in fact, that was not the case. (RT 77:11-16.) Notably, [R] has specifically acknowledged his role and obligation in obtaining this loan from [A], and promised to give [A] his shares in [Inc.] as repayment. (Trial Exhibit 1, p. 01-004.) [R] has never done so. (RT 66:18-20.)

Finally, in or about June, 2003, [R] sought money for his solely-owned California corporation entitled, [Inc.2] In exchange for this money, [R] promised [A] that he would give him 40 percent of his company [Inc.2] and no less than $4000 per month. (RT 11:7-12:1.) [A] received no stock and none of his money back. (RT 76:17-77:1.)

C. [A's] Forbearance in Exchange for Notes

Returning to the chronology, it should be noted that [A] began to suspect that he had been defrauded by [R] in late 2003. (RT 12:20-13:19; 65:11-21; 78:2-18.) So, [A] began calling and visiting [R] at his Fullerton office asking for his money from [R] personally in near the end of 2003, and [A] remained upset with [R] through October 2004 for not paying him. (RT 12:20-13:19; 65:11-21; 79:4-12.)

[R] testified that [A] blamed [R] personally for his losses of the 170 million won beginning in late 2003 (RT 78:2-18; 79:4-12.), which logically flowed from [R’s] integral involvement in [A]making these investments and loans to [R's] companies. (AA 17:20-22; RT 88:6-14.) In order to appease [A]—i.e. cause him to forbear from suing him, [R] drafted out the promissory notes in October 2004 (outside of [A’s] presence), and also generated some other documents acknowledging the debt to [A]. (See Trial Exhibit 1, pp. 01-004, 01-005.)

On or about October 29, 2004, in [R's] handwriting, he promised [A]:

“I hereby swear [promise] that I will pay back, to the best of my ability, the estimated amount of 170,000,000 Wons to [A].” (English Translation submitted by Defendant [ ], Trial Exhibit 10, p. 10-003; and Trial Exhibit 105; emphasis supplied.)

In addition, on that same date, Defendant [ ] ramped up the solemnity when he wrote, in his own blood no less, “Sir, please forgive me. Because of my deeds you have suffered financially. I will repay you to the best of my ability.” (English Translation submitted by Defendant [ ], Trial Exhibit 10, p. 10-005; and Trial Exhibit 106; emphasis supplied.)

Upon receipt of the notes in October, 2004, [A] did not sue at that time. In fact, [A] agreed not to sue [R] in exchange for the notes.

“Q. And when you [A] got the documents on 10-29-04, did you agree to hold off suing him [R] to give him a chance to pay those promises?
[objection overruled]

“A. Yes.” (RT 66:8-13; emphasis supplied.)

D. Lawsuit

However, despite the October 29, 2004, notes, [R] paid nothing to [A] thereafter. (RT 92:22-24.) Hearing and receiving nothing from [R] even following a demand letter (RT 92:17-24), [A] initiated this lawsuit on January 23, 2006. (AA 1 and 45.)

E. Statement of Decision and Judgment

Following trial, [A] requested a statement of decision, which the trial court agreed to provide. (RT 234:23-235:5.) According to the procedure the court established, [R’s] counsel was to prepare a proposed statement of decision. (RT 239:1-4.) [A] was afforded the opportunity to object to the proposed statement of decision, and the court stated it would rule on the objections. (RT 239:25-26.) [R’s] counsel served a proposed statement of decision. (AA 16-22.) [A] timely objected to it primarily on the grounds that the statement of decision failed to address [A's] forbearance as consideration for the notes. (AA 24.) The trial court ignored these objections and signed the proposed statement of decision without any changes. (AA 26-31.)

V. ARGUMENT

A. The Trial Court Erred As a Matter of Law in Ruling that Consideration Was Insufficient Because it Ignored or Refused to Consider the Undisputed Evidence of Forbearance, Which Constitutes Valid Consideration

According to Professor Witkin’s influential treatise on California law, “Consideration may be forbearance to sue on a claim, extension of time, or any other giving up of a legal right, in consideration of some promise.” (1 Witkin, Summary 10th (2005) Contracts, § 211, p. 246, citing Wells Fargo & Co. v. Enright (1900) 127 Cal. 669, 673 [60 P. 439] (“it is well settled that forbearance to sue is a sufficient consideration to support a contract.”), among other authorities.)

Even the slightest forbearance will suffice. “It is settled law in California that ‘Any suspension or forbearance of a legal right constitutes a sufficient consideration. * * * Even though the forbearance is for one day only, there is sufficient consideration as the law does not weigh the quantum.’” (Krobitzsch v. Middleton (1946) 72 Cal.App.2d 804, 809 [165 P.2d 729] [forbearance in serving notice of default, though for no specified time, held sufficient consideration].)

The court in Levine v. Tobin (1962) 210 Cal.App.2d 67 [26 Cal.Rptr. 273] explained that the promise to forbear may be either express or implied, and any act of forbearance is in itself evidence of an agreement to forbear.

Here, the uncontradicted evidence pointed in a singular direction: that [A’s] forbearance constituted consideration for the 2004 notes. [R] conceded that prior to giving the notes to A[A], [A] was seeking to hold [R] personally responsible for [A’s] losses. (RT 78:2-18; 79:4-12.) After all, [R] was the one that induced [A] to invest or loan money to [R’s] companies. (E.g., AA 27.)

The unrebutted evidence further showed that [A] agreed to forbear from suing [R] in exchange for the notes to allow [R] to perform. (RT 66:8-13.) Finally, it is undisputed that [A], in fact, did actually forbear from suing [R] for over a year after receiving the October 29, 2004, notes, finally suing in January, 2006. (AA 1, 45.)

The trial court erred and abused its discretion as a matter of law because it failed to recognize that forbearance constitutes valid consideration and failed to apply this law to the uncontradicted evidence. Its sole basis in rejecting the breach of contract claim was that there was no sufficient consideration. (AA 28.) Accordingly, its ruling that there was no sufficient consideration for the notes fails as a matter of law and must be reversed.

In reviewing these legal errors, the court should employ the independent review standard (de novo) because this legal analysis turns on undisputed facts. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 535 [99 Cal. Rptr.2d 824]; Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799 [35 Cal.Rptr.2d 418, 423]; and Topanga & Victory Partners, LLP v. Toghia (2002) 103 Cal.App.4th 775, 780-81 [127 Cal.Rptr.2d 104, 106].)

Accordingly, the judgment on the first cause of action for default of promissory note/breach of contract must be reversed.

B. The Trial Court’s Statement of Decision was Insufficient Because It Failed to Address Forbearance as Consideration

In a bench trial, the trial court’s failure to render a statement of decision, where requested, is reversible per se. (Social Service Union, Local 535 v. County of Monterey (1989) 208 Cal.App.3d 676, 681 [256 Cal.Rptr. 325, 328.])

Further, reversible error occurs where a statement of decision “fails to make findings on a material issue which would fairly disclose the trial court’s determination.” (Sperber v. Robinson (1994) 26 Cal.App.4th 736, 745 [31 Cal.Rptr.2d 659, 663].)

Here, the trial court acknowledged that [A] had duly requested a statement of decision, and it ordered one. (RT 234:23-235:5.) The court further indicated it would address [A’s] objections to the proposed statement of decision. (RT 239:25-26.) [A] timely objected to the proposed statement of decision, requesting a statement with regard to the pivotal issue of consideration, namely whether [A's] agreement to forbear and actual forbearance constituted consideration. (AA 24.) The trial court ignored this issue in the statement of decision, and moreover, ignored the written objections calling for a statement regarding this issue. (AA 28-29.) The evidence establishing [A's] forbearance, as discussed above, was uniform and undisputed. Moreover, it undermines the singular ground on which the trial court rejected the First Cause of Action for default of promissory note/breach of contract: consideration.

For this reason, [A] respectfully submits that the statement of decision is defective and inadequate and provides grounds for reversal, per se. In any event, the presence of [A's] objections to the statement of decision precludes the inference that the “trial court decided in favor of the prevailing party as to those facts or on that issue.” (C.C.P. §634; see Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 [275 Cal.Rptr. 797, 798-99].)

VI. CONCLUSION

For the foregoing reasons, Appellant [ ] respectfully requests that this Court reverse the Judgment on the first cause of action for default of promissory note/breach of contract."