Chapter 11 Contracts Consideration Introduction Consideration is legal

Chapter 11 Contracts — Consideration

Introduction Consideration is legal value given in return for a promise or performance. üMust have something of legal value or sufficiency. üMust be a bargained-for exchange.

§ 1: Legal Sufficiency of Consideration for a promise must be either: üLegally detrimental to the promisee, or üLegally beneficial to the promisor.

§ 2: Adequacy of Consideration A Court will not question the fairness of the bargain if legally sufficient. üLaw does not protect a person for entering into an unwise contract. üIn extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable.

§ 3: Contracts That Lack Consideration Preexisting Duty. üPromise to to what one already has a legal duty to do does not constitute legally sufficient consideration. üExceptions: • Unforeseen Difficulties. • Recession and New Contract. Past Consideration is no consideration because the bargained-for exchange element is missing.

§ 4: Problem Areas Concerning Consideration Uncertain Performance. Settlement of Claims. Promises enforceable without consideration.

Uncertain Performance Illusory Promise. üPromisor has not definitely promised to do anything (no promise at all).

Settlement of Claims Debtor offers to pay a lesser amount than the creditor purports to be owed. Accord and Satisfaction. üLiquidated Debt. • Amount has been ascertained, fixed, agreed on, settled, or exactly determined. üUnliquidated Debt. • Parties give up legal right to contest the amount in dispute, and thus consideration is given.

Settlement of Claims [2] Release bars any further recovery beyond the terms stated in the release. Convenant not to Sue is an agreement to substitute contractual obligation for some other type of legal action based on a valid claim.

Promises Enforceable Without Consideration Promises to Pay Debt Barred by a Statue of Limitations. Detrimental Reliance and Promissory Estoppel.

Case 11. 1: Hamer v. Sidway (Legal Sufficiency of Consideration) FACTS: üStory agreed to pay his Nephew $5, 000 if he would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became twenty one. Nephew agreed and performed his part of the bargain. üNephew consented that the money remain with his uncle accruing interest. The uncle died about twelve years later without having paid his nephew anything. üSidway, the executor of the uncle’s estate, did not want to pay the noney to Hamer, a third party to whom the nephew had transferred his rights in the money, claiming that there had been no valid consideration for the promise.

Case 11. 1: Hamer v. Sidway (Legal Sufficiency of Consideration) HELD: FOR HAMER. üCourt ruled that Nephew had provided legally sufficient consideration by giving up smoking, drinking, swearing, and playing cards or billiards for money until he became twenty one and was therefore entitled to the money. Sidway argued that the nephew had suffered no detriment. üThe court noted, “[T]he promisee used tobacco, occa sionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years…”

Case 11. 2: Powell v. MVE (Adequacy of Consideration) FACTS: üCAIRE is a subsidiary of MVE and manufactures home health care products. üR. Edwin Powell worked for CAIRE for thirteen years before becoming its chief executive officer (CEO) and president. üIn 1996, a group of investors became the primary owners of MVE. O’Halloran, MVE’s CEO and president, met with Powell, and asked Powell to resign as CAIRE’s CE), but continue to attend trade association board meetings and lobby Congress on MVE’s behalf.

Case 11. 2: Powell v. MVE (Adequacy of Consideration) FACTS: (cont’d) üPowell later claimed that O’Halloran offered, in return, that MVE would pay Powell $125. 456 per share for his MVE stock. üPowell did as O’Halloran asked until April, when O’Halloran asked him to stop. MVE refused to pay Powell $125. 456 per share for his stock. üPowell sued MVE for breach of contract. The court ruled in Powell’s favor for $3. 5 million in stock. MVE appealed.

Case 11. 2: Powell v. MVE (Adequacy of Consideration) HELD: AFFIRMED. FOR POWELL. üThe Appellate Court the award to Powell of nearly $3. 5 million for his MVE stock. ü“[W]hen a contract is not supported by consideration, no valid contract is formed. ” üPowell’s lobbying efforts and “other tasks” on MVE’s behalf at O’Halloran’s request were consideration. üThe contract between Powell and MVE “is not void for lack of consideration” even if Powell’s efforts were not worth $3. 5 million.

Case 11. 3: Goff-Hamel v. OBGYN (Promissory Estoppel) FACTS: üJulie Goff‑Hamel worked for Hastings Family Planning for eleven years. üOBGYN asked Goff Hamel to work for OBGYN and Goff Hamel agreed to start in October and gave notice to Hastings in August. üThe day before she was scheduled to start, OBGYN told her that she need not report to work. üGoff Hamel sued OBGYN seeking damages based on basis of detrimental reliance.

Case 11. 3: Goff-Hamel v. OBGYN (Promissory Estoppel) HELD: FOR GOFF-HAMEL. üPromissory estoppel can be asserted in connection with an offer of at will employment. üOBGYN offered Goff‑Hamel employment but refused to honor its promise of employment. üGoff‑Hamel relied upon Obstetricians’ promise of employment to her detriment when she resigned her work.