Chapter 11 Contracts — Consideration

1. Chapter 11Contracts — Consideration

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

3. §1: Legal Sufficiency of Consideration Consideration for a promise must be either: • Legally detrimental to the promisee,or • Legally beneficial to the promisor.

4. §2: Adequacy of Consideration A Court will not question the fairness of the bargain if legally sufficient. • Law does not protect a person for entering into an unwise contract. • In extreme cases, a court may find that a party lacks legal capacity or that contract was unconscionable.

5. §3: Contracts That Lack Consideration • Preexisting Duty. • Promise to to what one already has a legal duty to do does not constitute legally sufficient consideration. • Exceptions: • Unforeseen Difficulties. • Recession and New Contract. • Past Consideration is no consideration because the bargained-for exchange element is missing.

6. §4: Problem AreasConcerning Consideration • Uncertain Performance. • Settlement of Claims. • Promises enforceable without consideration.

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

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

9. 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.

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

11. Case 11.1: Hamer v. Sidway(Legal Sufficiency of Consideration) • FACTS: • Story 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. • Nephew consented that the money remain with his uncle accruing interest. The uncle died about twelve years later without having paid his nephew anything. • Sidway, 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.

12. Case 11.1: Hamer v. Sidway(Legal Sufficiency of Consideration) • HELD: FOR HAMER. • Court 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. • The court noted, “[T]he promisee used tobacco, occa­sionally drank liquor, and he had a legal right to do so. That right he abandoned for a period of years…”

13. Case 11.2: Powell v. MVE(Adequacy of Consideration) • FACTS: • CAIRE is a subsidiary of MVE and manufactures home health-care products. • R. Edwin Powell worked for CAIRE for thirteen years before becoming its chief executive officer (CEO) and president. • In 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.

14. Case 11.2: Powell v. MVE(Adequacy of Consideration) • FACTS: (cont’d) • Powell later claimed that O’Halloran offered, in return, that MVE would pay Powell $125.456 per share for his MVE stock. • Powell 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. • Powell sued MVE for breach of contract. The court ruled in Powell’s favor for $3.5 million in stock. MVE appealed.

15. Case 11.2: Powell v. MVE(Adequacy of Consideration) • HELD: AFFIRMED. FOR POWELL. • The Appellate Court the award to Powell of nearly $3.5 million for his MVE stock. • “[W]hen a contract is not supported by consideration, no valid contract is formed.” • Powell’s lobbying efforts and “other tasks” on MVE’s behalf at O’Halloran’s request were consideration. • The contract between Powell and MVE “is not void for lack of consideration” even if Powell’s efforts were not worth $3.5 million.

16. Case 11.3: Goff-Hamel v. OBGYN(Promissory Estoppel) • FACTS: • Julie Goff‑Hamel worked for Hastings Family Planning for eleven years. • OBGYN asked Goff-Hamel to work for OBGYN and Goff-Hamel agreed to start in October and gave notice to Hastings in August. • The day before she was scheduled to start, OBGYN told her that she need not report to work. • Goff-Hamel sued OBGYN seeking damages based on basis of detrimental reliance.

17. Case 11.3: Goff-Hamel v. OBGYN(Promissory Estoppel) • HELD: FOR GOFF-HAMEL. • Promissory estoppel can be asserted in connection with an offer of at-will employment. • OBGYN offered Goff‑Hamel employment but refused to honor its promise of employment. • Goff‑Hamel relied upon Obstetricians’ promise of employment to her detriment when she resigned her work.