Chapter 11
Contracts — Consideration
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.
§1: Legal Sufficiency of
Consideration
Consideration for a promise must be
either:
Legally detrimental to the promisee,
or
Legally beneficial to the promisor.
§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.
§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.
§4: Problem Areas
Concerning Consideration
Uncertain Performance.
Settlement of Claims.
Promises enforceable without
consideration.
Uncertain Performance
Illusory Promise.
Promisor 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.
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.
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:
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.
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…”
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 tradeassociation board meetings and lobby Congress on
MVE’s behalf.
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.
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.
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.
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.