Presentation on theme: "Chapter 11 Contracts — Consideration. Introduction Consideration is legal value given in return for a promise or performance. Must have something of legal."— Presentation transcript:
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  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.
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 11.1: Hamer v. Sidway (Legal Sufficiency of Consideration)
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.
FACTS: (cont’d) Powell later claimed that O’Halloran offered, in return, that MVE would pay Powell $ 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 $ 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 11.2: Powell v. MVE (Adequacy of Consideration)
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.
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. Case 11.3: Goff-Hamel v. OBGYN (Promissory Estoppel)