CHAPTER 11

Consideration

Consideration?• Consideration = something of

legal value, bargained for and given in exchange for an act or promise

Consideration?• Legal Value- Monetary value

not necessary– Promise– Perform an act where no prior

legal duty to– Refrain from performing an act

where prior legal right to do (e.g. quit smoking)

Consideration?• Legal Value

– Question 8 at end of chapter– Bergen v. Wood (”Palimony Case”)

• A woman is unsuccessful in her ‘palimony’ claim because she did not cohabit with her friend during their 7-year relationship.

• Did Bergen actually bargain for financial support in exchange for being Wood’s companion?

• Social relationships, such as dating, have traditionally not been viewed as contractual and cannot be enforced through the law even if one party has promised to go out with the other, and the other spent a considerable amount on the basis of that promise.

• This decision is a variation on the usual palimony case for the court focuses on the failure to live together. Note that a contract for sex is illegal in most states. Some courts, taking cognizance of the changing mores and habits of many people, have recognized some palimony arrangements and divided property as if a couple were married instead of living together without being married. This is generally done under a quasi contract theory.

Consideration?• Legal Value

• Dela Zoppa v. Dela Zoppa, p. 193 (“Palimony Case”)– A woman is successful in her ‘palimony’ claim because she

cohabited with her partner before their marriage and because their agreement encompassed several aspects of life, not just a sexual relationship. Note that key to this holding, was the fact that Joe and Celeste lived together, rather than merely dated. Social relationships, such as dating, have traditionally not been viewed as contractual and cannot be enforced through the law even if one party has promised to go out with the other, and the other spent a considerable amount “for example buying tickets from a scalper” on the basis of that promise. Note that a contract for sex is illegal in most states. However, you may also want to note that some courts, taking cognizance of the changing mores and habits of many people, have recognized some palimony arrangements and divided property as if a couple were married instead of living together without being married. This is generally done under a quasi contract theory.

Consideration?• Adequacy

– Courts generally not concerned with whether equal value so will allow “bad bargains” based on freedom of contract idea

• Exception:– Inequality on the face of the agreement

» Assume attempt to hide gift as a contract– Nominal

» Generally not adequate unless truly bargained for

• Gross inadequacy may suggest fraud, undue influence, lack of capacity, etc.

• Gross inadequacy may result in finding contract unconscionable under the U.C.C.

• Courts may refuse to grant “equitable remedies” to those who seek to enforce a grossly inadequate bargain and instead grant some measure of damages

Consideration?• Adequacy

– McBee v. Nance, p. 195

• A deed to a house is adequate consideration for a promissory note executed for $15,000. Monetary value and adequacy are not synonymous, and promises have legal value so long as they were bargained for. Consideration need not be of equal value. Here, that McBee gave up something she had a legal right to was sufficient.

Consideration?• Adequacy

– Question 11 at end of chapter• Earl v. St. Louis University

– An agreement by a terminated employee to forgo a service letter and to continue working until he found another job is adequate consideration for 8 months’ severance pay, a bonus, and a good buy on a company car.

– Do you think there was adequate consideration here?

– Even with the promise to release the University from all claims would be adequate consideration even if Earl had no claims since he gave up something he had a legal right to in exchange for the University’s promises.

Consideration?• Bargained for/Given =

consideration that promisor requested (i.e. his price)

Consideration?• Analysis

– Which promise is at issue?– Who is the promisee of that

promise?– Has promisee given the

requested consideration?

Preexisting Duties • Not Commit Crimes/Torts• Promise by Public Official to Perform Official

Duty– Question 6 at end of chapter.

• No. While Slattery was conducting the interrogation he was an employee of the law enforcement authorities. While so employed he was under a duty to give his employer any and all information ascertained by him through the interrogation that might be of aid to them. Thus, his giving of the information about the killing does not supply the consideration necessary to support a contract. As a matter of public policy, to allow Slattery to recover would be tantamount to undermining the integrity and the efforts of those involved in law enforcement. Slattery v. Wells Fargo Armored Service Corp., 366 So.2d 157 (Ct. App. Fla. 1979).

Preexisting Duties • Not Commit Crimes/Torts• Promise by Public Official to Perform Official

Duty– Question 10 at end of chapter

• No. Although the general rule is that a reward offered to the general public is payable to anyone performing the specified act, this is not the case for agents, employees, and public officials who are acting within the scope of their employment or official duties. Only the officer who was out of his jurisdiction and under no legal duty to make the arrest, is entitled to the reward. Denney v. Reppert, Ky. Ct. App., 432 S.W.2d 647 (1968).

Preexisting Duties • Preexisting Contractual Duties

– No new consideration to support agreement to modify existing contract

• M. Gold & Son Inc. v. A.J. Eckert Inc., P.197– A subcontractor who substituted more expensive thermostats when

the ones specified were not available cannot collect the difference in price.

– Should it matter that the additional work and equipment expenses were necessary because the designated materials were unavailable?

– Who should bear that risk?

– Note that Gold could have avoided the problem by consulting with the contractor or the school and getting permission for a substitute.

Preexisting Duties • Preexisting Contractual Duties

– No new consideration to support agreement to modify existing contract

• Question 5 at end of Chapter– Yes. Diehl promised nothing more than it had a preexisting duty to do

under Gross’s original employment contract. Gross lost many benefits under the new contract but he received nothing in return for giving them up. There was not consideration for the 1982 contract. Gross v. Diehl Specialties Int’l , 776 S.W. 2d 879 (Mo. Ct. App. 1989).

• Question 7 at end of Chapter– No. If no benefit is received by the promisee except what he was entitled

to under the original contract, and the other party to the contract parts with nothing except what he was already bound to do, there is no consideration for the additional promise. If, without legal justification, a party threatens to break a contract and the other party promises to pay more to get performance, the promise to pay more is without consideration. Moyer did nothing more than what he was under contract to do. He is not entitled to extra compensation for the extra work occasioned by the collapsing of the ditches. Crookham & Vessels v. Larry Moyer Trucking, 699 S.W. 2d 414 (Ct. App. Ark. 1985).

• Exception: Unforeseeable Circumstances• Exception: UCC doe not require new consideration for agreed to

modification

Debt Discharge- Part Payment

• Debts– Generally a promise to discharge a

liquidated debt for part payment of the debt at or after its due date is unenforceable

• Liquidated = due and certain (I.e. no dispute as to the existence or amount of the debt)

• If do something beyond duty (e.g. pay early) = o.k.

Debt Discharge- Part Payment

• Debts– Generally a promise to discharge an

unliquidated debt for payment of the debt is enforceable

– Consider using a “settlement & release” or “accord & satisfaction” agreement here (or Composition agreement where multiple creditors)

– Cash a “paid in full” usually = discharge of debt

Other Considerations• Past Consideration = No Consideration

– In re Lovekamp, p. 201• A check for $60,000 written in 1981 to an ex-wife when she come

back and lived with her ex-husband is not enforceable in 1999 for lack of consideration.

• Why was her staying with him was not good consideration.?

• The ex-wife had returned to live with her ex-husband before he wrote the check. No bargain seems to have been involved.

• Note that the ex-wife was suing the estate of her ex-husband because the check could not be cashed. Note the difficulty of trying to determine what actually was said 18 years earlier. Also note that the ex-wife could not have cashed the check earlier because there was not that much money without the sale of the real estate.

Other Considerations

• Forbearance to Sue = Generally valid consideration– Promisee must in good faith believe has valid

claim (Otherwise possibly extortion)– Duncan v. Duncan, p. 202

• A promise not to change a will in exchange for a promise not to challenge the will is enforced against the estate of the decedent.

• Note that Duncan’s son Lawrence had not challenged the will before he died, and on his death his interest passed to Mildred.

• Note that while Mildred was entitled to an undivided 1/5 interest in the estate, the real property was not in the estate. The court held that the conveyance of the real property was valid because the agreement only prohibited changing or revoking the will, not conveying property that could be subject to the will.

Other Considerations

•Mutuality of Obligation–Generally, bilateral contract that lacks mutuality is unenforceable

–An illusory promise cannot serve as consideration

Exceptions•Promissory Estoppel•Firm Offer•Charitable Subscriptions•Debts Barred by Bankruptcy

•Discharge/Statute of Limitations