Week 3-3

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 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
money 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 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, occa­
sionally drank liquor, and he had a legal right to do so.
That right he abandoned for a period of years…”
 Case 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.
 Case 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 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 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 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.