IO

CHAPTER

TE A RNING OB I E CT I V E S
56Nocauseof
C H APTER OUTTINE
.ELEMENTS AFTER
OFCONSIDERATION READING THISCHAPTER, YOUSHOULD BEABLE TO arises
action
ANSWER THE FOLLOWING QUESTIONS:
-LEGAL AND
SUFFICIENCY fromabare
OFCONSIDERATION .
ADEQUACY I What rs conslcleratloni al
/
pr0mlse,/
.CONTRACTSTHATLACK 2 What is required for considerationto be legally
CONSIDERATION sufficient?
Legal Maxini

.SETTLEMENTOFCLAIMS
What are some exampiesof contractsthat lack
-PROMISSORYESTOPPEL consideration?

4 Wl'rat is an accord and satisfaction?

5 In what circurnstancesmight a prornisebe enforced

despitea lack of consideration?

fll erery legal system,some promiseswill be enforced,and some promiseswill not

r " the simpie fact that a party
I I U. .,rftr.""d. A the chapter-openingquotationsr-rggests,
has made a promisecloesnot mean the
tl-rat promise is enforceable' Under Roman law, a
oromisewas not enforceablewithout some sort of causa-that is, a reason for rnakingthe
pro*ir. that wasalsodeemedto be a sufficient reason for enforcing it. Under the common
in*, pri*^ry basisfor the enforcement of prornises is consideration, which is usually CONSIDERATION
" Generally, the valuegivenin return
defined asthe vah-regiven in return for a promise' for a promise.Theconsideration
In this chapter,*'. fitrt examinethe basic elernentsof considerationand the require- mustbe somethingof legallY
we then describe certain types of contracts sufficientvalue,and theremust
ment that considerationbe legally sufficient. be a bargained-forexchange. The
with
in which considerationis lacking. Next, we discussthe requirementof consideration consideration mustresultin a
respectto the settlementof claiis. The chapterconcludeswith a discussionof a doctrine detrimentto the Promisee or a
despite the lack of consideration. benefit to the promisor.
unber which promisesmay be enforceable

Often, considerationis broken down into hvo parts:(1) somethingof legallysufficientwlue

must be given in exchangefor the promise,and (2) there must be abargained-forexchange'

V alue
Legal
The "somethingof legally sufficientvalue" may consistof ( I ) a promiseto do something
(2) 27tffiu
that one has .ro"prio,i.gri a"ty to do (to pay on receipi of certain goods'for example),
(such as CONSIDERATION
the performanceof an-action that one is otherwisenot obligatedto undertake
272llNili!il
CONTRACTS

providing accounting sewices),or (3) the refraining from an action that one has a legal
FORBEARANCE right to undertake(called a forbearance).
The act of refrainingfrom an action Considerationin bilateralcontractsnormally consistsof a promisein return for a prom-
that one has a legalright to
undertake.
ise,as explainedin Chapter 8. FExIMFLEtor I In a conhactfor the saleof goods,the seller
promisesto ship specific goodsto the buyer, and the buyer promisesto pay for those goods
when they are received.Eich of thesepromisesconstifutesconsiderationfor the contract. E
In contrast, unilateral contracts involve a promise in return for a performance.
IEExAMpt-E 10.21Anitasaysto her neighbor,"If you paint my garuge,Iwill pay you $800."
Anita's neighbor paints the gange. The act of painting the garageis the considerationthat
createsAnita's contrachralobligation to pay her neighbor $800. tr
What if, in return for a promiseto pay,a personrefrainsfrom pursuing harmful habits,
such as the use of tobacco and alcohol? Does such forbearancecreateconsiderationfor
the contract?This wasthe issuein Hamer v. Sidway,a classiccaseconcerningconsidera-
tion that we presentas this chapter'sLandmark in the Law featureon page275.

Exchange
Bargained-for
The second element of considerationis that it must provide the basisfor the bargain
struck behveenthe contractingparties.The promise given by the promisor must induce
the promiseeto incur a legal detriment either now or in the future, and the detriment
incurred must induce the promisor to make the promise.This element of bargained-for
exchangedistinguishescontractsfrom gifts.
Robertosaysto his son,"ln consideration
lri]Exnrvtpt.rtorl of the Factthat you are not as
wealthy asyour brothers,I will pay you $5,000."This promise is not enforceablebecause
Roberto'sson has not given any return considerationfor the $5,000 promised.l The son
(the promisee)incurs no legal detriment; he doesnot have to promiseanything or under-
take (or refrain from undertaking) any action to receivethe $5,000. Here, Roberto has
simply statedhis motive for giving his son a gift. The fact that the word considerationis
used doesnot, by itself, mean that considerationhas been given. S
Does askinga bank for changefor a $50 or $100 bill initiate a bargained-forexchange?
The bank in the following casearguedthat obtaining changeis not a contractualtransac-
tion becausethere is no consideration.

l. F o r a cla ssicca seexanplseeFi

e, 191(N .Y .1820)
nkv C or, 18fohns.1'15,9A m.D ec.

United StatesCourt o{ Appeals,Tenth Circuit, 484 F.3d 1276 (2OO7).

vuww.(al0.uscoutts.EovD

ANDFACTSBarfield,askeda white friend,JohnPolson,to makethe same

BACKGROUND
ChrisBarfield,an African
Americanman, entereda branchof CommerceBank,N.A.,in
Wichita,Kansas,and requestedchangefor a $50 bill. He was
refusedchangeon the groundthat he did not havean account
with the bank.The next day,ChrisBarfield'sfathet James
a. N/. is an abbreviationfor NationalAssociation.
b. Clickon "Docket Filing & Opinions"tab. Scrolldown and under "Search
Opinions by Keyword,"type in "BarfieldJ'Hit "Search."ln the result, click on
"06-3087.pdf" to accessthe opinion.
requestat the bank.ThetellergavePolsonchangewithout
askingwhetherhe had an account.A few minuteslater,
JamesBarfieldenteredthe bank,askedfor changefor a $l0o
bill,and was told that he couldnot be givenchangeunlesshe
was an accountholder.The Barfieldsfiled a suit in a federal
districtcourt againstCommerceBan( allegingdiscrimination
on the basisof racein the impairmentof their abilityto
contract.The court grantedthe bank'smotion to dismissthe
suit for failureto statea claim.The Barfieldsappealedthis
rulingto the U.S.Courtof Appealsfor the TenthCircuit.
 275
E!EEn
CONSIDERATION

€ A S El0.l- Co ntin ue d

0F THECOURT
lN THEWORDS circuitJudge.
. . . MccoNNErf
***x

Orieinallyenactedin the wakeof the Civil War,l42 U.S.C.] Section1981(a)states:

All f,"rro,r, within the lurisdiction of the United Statesshall have the sameright in
* * asis enjoyedby white
everyStateand Territoryto make and enforcecontracts ''
citizens* * x'
A part of the Civil RightsAct of 1991,Congressaddedpart b to the statute:"For purposes
of this section,the term 'make and enforceconhacts'includesthe making, performance,
modification,and termination of contracts,and the enjoyment of all benefits,privileges,
terms,and conditionsof the conhactualrelationship."The purposeof part b wasto expand
ah._U?y._,o encompassall phasesand incidents of the contractual relationship.

All courtsto have addressedthe issuehave held that a customer'soffer to do busi-

nessin a retail settingqualifiesas a phaseand incident of the contractualrelationship
* :r' * When a merchant denies serviceor outright refusesto engagein business
with a consumer attempting to contract with the merchant, that is a violation of
Se cti o n1 981.
The question,then, is whether the Barfields'proposalto exchangemoney at a bank is
a contract offer in the same way as an offer to purchasedor-rghnuts or apple iuice. The
claim made by the appelleeslCommerce Bankl, and accepted by the districtcourt, is that
the Barfields'proposedexchangewasnot a contract because it involved no consideration:
"The bank would not have receivedany benefit or incurred a detriment if it had agreed
to changethe Barfields'biils."That reasoning,however,departs in severalsignificar-itways
from our understandingof contractlaw.
* x * A contract must be supported by considerationin order to be enforceable.
Considerationis defined as someright, interest,profit, or benefit acauing to one party,
or someforbearance,detriment, loss,or responsibility,fit,en, suffered,or undertakenby
the other.A promiseis without considerationwhen the promiseis given by one party to
another without anything being bargainedfor and given in exchangefor il. lEmphasis
ad d e d .l
In the n'roststraightforwardsense,the transactionproposedby the Barfieldswas a con-
tract of exchange:they would give up somethingof value (a large-denominationbill) in
exchangefor somethingthey valued more (smaller-denominationbills). It is hard to see
why this is not a contract.If hvo boysexchangemarbles,their transactionis a conttact,even
to fathom why eitirerpreferredthe one or the other.Consideration
if it is hard for or-rtsiders
* * *
doesnot needto hate a quantifiablefinancial value lEmphasisadded.]
The Bank, however,arguesthat the proposedexchangewas not a contract becauseit
receivedno rerruneration for performing the serviceof bill exchange.In other words,
ratl-rerthan view the transactionas an exchangeof one thing for another,the Bank r,rrges
us to treat the transactionas a gratuitousserviceprovided by the Bank, for no considera-
tion. We cannot regard the Bank'sprovision of bill exchangeservicesas "gratuitor-rs" ir-r
any legal sense.Profit-makingestablishmentsoften offer to engagein transactions with no
immediate gain, or even at a loss,as a means of inducing customersto engagein other
transactionsthat are more lucrative;such offersmay nonethelessbe contractual,and they
do not lack consideration.If, as is allegedin the complaint, the Bank effectivelyextends
bill exchangeservicesto personsof one race and not tl-ieother, that is srrfficientto come
C A S El 0 . l - C o n t i n u e s n e x t p ag e
within the ambit frealm] of SectionI98l.
 275rltlrfnirril
CONSIDERATION

ln Homer v. Sidwoy,athe issuebeforethe court

arosefrom a contractcreatedin 1869 between
WilliamStory Sr.,and his nephew,WilliamStoryll.
The unclepromisedhis nephewthat if the nephew
refrainedfrom drinkingalcohol,usingtobacco,and playingbilliardsand cardsfor money
until he reachedthe age of twenty-one,the unclewould pay him $5,000(about$75,000
in today'sdollars).The nephew,who indulgedoccasionally in all of these"vices,"agreed
to refrainfrom them and did so for the next six years.Followinghis twenty-firstbirthday
in 1875,the nephewwrote to his unclethat he had performedhis part of the bargain
and was thus entitledto the promised$5,000.A few days later,the unclewrote the
nephewa letterstating,"ffiou shallhavethe five thousanddollars,as I promisedyou."
The unclesaidthat the moneywas in the bank and that the nephewcould"consider
this money on interesti'

The lssue Of COnSideratiOn The nephewleft the moneyin the careof his uncle,
who held it for the nexttwelveyears.Whenthe uncledied in I88Z however,the execu-
tor of the uncle'sestaterefusedto pay the $5,OOO claim brought by Hamer,a third party
to whom the promisehad been ossigned.(The law allows partiesto assign,or transfer,
rightsin contractsto third parties;see Chapter16.)The executor,Sidway,contendedthat
the contractwas invalidbecausetherewas insufficient consideration to suPPortit. The
unclehad receivednothing,and the nephewhad actuallybenefitedby fulfillingthe
uncle'swishes.Therefore,no contractexisted.

The Court's €onclusion Althougha lower court upheldsidway'sposition,the

New YorkCourt of Appealsreversedand ruled in favor of the plaintiff,Hamer."The
promiseeusedtobacco,occasionally drankliquor,and he had a legalrightto do so,"
the courtstated."Thatrighthe abandonedfor a periodof yearsupon the strengthof the
promiseof the testator[onewho makesa will] that for suchforbearance he would give
him g5,O0O. We need not speculateon the effortwhich may have been requiredto give
his
lt is sufficientthat he testricted
up the use of thosestimulants. lawfulfreedom of
actionwithin certainprescribedlimitsupon the faith of his uncle's agreement."

Although this cose wos decided more than

a century ogo, the principles enuncioted by the court remain opplicoble to controcts
formed today, including online controcts. For o controct to be valid and binding,
considerationmustbe given, and that considerationmust be something of legally
sufficient value.

ffi To locoteinformotion on the web concerningfhe Hamerv.

Sidwaydecision,go to this text'sWebsife of www.cengage.com/blaw/blt, select"Chapter
IO," ond click on "lJRLsfor Landmorks."

N. E . 25(61 8 9 1 ).
a. 1 2 4N . Y . 538, 27
276rwIIroU
CONTRACTS
To learnmore about how
the courtsdecidesuch issuesas
whether consideration was lacking
for a particularcontract,look at
relevantcaselaw which can be
accessedthrough the Web site of
CornellUniversiVsSchoolof Law at
contracts.
Sometimes,one or both of the partiesto a contract may think that they have exchanged
considerationwhen in fact they have not. Here, we look at some situationsin which the
parties'promisesor actionsdo not qualifi, as contractualconsideration.
Preexisting
Duty
Under most circumstances,a promiseto do what one alreadyhas a legal duty to do does
not constitutelegallysufficientconsiderationbecauseno legal detriment is incurred. The
preexistinglegal duty may be imposed by law or may ariseout of a previouscontract.A
sheriff, for example,cannot collect a reward for information leading to the capture of a
criminal if the sheriff alreadyhas a legal duty to capturethe criminal. Likewise,if a party
is alreadybound by contract to perform a certain duty, that duty cannot serveas consid-
eration for a secondcontract.
IbExAMPLE t0.51Bauman-Bache.Inc., beginsconstructionon a seven-story office build-
ing and after three months demandsan extra$75,000on its contract.If the extra$75,000
is not paid, the firm will stopworking. The owner of the land, having no one elseto com-
plete construction, agreesto pay the extra $75,000.The agreementis not enforceable
becauseit is not supportedby legally sufficient consideration;Bauman-Bachehad a pre-
existingcontractualduty to complete the building. E
Unforeseen Difficulties The rule regardingpreexistingduty is meant to preventextortion
and the so-calledholdup game.What happens,though, when an honestconhactor,who
has contractedwith a landownerto build a house,runs into exhaordinarydifficultiesthat
were totally unforeseenat the time the conhactwasformed?In the interestsof fairnessand
equity,the courtssometimesallow exceptionsto the preexistingduty rule. In the example
just mentioned,if the landowneragreesto pay extracompensationto the contractorfor over-
coming the unforeseendifficulties(such as having to use dynamiteand specialequipment
to remove an unexpectedrock formation to excavatefor a basement),the court may refrain
from applyingthe preexistingduty rule and enforcethe agreement.When the "unforeseen
difficulties"that give riseto a contractmodificationarethe typesof risksordinarilyassumed
in business,however,the courtswill usuallyassertthe preexistingduty rule.3
Normally, contracting parties are supposed to anticipate the risk that costs may
fluctuate during the duration of the contract. Thus, a party who has a preexisting
duty to build a house cannot ask for a modification due to an increase in the the
price of lumber. Not all risks can be anticipated, however, and sometimes a court
will allow the parties to modify a contract because of unforeseen difficulties that
will make performance much more expensive or complicated. Nevertheless,
because it is hard for the parties to determine whether a court will enforce the
agreed-on modification or apply the preexisting duty rule, modifying a preexisting
contract without consideration is risky. Parties should retain counsel and be clear
about all other options before negotiating chanSesto a preexisting duty.
E
Rescissionand New Contract The law recognizesthat h.vopartiescan mutually agree
to rescindtheir contract,at leastto the extent that it is executory(still to be carried out).
3. Note that under the Uniform CommercialCode (UCC), any agreementmodifyinga salescontractneedsno con
siderationto be binding.SeeUCC 2-209(l).
 277@
CONSIDERATION

as to return the partiesto the positionsthey REsclsstoN

Rescissionais the unmaking of a contractso
berore
occupied was
thecontralt s"-.ti-"i p,,ties
made. re-,cind::;liili:1"1"::li HT':1t#lit"iffliiiil''
it is often difficult to determtne returnedtothePositionsthey
at the same time. When this occurs, was
beforethecontract
occupied
"-".i,.o'tr^ct contract or whether the partieshad a pre-
whether there was considerationfor the new
dutyundertheprevious
existing If a courtfindsthererrr Jp'i."iJ;;ilt,
contract. il|f"';'T:1ffff:i:"tl'","'"f[ii!.
there was no consideration' parties' or bycourtdecree'
conduct,
then the new contract*iil U. invalid because

PastC ons idet at i o n

that havealreadytaken place are unenforce-
Promisesmade in return for actionsor events
in that the element of bargained-forexchange
;i;.'ih;. fro-ir., t".t .o"ria.tation
to take place now or in the future
is missing. In short, yo,-rt'n bargain for,something
place. Therefore, past consideration is no tTI::tli:1Ti:$ace
but not for something,h* h^, "i?eadytaken beforethe
.':-- contractis and
made thatordinarily'
ConsideratiOn . t T.,r,.,^ for
a favor by seliing ]udy's ;;il*n .unnotuu con-sideration
trEnxEMFiE*I'..l Elsie, a real estateagent,doesher friend fudy to payfortheact'
saysto Elsie, "In return for your gen- a raterpromise
houseand not chargingany commission.Later, |udy
gi,ooo.,' This promise is made in return for past consideration
erous act, I will pay yJ,,,
is statingher intention to give trlsie a gift' E .
and is thus unenforceable;in effect,Judy aiso called
An employer*ilf oft."'"k t-ployt" to sign a noncompett
"' agrees not to -"91:"-t"t'
work for co*rpetitors of
a covenant.,or ao by *hi.h thl emplolee
"o-f.i., tf,e employment relationship ends.
the employer for a ;;i* period of timo afier
(Noncompete ogrnn*nrrr-*tllte discussed further in Chapter l1') In the followingcase'
for a
the court had to decide ii l""ti"t.a employment constiiutedvalid consideration
noncompeteageementor if it waspast constderatton'

4. Pronounced reh-sih-zhen

P.5d8ee (2008).
SupremeCourtof Montana,34l Mont' 73, l7s

ANDFACTS Montana.Pouxthen suedto enforcethe noncompete

BACKGROUND was in direct
that Hernandez
agreement. Thetrial courtfound
BonniePouxhiredAndY former
produce for her soleproprietorship' cJmpetitionwith AccessOrganicsand was contacting
Hernandez to sellorganic of the noncompete
months later'he was promotedto customers.Thatwas held to be a violation
O*"tt Organics,Inc' Three was upheldas validbecauseit was
signed a noncomPete agreement' Theagreement
salesmanager. Soonafter, he
sJpportedby consideration, which was continued
ufr""*"nt in which he agreed "not to directlyor indirectly
employment at AccessOrganicsat the time the agreement
for a period of tvvoyears
clmpete with the business' ' ' not to compete
employmentl' Later'the business was signed.The courtorderedHernandez
followingterminationof periodcalledfor
Hernandez left and went into directlywith AccessOrganicsfor the trruo-year
encountlredfinancialdifficulties' Hernandez appealed'
employee to compete with in the agreement'
businesswith anotherformer
in the saleof produce in the same part of
AccessOrganics

|N TH EW0RDSoFTHE C0URT,.'W WILLIAML E A P HA RT , J u S t ic e '

**t : ' F

Hernandezarguesthatthenon-competeagreementisinvalidandunenforceable,
good considJration. Accessorganics contendsthat
becauseit is not ,"pi"uJ-uf
suppliedsufficientconsideration'
H.'r.*"a.rt ,"lrty ,'tt?'-tti'-tt'ed Zmployment at thetime
if theemployee entersinto ihe non-compete agreement nextpase
consideration exrsts l0'2-Continues
CASE
tht";;i;y;; engage in
of hiring.t)uring pre-employment negotiatio"r,'il;;;pily."
",'td
 279@EU t,
CONSIDERATION

cent bonus at the end of the year will be giver-r-if managementihinks it is warranted."
This is an illusory promise,or no promiseat all, becauseperformancedependssolely on
the discretionof the president (the management).There is no bargained-forconsidera-
tion. The statementdeclaresmerelythat managementmay or may not do somethingin
the future. El
Option-to-cancelclausesin contractsfor specifiedtime periodssometimespresent
probi.-s in regardto consideration.lEExnrvrpr-r ro.slAbe contractsto hire Chris for one
year at $5,000 per month, reservingthe right to cancel the contract at any time. On
closee"amirrati,on of thesewords,you can seethat Abe has not actualiyagreedto hire
Chris, asAbe could cancelwithout liability beforeChris startedperformance'Abe has
not given up the opportunityof hiring someoneelse.This contractis ihereforeillusory.
No,i ,uppore thai Abe contractsto hire Chris for a one-yearperiod at $5,000 per
month, i.r.ruit-rg the right to cancel the contract at any time after Chris has begun_per-
formance by giving Chiis thirty days'notice. Abe, by sayingthat he will give Chris thirty
days'notice,is relinquishingthe opportunity(legalright) to hire someoneelseinstead
'chri,
of for a thirty-d"y p.ti,rd. If chris works for one month, at the end of which Abe
giveshim thirty days'notice, Chris has a valid and enforceablecontractualclaim for
$1 0 ,0 0 0in s alar ylel
.

n|llfiIilrillET[ Businesspersons
Businesspersons or otherscan settlelegal claims in severalways.It is important to under- shouldconsidersettlingpotential
stand the nature of the considerationgiven in thesesettlementagreements, or contracts. legaldisputesto saveboth their
commonly settledthrough an accordand in
satisfaction, which a debtor offers own time and resources and those
Claims are
Two other methods that are also of the courts.
amouni
to pay a lesser than the creditorpurportsis owed.
often used to settleclaims are the releaseand the coyenantnot to sue.

andS at isf a c t i o n
Accord
ANDSATISFACTION
I1 an accord and satisfaction,a debtoroffersto pay,and a crediioraccepts,a lesseramount ACCORD
the A commonmeansof settlinga
than the creditor originally claimed was owed. Thus, in an accord and satisfaction,
disputedclaim,wherebYa debtor
debtor attemptsto teiminate an existingobligation. The accordis the settlementagree- offersto paya lesseramountthan
the creditorpurPortsis owed.The
ment. In an accord,the debtor offersto give or perform somethinglessthan tl-reparties of the offer
claim' creditor'sacceDtance
originally agreed on, and ihe crediior acceptsthat offer in satisfaction of the
createsan accord(agreement), and
Saiisfact'ion"isthe performance(usuallypayment),which takesplace after the accord is when the accordis executed,
satisfactionoccurs.
execr-rted.A basicrule is that there can be no satisfactionunlessthere is first an accord.
For accord and satisfactionto occur, the amount of the debt must be in dispute' lf iI
DEBT
is a liquidated debt, then accord and satisfactioncannot take place.A debt is liquidated LIQUIDATED the amounthas
An A debtfor which
if its ;ount has been ascertained,fixed, agreedon, settled,or exactlydetermined' beenascertained, fixed,agreedon,
example of a liquidated debt is a loan contract in which the borrower agreesto pay a settled,or exactlydetermined. lf the
amountof the debt is in disPute,the
stioulatedamount every month until the amount of the loan is paid. In the majority of unliquidated'
debt is considered
states,acceptanceof (an accord for) a lessersun'ithan the entire amount of a liquidated
debt is not satisfaction,and the balance of the debt is still legally owed. The rationale
for this rule is that the debtor has given no considerationto satisfiithe obligation of pay-
ins the balanceto the creditor-because the debtor has a preexistinglegal obligation to
oav the entire debt.
Antmliquidated debtis the oppositeof a liquiclateddebt. Here, teasonablepersonsmay
differ overihe amount owed.It is not settled,fixed, agreedon, ascertained,or determined'
In thesecircumstances,acceptanceof paymentof the lessersum operatesasa satisfaction,
or discharge,of the debt. One argumer-itto supportthis rule is that tl'repartiesgive up a
iegal righito contestthe amount in dispute,and thus considerationis given.
290lr$Irlrir,r
CONTRACTS

REIEA5E
A contractin which one partryforfeits
the rightto pursuea legalclaim
againstthe otherparty.
@
Y ou can find an exampleof
a releaseform and the
informationthat shouldbe included
in a releaseby goingto
xwaiverp.htm.
Release
A releaseis a conhactin which one par[uforfeitsthe right to pursuea legalclaim againstthe
other party.Releases will generallybe binding if they are ( 1) given in goodfaith, (2) statedin
a signedwriting (requiredby many states),and (3) accompaniedby consideration.5 Clearly,
partiesare better off if they know the extent of their injuries or damagesbefore signing
releases.
to5l Supposethat you are involved in an automobile accident causedby
IEEXAMPLE
Raoul'snegligence.Raoul offersto give you $2,000 if you will releasehin-rfrom further
liability resultingfrom the accident.You believe that this amount will cover the damage
to your car, so you agreeto and sign the release.Later you discoverthat the car repairs
will cost$4,200.Can you collectthe balancefrom Raoul?The answeris normallyno; you
are limited to the $2,000in the release.Why? The reasonis that a valid contractexisted.
You and Raoul both assentedto the bargain (hence, agreementexisted),and sufficient
considerationwaspresent.Your considerationfor the contractwasthe legal detrimentyou
suffered(by releasingRaoul from liability, you forfeitedyour right to sue to recoverdam-
ages,should they be more than $2,000). This legal detriment was induced by Raoul's
promiseto give you the $2,000.Raoul'spromisewas,in turn, induced by your promise
not to pursueyour legai right to sue him for damages.p
Beforeagreeingto a release,a party should be certain of its terms.The following case
emphasizes this point.

5. Under the UCC, a witten, signedwaiveror renunciationby an aggrieved

partydischarges
any,furtherliabilityfor
a breach,evenwithout considerationIUCC l-1071.

l-=-']H'"=i Oakridgeat Winegard,Inc.,and monthslater,when BP learnedof the saleand switchto Citgo

Nlanammao
Mahammad quresnl
QureshioPerateo
operateda $as
gasstatton
stationand convenrence
convenience
storein Orlando,Florida, subjectto an exclusivefuel supply
agreement with BP ProductsNorthAmerica,lnc.Underthe
agreement,BP had a "rightto first refusal"with respectto the
saleof the premisesif Oakridgereceivedan offer.In
November2005,without notifyingBP,Oakridgecontractedto
sellthe premisesto PacificEnergy, Inc.,and AroojAhmed.
Pacificwantedto sell Citgo,not BP,fuel. Qureshitold Ahmed
that terminatingthe agreementwith BPwould cost
$100,000-theamountthat BP had providedto buildthe
tuel,it filed a suit in a federaldistrictcourtagainst
fuel, asainstOakridge
Oakridse
and the othersto void the deal.The partiesfiled claims,
counterclaims, and cross-claims, and attemptedunsuccessfully
to mediatea resolution.Later,duringa phone conference,
OakridgeofferedBP 9265,616.95to coverits advanceof funds
underthe fuel supplyagreement,with ownershipof the
premises to be retainedby pacificand all of the otherclaims
amongthe partiesto be released.Everyoneagreed.Two
weeks later,however,Oakridgerefusedto signthe release.
BP and Pacificaskedthe courtto orderits enforcement.

f N THEWORDS
0F THEC0URT. . . FAWSETTr
chiefJudge.

ll'***nornrmmad
Qureshihad givenAttorneySchillingerclearand unequivocal
settlethe caseon behalfof Defendants
Oakridgeand Mr. Qureshi.
"trl?tlrt_"
On July28, 2006,Mr. Schillinger telephoned
Mr. Blumstein,
counselfor BP,and
offereda settlement
proposalwherebyoakridgewould pay to BP $263,616.95, the
amountallegedly due to BP for the unamortized
advanceof fundsunderthe Dealer
SupplyAgreement.
 @
CONSIDERATION

CASEt0 ' 5- Cont lnued

condr-rcteda
,. * x In the late afternoonof July Zg, 2006, counselfor ail three parties
verbally agreedto a
Pacificco'tend that the parties
telephonicmeeti'ig r,'r*1tiJ BP and
se ttl e m ent r ef lec t ing Mr.S c l ri l l i n g e r,s te rtn s ' A t5 : ]4p.tvt.,Mr,Bter''rs
l umstei rrsentarre-mai
of the parties' l
rnemorializedthe material
to Mr. Schillinger and Ms, W.rtoit fthat
agreement].
,.* r.X
must referencethe
* x *. Mr. Schillinger electronicallyreplied that "The agreenent
resignage agreelrielrt'
terminatron of rff under'thq slipP\ agreement and
notes
"(tigatrons pridi,r f.,tt] ,"a pleaseretun the origrnal
acknowledgingthrt ,lf TJrr,r't,*. U".,'r Mr'
ier-rt no further to""'pottdt'tce regarding
n-iarkedpaid in full." Mr. Schillinger
gi;a.i"'t memorializationof tl-ieparties'conversation'
terms dur-
Mr. Schilling., d".;;;idirp,rt. ihrt he.generallyagreedto the settlement
these
ing the iate afternoon";;i*;;;. call or-r1ulf ZS,2006'"butstatesthat he considered
and that he t1ioughtit was understood
negotiatio's to U" i,,to'oll, initial negoii^iio,rr,
io r"riting and subjectto Mr' Qureshi'sre'iew a'd
tl-iatthe agreeme't would be reduced that the
Schilling"eralso testifiedthat he believed
approvalof a written J".","""r. Mr. to indemni['
proposedsettlement*""fa releasePacific"from its allegeclobligation
"", te'nination fee andthat the indemni$ pro-
U;ffi;; i"r-rp . sioilooolo of theeariy
behveenOakriclge- and Pacific' Mr' Schillinger ftir-
vision would still have to be litigated terms
}iearingthat he did not qualify the settlernent
ther admitted during the evide'"tiary Blumstein's
dr_rringtl,rethree-way *tl o, iJ his electronic responseto Mr'
"o.,Lr..."
e -mailonJ uly 28t y rtrti ' ,' ,g tl -," s e ttl e me n tw a s " s ubi ecttohi scl i ent' sapproval ' "
x*x iT hem ak ingo fa c o n tra c td e p e n d s n o to n theagreementoftw omi ndsi none
hatirtg
setso.fexternal signs-not on the parties
intention, but on trrn'ogrnn*nrt of twct may
saidthe samething'" While Mr' Schillinger
meantthe samethingi|t o, thnir'having
provisionsweri yet to be litigated between
hatte pritately beLievedthat the indemnity
o a kridgeandP ac ifi c ,l te c l e a rl y ,b a s e d o n u n e q ui uocal authari tyfromhi scl i ent,ow rtl y
a g re ec lt oac om ple te ' s e ttl e m e n ti n th e c a s e a tb ar| be{ orethecor.rrt].| E mphasi sadded.]
; i * Bp and pacific knew or had reasonto kr-rowthat oakridge
oakridge ,rgr., tr.rf
reinibursementamount ffor earlyter-
inadvertentlyomitted liscussionof the $100,000'00 how' as
mination]
* * * . 11"'"lfij;";t doesnot show and Oakridgefails to^dernonstrate
have know' that the $100'000'00reimbr'rrse-
it contends,Bp and P;;i. k;;; or should clearly
ornitted' especiallywhen the evidence
rnent amount hrd b;;; inadvertent\' other arisingottt
all eacl'r
against
demonstrates thrt tl-r"p"rrti., ,tt ,gt..i to release "laims
2B conferencecall'
of the instant litigation during tlte 1uly
thatthere
concluded
rfrecourt
ANAl.Ysls- soci al
ffi*&F o RcRIT IcAt
ANDREMEDY
DECISI0N ondreleose
Consi der at i on whyoresettlement
wu, a te"ting of the mindsand that
the partiesenteredinto $ru
the conference ffir"rtt ond reodilyenforced?
encouroged
an enforceable settlementagreementduring
ca | l' T hec our t t here fo re e n te re d a j u d g m e n ti n favorofB P and
plusinterest'
.g.i"U Oakridgeand Qureshifor $263'616'95'
and dismissed the otherclaims'
@

Notto S u e
Co v enant COVENANT
An
NOTTOSUE
aRreement to substitutea
not to sue cloesnot alwavs bar further lecovery The parties contiactualobligationfor.someother
Unlike a release,a covenant lega1action based on a aciion based on a valid
obligation for some oti'rertype of type of tegal
simply substitute, ."";;;;i with Raoul not to sr-re claim.
that
the eariierexan"rpie) agree 1,61
valiclclaim. Suppose(r;li;;
2S2
IIEIIM
CONTRACTS
PROMISSORY ESTOPPEL
A doctrinethat aPPlies when a
oromisormakesa clearand definite
promiseon whichthe Promisee
justifiablyrelies.Sucha promiseis
bindingif lusticewill be better
servedby the enforcement of the
promise.
ESTOPPED
Barred,impeded,or Precluded.
to pay,
for damagesin a tort action if he will pay for the damageto your car. If Raoul fails
vou can bring an action for breach of contract.
contract
Sometimes,individualsrely on promises,and such reliance n'rayform a basisfor
,ight, ,.rd duties. Under ihe doctrine of promissory estoppel (also called detrimental
,fiiorrn1,a personwho has reasonablyrelied on the promise-ofanother can often obtdin
the
some measure of recovery.When the doctrine of promissoryestoppel is applied,
(barredor impeded) from revoking the promise. For the
promisor(the offeror)is esiopped
doctrine of promissoryestoppel to be applied, the following elements are required:
I There must be a clear and definite promise.
2 The promiseemust justifiablyrely on the promise'
5 The reliance normally must be of a substantialand definite character.
4 iustice will be better servedby the enforcementof the promise'
l"ExTMFLE l0.lo1Your uncle tells you, "l'11pay you $1,500a week so that you won't
job, but your
haueto work anymore."In reliance on youl uncle's promise,you quii your
uncle refusesto pay you. Under the dochine of promissory estoppef you may be able to
enforcehi, pro-ir".6 Now your uncle makesa promise to give you $20,000 buy a car.
to
if you buy th" .", with youi own funds and he does not pay you, you may once again be
abie to enforcethe promiseunder this doctrine. E
num-
shoutd the doctrine of promissory estoppelbe opplied to promises of employmenf?A
come before the courts in which the story is strikinglysimilar:in reliance on
ber of caseshave
an offerof employment, a person has left a job, sold her or his home, and moved to another
gov-
location-onlyto learn that the offer has been revoked.In those jurisdictionsthat are
little
erned by the common law doctrineof employmentat wilt,7these personsoften have
in thesejurisdictions often hold that even though an employer has made an
recourse.Courts
offer of employment to a particular job candidate, under the at-will doctrine the employer
neednot hirethat Person.
Occasionally,however,a court will applythe doctrineof promissoryestoppelin such cir-
cumstances. Forexample,in one case,ThomasFreyhad beenworkingfor a firm at which he
of
had substantialbenefitsand would havebeen entitledto stockoptions.ThenAndrewTaitz
chassis,LLC, offered Frey a position, promising him a large bonus if the
workhorsecustom
promise,
company'searningsexceeded$39.1 million by the end of 2OO2.In relianceon that
Freyleft his job and took the position at Workhorse.
By the end ol 2OO2,projectionsindicatedthat Workhorse'searningswould exceedthe
the
requiredlevel.Freythereforebelievedthat he was entitledto the bonus when he left
companyin January2005. In the spring ol 2OO3, Frey asked for his bonus, but Taitz responded
Frey
that tecause Freyno longerworked for the comPany,he was not entitledto the bonus'
filed a lawsuitagainst Workhorse, claiming, among other things, that he was entitled to dam-
agesunder the doctrineof promissoryestoppelbecausehe had left a lucrativeand secure
positionto take the job at Workhorse'
AlthoughWorkhorseclaimedat the trial that its 2002 earningswere only around$37'6mil-
lion, the auditedfinancialstatementsit presentedhad been completedten monthslate and
6. A classicexanple is Rickettsv.Scothom,5TNeb. 51,77 N W 365 (1898)
time for any reason-see
7. Embloymentat will ts an employment relationshipthat either pady nay ielminate at any
Chapter40 for a furtherdiscussion ofthis doctrine.
 285E!nEHU
CONSIDERATION I

were subjectto a 5 percentmarginof error.Workhorsealso admittedthat many employees

would havereceivedsubstantial bonusesif the earningshad exceeded$39.1million.A jury
found Frey'sargumentconvincingand awardedhim $648,220.Workhorsemovedfor a judg-
ment as a matter of law and for a new trial, but the court ruled that Freyhad presented
enoughevidenceto supportthe jury'sverdict.s _

B. Freyy. Workhorse LLC, -F.Supp.2d -

CustomChassis, (S.D.lnd.2007).For a caseallowinga job candidate
P C., 256 Neb. 19,
io recoverdamagesfron a prospectiveemployer, seeCoff-Hamelv. Obstetricians& Cynecologists,
;5 8 N. W. 2d798 ( 1 9 9 9 ) .

Johnoperatesa presentin the

Are the basicelementsof consideration
motorcyclerepair neighbor'spromiseto help Johnreassemble the garage?
shopfrom his home Why or why not?
but findsthat his
Supposethat the neighborstartsto help Johnbut then
businessis limitedby
realizesthat, becauseof the layoutof John'sProPerty,PUt-
the smallsize of his garage. Driving by a neighbor's
ting the buildingbacktogetherwill take much more work
properryhe notices a {or-sale sign on a large,metal-sided
than dismantlingit took. Underwhich principlediscussed
garage.Johncontacts the neighbor and offers to buy the
in the chaptermight the neighborbe allowedto askfor
building,hoping that it can be dismantled and movedto his
additionalcompensation?
own property. The neighbor accepts John's payment and
makesa generous offer in return:if John will help him What if John'sneighbormade his promiseto help
dismantlethe garage,which will take a substantial amount reassemble the garageat the time he and Johnwere mov-
of time, he will help John reassemble it after it has been ing it to John'sproperty,saying,"Sinceyou helped me
transportedto John'sProPerty. They agree to have the take it down, I will help you Put it backupJ'WouldJohn
entirejob completedwithin two weeks'Johnspendsevery be able to enforcethis promise?Why or why not?
day for a week workingwith his neighborto disassemble in the chaptermightJohn
Underwhat doctrinediscussed
the building.In his rushto acquirea largerworkspace,he
seekto recoverthe profits he lost when he declinedto do
turns down severallucrativerepairjobs' Oncethe
reoairwork for one week?
disassembled buildinghas been movedto John'sProPerry
however,the neighborrefusesto help John reassemble it as
he originallypromised.Using the information presented in
the chapter,answerthe following questions.

accordandsatisfaction279 forbearance272 release280

consideration271 debt 279
liquidated 277
rescission
covenantnot to sue 281 pastconsiderataon
277
estopped282 promissoryestoppel282

Elementsof is brokendown into two parts:(l) somethingof legallysufficientvoluemustbe

Consideration
Consideration givenin exchangefor the promise,and (2) theremustbe a borgained-forexchonge.
(Seepages271-274.)
(Continued)
284l!trilUu
CONTRACTS

LegalSufficiency Legalsufficiencyof considerationrelatesto the first elementof consideration-something

of legal
and Adequacv value must be given in exchangefor a promise.Adequacyof considerationrelatesto how much
of consideration considerationis givenand whether a fair bargainwas reached.Courtswill inquireinto the
(Seepages214-275.)
adequacyof consideration(whetherthe considerationis legallysufficient)only when fraud,
undue influence,duress,or unconscionability may be involved.
ContractsThat Consideration
is lackingin the followingsituations:
LackConsideration
(Seepages276-279.) 1. Preexistingduty-Considerationis not legallysufficientif one is either by law or by contract
under a preexistingduty to perform the action being offered as considerationfor a new
contract.
2. Postconsiderotion-Actionsor eventsthat havealreadytaken placedo not constitutelegally
sufficientconsideration.
3. lllusory promises-Whenthe nature or extent of performanceis too uncertain,the promise is
renderedillusory(without considerationand unenforceable).
Settlement 1. Accord and sotisfoction-Anaccord is an agreementin which a debtor offersto pay a lesser
of Claims amountthan the creditorclaimsis owed. Sofisfocfiontakesplacewhen the accordis executed,
(Seepages279-282.)
2. Releose-Anagreementin which,for consideration, a pafi forfeitsthe rightto pursuefurther
recoverybeyondthe terms specifiedin the release.
3. Covenantnot to sue-An agreementnot to sue on a present,valid claim.
P.romissory
Estoppel The equitabledoctrineof promissoryestoppelapplieswhen a promisormakesa clearand
(Seepages282-283) definitepromiseon which the promiseereasonablyrelies,and the promisesubstantially altersthe
promisee'sactions.The courtwill enforcesuch promisesonly if an injusticewould occur
otheruvise.Also known as the doctrine ol detrimentalrelionce.

Answers for the even-numberedquestionsin this tor Review sectioncon be found on this text's accomponyingWeb site ot
wrivwcengage.com/blaw/blt. Select"Chopter t0" and click on "For Review."

I What is consideration?
2 What is requiredfor considerationto be legallysr-rfficient?
5 \\4rat are someexamplesof contractsthat lack consideration?
4 What is an accordand satisfaction?
5 In wl-ratcircumstancesmight a promisebe enforceddespitea lack of consideration?

ffi
HypoTHETrcA[ ANDcAsEpR0Br.EMs
scENARros
t#-i ContractModification.Tabor is a buyer of file cabinetsrnanu- nets),Martin informs Thbor that becauseof inflation, Martin
facturedby Martin. Martint contractrvith Tabor calls for is losing money and will promiseto deliver the remaining
deliverl of fifty file cabinetsat $40 per cabinet in five equal thirty cabinetsonly if Tabor will pay $50 per cabinet.Tabor
installments.After deliveryof two installments(twenty cabi- agreesin writing to do so. Discusswl.retherMariin can legally