Contract Law Case Studies: Consideration, Performance & Remedies

Consideration and Contract Formation

When Sarah's house caught on fire, her neighbor Odessa helped extinguish the fire. Sarah then promised to pay Odessa $1,000. Odessa cannot enforce this promise if Sarah fails to pay. Sarah's promise was made after Odessa had already extinguished the fire; therefore, there was no consideration for the promise. Consideration is the price paid to obtain a promise, and past performance does not constitute valid consideration in an uncomplicated transaction.

Bogart applied to a bank for a loan to pay debts he owed to the bank. A bank employee told Bogart that he would "have something for him in a couple of days." Bogart's application was later denied. The bank sued Bogart for his debts, and Bogart filed a promissory estoppel counterclaim on the grounds that the bank had broken its contract to make him a loan. Bogart's counterclaim was invalid. It is clear that Bogart and the bank's employee — who was acting as the bank's agent — did not have a meeting of the minds regarding the terms of their oral agreement. The employee was referring to the fact that Bogart would receive a decision in a couple of days, while Bogart believed he would receive the loan itself in that time. Absent a meeting of the minds, there is no enforceable contract.

After their mother's death, the Smith children gave their father their interest in the mother's estate in return for $1 each and his promise to leave the property to them upon his death. He died, and his second wife refused to turn over the property, claiming the agreement was invalid due to lack of consideration. However, there was sufficient consideration to make the agreement binding. At the time of the contract, the children and the father could have ascertained the exact dollar amount of the property in question. The consideration given by both the children and the father constituted a non-trivial amount, which validated the contract.

A radio station promised to give any listener who noticed that it failed to play three songs in a row $25,000. Jennings noticed it play only two songs in a row and sought the money. The station was not liable for the amount, despite its offer, because Jennings offered no consideration for the bargain. Merely listening to a radio station is not sufficient to constitute consideration for a $25,000 prize.

Illegality and Non-Compete Agreements

Siddle bought fireworks from Red Devil. Both parties were aware that because Siddle did not have a license, the sale was illegal. Siddle did not pay for the fireworks, and Red Devil sued for the cost. Siddle's defense was that the contract was illegal. That defense was invalid. A party who seeks to invalidate a contract on the grounds that the bargain was illegal cannot have been a willing participant in the illegality.

Vodra signed a three-year non-compete agreement when he went to work for American Security Services (ASS). Vodra later left ASS and began soliciting ASS's customers, directly violating the terms of the agreement. ASS sued to enforce the restrictive covenant, and Vodra resisted on the grounds that the agreement was illegal. Vodra was incorrect. Non-competition agreements are legal, and Vodra received valid consideration — obtaining employment — in return for signing the agreement.

Statute of Frauds and Offer Interpretation

Martin entered into an oral contract with Cresheim to work as its manager for two years. Cresheim subsequently wrote a letter outlining the terms of the parties' agreement. Cresheim later refused to recognize the contract, and Martin sued for breach. The contract was binding. In order for a writing to satisfy the Statute of Frauds, it need only describe the terms of an agreement between the parties and be signed by the party against whom enforcement is sought. Cresheim's letter met that standard.

At a golf tournament, a car dealership offered a car as a prize to anyone making a hole-in-one on the 8th hole. The golf course had only nine holes, so an 18-hole round consisted of playing the holes twice, but from different tees or locations on the second go-round. Grove made a hole-in-one on the 8th hole the second time through. The dealership refused to give him the car. Judgment should be for the dealership, because the prize was offered as consideration for a hole-in-one on the 8th hole. The offer was to be interpreted according to the common usage of the terms: all golfers playing 18 holes on a nine-hole course would be aware that the second 8th hole was actually the 16th hole. Furthermore, the conditions for the hole changed materially between rounds, meaning the consideration given by Grove — hitting a hole-in-one from a certain location — materially differed from the terms of the dealership's offer.