Holt v. Feigenbaum - 52 N.Y.2d 291, 437 N.Y.S.2d 654, 419 N.E.2d 332 (1981)

Rule:

A valuable consideration may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

Facts:

Each of the parties to the present appeal was a shareholder in a corporation that negotiated a line of credit from a bank, which bank insisted that each of the shareholders of the corporation, in exchange, execute a personal guarantee for the full amount of any moneys actually loaned to the corporation. Most of the shareholders, including plaintiffs, complied with the bank's request and executed individual guarantees which committed them to repay the bank personally in the event that the corporation defaulted. Defendant, however, failed to make a similar commitment to the bank. In conjunction with the execution of these guarantees, all of the parties, including defendant, also entered into a cross-indemnity agreement, in which each promised to contribute his pro rata share of the loss if any one of their number were held liable to the bank as a result of his personal guarantee. The corporation defaulted on its obligation to the bank and the bank promptly sought payment from the individual guarantors, eventually recovering the full outstanding amount from six of the shareholders. They, in turn, attempted to recover the amounts they had paid in excess of their pro rata shares by demanding contribution from their coshareholders in accordance with the cross-indemnity agreement. The instant lawsuit ensued when defendant declined to honor his pledge under the agreement. Upon cross motions by the parties for summary judgment, Special Term held in favor of plaintiffs, rejecting defendant's argument that his promise to indemnify plaintiffs was unenforceable due to a lack of legally sufficient consideration. The Appellate Division affirmed the judgment of Special Term, with two Justices dissenting.

Issue:

Did the Appellate Division err in affirming the judgment of the Special Term?

Answer:

No.

Conclusion:

The Court has expressly held that a promisee who has incurred a specific, bargained for legal detriment may enforce a promise against the promisor, notwithstanding the fact that the latter may have realized no concrete benefit as a result of the bargain. Under this broader view of the doctrine of consideration, there can be no doubt that the contract at issue in this case is enforceable against defendant Feigenbaum. First and most obviously, consideration to support defendant Feigenbaum's promise to indemnify plaintiffs may be found in plaintiffs' contemporaneous promises to indemnify each of their fellow shareholders against excess loss in the event that Mobile Modular defaulted on its obligation to the bank. While these promises may not have had any potential value to defendant since he was not personally at risk in connection with the loan to the corporation, it cannot be denied that they represented a detriment to plaintiffs, who had assumed the added duty of sharing the cost of the corporation's default with each of the other shareholders by virtue of the cross-indemnity agreement. Since this detriment was precisely what defendant had bargained for under the terms of that agreement, he cannot now avoid his own promise by claiming that it was not supported by legally sufficient consideration. Consideration for defendant's promise may also be found in plaintiffs' separate promises to the bank to assume personal liability for Mobile Modular's obligation upon that corporation's default. These promises to the bank were identified in the cross-indemnity agreement as part of the consideration for the signatories' mutual promises to indemnify each other against excess loss. Once again, although defendant argues that these promises to the bank cannot constitute consideration because they did not accrue directly to his benefit, such arguments are unavailing, since plaintiffs' separate promises to the bank clearly constituted consideration in the sense of a legal detriment incurred by the promisee. Finally, there is no merit to defendant's contention that summary judgment is inappropriate in this case because there remains a triable issue of fact concerning the sequence in which the various personal guarantees and the cross-indemnity agreement was executed. Section 5-1105 of the General Obligations Law provides that "[a] promise in writing and signed by the promisor * * * shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be a valid consideration but for the time when it was given or performed". Thus, even if it is assumed that defendant's promise to indemnify plaintiffs pursuant to the cross-indemnity agreement was obtained after plaintiffs executed their personal guarantees to the bank, defendant's promise would remain enforceable, since the "past consideration", plaintiffs' guarantees, was clearly identified in the cross-indemnity agreement as part of the consideration for defendant's present promise to indemnify.