Feigenbaum v. Singer, 42 N.Y.2d 362 (1977)
Consideration for a promise exists when the promisee incurs a specific, bargained-for legal detriment, even if the promisor receives no direct benefit.
Summary
This case clarifies that consideration in contract law doesn’t always require a direct benefit to the promisor; a detriment incurred by the promisee is sufficient. Feigenbaum promised to indemnify his co-shareholders in Mobile Modular Industries. When the corporation defaulted and the other shareholders paid, Feigenbaum refused to contribute, arguing he received no benefit as he hadn’t personally guaranteed the loan. The Court of Appeals held that the other shareholders’ promises to indemnify each other, a detriment to them, constituted sufficient consideration to enforce Feigenbaum’s promise, regardless of whether he directly benefited.
Facts
Mobile Modular Industries, Inc. needed capital and sought a loan from First National City Bank of Binghamton.
The bank required personal guarantees from all shareholders.
Most shareholders, including the plaintiffs (Singer, et al.), provided guarantees.
Feigenbaum, the defendant, did not give a personal guarantee to the bank.
All shareholders, including Feigenbaum, entered into a cross-indemnity agreement, promising to cover pro rata losses if any shareholder was liable to the bank.
The agreement stated the guarantees were an inducement for the line of credit.
Mobile Modular defaulted, and the bank recovered from six shareholders who then sought contribution from Feigenbaum per the indemnity agreement.
Feigenbaum refused to pay.
Procedural History
Plaintiffs sued Feigenbaum to enforce the indemnity agreement.
Special Term granted summary judgment for plaintiffs, estopping Feigenbaum from denying he was a guarantor.
The Appellate Division affirmed, finding Feigenbaum benefited when the bank loaned funds to the corporation.
The New York Court of Appeals granted leave to appeal.
Issue(s)
Whether a promise to indemnify co-shareholders against disproportionate loss is enforceable when the promisor (Feigenbaum) received no direct benefit because he did not personally guarantee the underlying debt to the bank.
Holding
Yes, because consideration may consist of a detriment to the promisee (the shareholders who provided guarantees), even if the promisor (Feigenbaum) receives no direct benefit. The plaintiffs’ promise to indemnify each other constituted sufficient consideration.
Court’s Reasoning
The court rejected the argument that consideration requires a benefit flowing to the promisor.
It traced the historical development of consideration from actions of debt (quid pro quo) to assumpsit (detriment to promisee).
The court explained that modern contract law recognizes consideration as either a benefit to the promisor or a detriment to the promisee.
The court cited Rector of St. Mark’s Church v Teed, 120 NY 583, 586, stating, ” ‘[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.’ “
Plaintiffs’ promises to indemnify each other, regardless of their value to Feigenbaum, represented a detriment since they assumed the added duty of sharing the corporation’s default costs. “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.”
The court also noted the promises to the bank were identified in the cross-indemnity agreement as part of the consideration.
Finally, the court addressed the sequence of events. Even if Feigenbaum’s promise came after the guarantees, General Obligations Law § 5-1105 allows enforcement if the past consideration (the guarantees) is expressed in the writing.