In Margeson v. Artis, 776 NW 2d 652 (Iowa 2009), the Iowa Supreme Court affirmed its commitment to the preexisting duty rule when enforcing contracts.
The Margesons had agreed to sell their weight loss franchise to Artis on October 1, 2004 for $125,000. On October 7, 2004 an addendum to the contract was signed increasing the sale price to $155,000. At the closing on October 18 loan proceeds were used to pay the original $125,000 and personal checks from Artis totaling $10,000 were delivered. The balance was to be paid monthly based on sales. Disputes subsequently arose between the parties; Artis stopped payment on one of her checks and stopped paying the monthly installments.
The Margesons sued for the balance of the contract. Artis objected, claiming the addendum was unenforceable for lack of consideration. Both the District Court and the Court of Appeals found for Margesons. The Supreme Court reversed, holding that there was no consideration given for the addendum since the Margesons had a preexisting duty to sell the business under the terms of the original contract. The Court made it clear that the actual value of the consideration didn’t matter, it just had to exist. The Court went on to reject the theories of estoppels and waiver advanced by the Margesons.
Say what you will about the Supreme Court’s slavish attachment to what many commentators and the UCC consider an outdated contract principle, Margeson stands for the requirement that amendments to purchase agreements changing the purchase price require a recital of the independent consideration, no matter how small.
One has to wonder, however, what motivated the change in the purchase price. And doesn’t the fact that Artis agreed to the higher price imply that she saw value (consideration) in the increase?
-Marc Ward
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