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17. Does the clerk have a valid basis for an action against the bookkeeper for the unpaid $50,000?
An accountant and a bookkeeper, as part of a contract dissolving their accounting business, agreed that each would contribute $100,000 to fund an annuity for a clerk who was a longtime employee of the business. The clerk's position would be terminated at the dissolution, and he did not have a retirement plan. The accountant and the bookkeeper informed the clerk of their plan to fund an annuity for him. The clerk, confident about his financial future because of the promised annuity, purchased a retirement home. The accountant later contributed his $100,000 to fund the annuity, but the bookkeeper stated that he could afford to contribute only $50,000. The accountant agreed in writing that the bookkeeper should contribute only $50,000.
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A is incorrect. The clerk materially changed his position in reasonable reliance on the contract, which means his rights have vested and the bookkeeper and accountant cannot modify the annuity unless the clerk consents.
B is incorrect. As explained above, the clerk was not a donee beneficiary because the contract was expressly created to benefit the clerk. The clerk's rights vested when he purchased the retirement home in reasonable reliance on the annuity.
D is incorrect. Under the bargained-for-exchange test for consideration, acts performed in the past constitute past consideration, which does not amount to the consideration required to enforce a contract. The clerk's many years of employment constituted past consideration and would be insufficient to prevent the accountant and the bookkeeper from modifying their duties regarding the promise to fund the annuity except for the clerk's subsequent reliance on their promise.