Contract Modification. Ellen and Gabriel Fineman held MasterCards issued by Citibank. Holders of these cards paid an annual $15 fee. The issuance and use of the cards were governed by a retail installment credit agreement, which contained the following

Question

statement: "We can change this Agreement including the finance charge and the annual percentage rate at any time." The agreement did provide for thirty days' notice of any such changes, and the cardholder had a right to reject the changes in writing and return the credit card. Two months before the expiration of the Finemans' cards, Citibank notified them that it was increasing its annual fee to $20; however, Citibank was also providing its cardholders with extra services and benefits, such as "$100,000 common carrier travel insurance." The Finemans did not object in writing, nor did they return the cards. Citibank added 83 cents to the Finemans' next bill, the prorated portion of the increase for the two months remaining on their cards. The Finemans filed suit (a class-action lawsuit on behalf of all cardholders) to recover the increased charges. Among other claims, the Finemans argued that the modification failed because the travel insurance was not adequate consideration for the modification, because they never received any benefits from the insurance, and because its cost to Citibank was negligible. Was there adequate and legally sufficient consideration for Citibank's modification of the annual credit card fee?

Answer 1

Contract modification
Yes. Stating that the adequacy of consideration must be determined at the time a contract is agreed on, and not from the hindsight of how parties fare under it, the court explained that insurance has value to the insured even if events on which the payment of benefits is conditioned do not occur. Regarding the cost of the insurance to Citibank, the court explained that it was not the court's function to review the amount of consideration to decide whether either party made a bad bargain, unless the amount was "so grossly inadequate as to shock the conscience of the court." The court said that it could not say that its conscience was shocked by the exchange of two months of $100,000 of common carrier travel insurance coverage in return for the Finemans' payment of 83 cents.