Story Case

John "Waters found a stone he thought might be of some value, although he neglected to ascertain its exact worth. He went to Islam & Abraham, dealers in precious stones, and offered the stone to them for $100; Islam & Abraham refused to buy it until all efforts had been made to find the person who had lost it. Advertisements were inserted in all the newspapers, and after a year had gone by, Waters repeated the offer.

Isham & Abraham knew that the stone was a diamond of great worth, probably about $10,000, but since Waters had not asked them the value, they did not inform him. They accepted the offer.

As Waters returned to get the stone, he met a friend who wanted to see it. Then Waters learned that the stone was a diamond worth a hundred times what he had offered it for. He refused to sell it to Islam & Abraham, alleging that the consideration was so small in comparison with the true value of the stone, that he could not be held to his bargain. Islam & Abraham sued him for the stone and for breach of his promise to sell it to them.

Who should have won?

Ruling Court Case. John B. Nell Vs. Zucharias Schnell, Volume 17 Indiana Reports, Page 29

Theresa Schnell, the deceased wife of the defendant, Zacharias Schnell, before her death, made a will in which she attempted to leave property to John B. Nell, among others. But all her property had become that of her husband upon their marriage, so that, by will, Nell and the others received nothing. Zacharias Schnell was a just man and wished to see that these persons should be taken care of. So, by instrument in writing, Zacharias Schnell agreed to give John B. Nell the sum of $200, in consideration of love and affection and one cent by John B. Nell paid to Zacharias Schnell. This agreement was signed by both parties. Thereafter, however, Zacharias Schnell changed his mind, and refused to pay the sum promised. John B. Nell brought this action to recover the $200.

The defense of Schnell was that his promise was not legally binding, because it was unsupported by a valuable consideration.

Decision

The general rule is that any consideration, however inadequate, is sufficient to make binding an agreement otherwise binding. It is not at all necessary that the consideration should be of the same value as that which moves from the other party. But it is said that where money is exchanged, that a less sum can never be a consideration for a larger sum.

Mr. Justice Perkins, who delivered the opinion of the Court, said: "The consideration of one cent will not support the promise of Schnell. It is true, that as a general rule, inadequacy of consideration will not vitiate an agreement. But this doctrine does not apply to a mere exchange of sums of money, of coins, whose value is definitely fixed, but to the exchange of something of, in itself, indeterminate value, for money, or, perhaps, for some other thing of indeterminate value. In this case, had he one cent mentioned been some particular one cent, a family piece, or ancient, remarkable coin, possessing an indeterminate value, extrinsic from its simple money value, a different view might be taken".

Judgment was, therefore, given for Schnell in this action.

Ruling Law. Story Case Answer

The law does not require that consideration shall be adequate. If it is shown that there is a consideration, the law goes no further as a general rule. It assumes that the parties know better than any one else what they want; and if they get what they want, it is beyond the business of the court to make their contracts for them. But where it appears that the agree ment is mere exchange of money, the law does require that the consideration shall be adequate. In the Court Case of Schnell vs. Nell, the Court was of the opinion that one cent could not be a consideration for $200. Had the one cent been a unique coin, or a family piece, the Court would not, then, have inquired into its value as a consideration. But given as a piece of money in exchange for a much larger sum, according to the Court, certainly was not a consideration. In the Story Case, assuming that Islam and Abraham were not in any way fraudulent, the inadequacy of the consideration is not material. Islam and Abraham may recover damages from Waters for his failure to sell the stone.