This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Whether equity will regard inadequacy of consideration as ground for treating a contract as invalid for the purpose either of granting or of denying its own special remedy in the absence of other grounds of equitable relief, such as fraud, mistake, misrepresentation, duress, and undue influence, is a question upon some phases of which there is a conflict of authority. It is frequently said that mere inadequacy of consideration, at least if not so extreme as to shock the conscience of the chancellor, will not of itself render the contract unenforceable.1 The consideration for the release of an equity of redemption need not be adequate.2 If a contract to refrain from competition is otherwise valid and it possesses a substantial consideration, equity will not refuse relief on the ground that such consideration is not adequate.3 If A sells a business property to B, and as a part of the same transaction A agrees to refrain from competition, the fact that the consideration which B pays is only the fair value of the business and that nothing over and above the fair price for such business is paid for the covenant to refrain from competition, does not prevent equity from enforcing such covenant.4 Inadequacy of consideration is not by itself a sufficient ground for denying specific performance.5
10Waterbury v. Laredo, 68 Tex. 565, 5 S. W. 81.
11 Hayward v. Red Cliff, 20 Colo. 38, 30 Pac. 795.
12 Kelley v. Caplice, 23 Kan. 474, 477, 33 Am. Rep. 179.
13 Kelley v. Caplice, 23 Kan. 474, 33 Am. Rep. 179.
1 England. Coles v. Trecothick, 9 Ves. Jr. 234.
United States. Erwin v. Parham, 53 U. S. (12 How.) 197, 13 L. ed. 952.
Alabama. Lee v. Cochran, 157 Ala. 311, 47 So. 581.
Arkansas. Cook v. Bagnell Timber Co., 78 Ark. 47, 94 S. W. 695.
Florida. Florida Association v. Stevens, 61 Fla. 598, 55 So. 981.
Illinois. Ryan v. Hamilton, 205 111. 191, 68 N. E. 781 [reversing Hamilton v. Ryan, 103 111. App. 212].
Kentucky. Matthis v. O'Brien, 137 Ky. 651, 126 S. W. 156.
Missouri. Harmon v. Town, 17 Ho. 237.
New Mexico. Fraser v. State Savings Bank, 18 N. M. 340, 137 Pac. 592.
New York. Ga Nun v. Palmer, 216 N. Y. 603, 111 N. E. 223.
In the statement of this rule the qualification is often added that if the inadequacy is so gross as to shock the conscience of the chancellor, equity will treat the contract as invalid.6 In such cases the practical difficulty is to determine what degree of inadequacy will be so gross as to shock the conscience of the chancellor. A contract to pay about three thousand dollars for a leasehold for a term of four years, which was worth about eighteen dollars a year above the ground rent and taxes, and four hundred dollars in money, was held to be on consideration so inadequate that relief would be given.7 An equity of redemption is held to be so inadequate a consideration as to render the contract unenforceable if the mortgage debt so nearly equals the value of the property that the equity of redemption is practically worth nothing.8 In some jurisdictions the courts of equity have gone so far as to enforce contracts upon a nominal consideration,9 although it would seem that if any inadequacy of a substantial consideration would shock the conscience of the court, a nominal consideration should do so. If an option for value is accepted before it is revoked, the adequacy of the consideration for the option is immaterial10
West Virginia. Conaway v. Sweeney, 24 W. Va. 643.
"With the wisdom or folly of contracts the courts have no concern." Florida Association v. Stevens, 61 Fla. 598, 55 So. 981.
"The amount of consideration, so it be appreciable, is immaterial." Green v. Higham, 161 Mo. 333, 61 S. W. 708.
Such inadequacy is not ground for setting a conveyance aside.
Alabama.. Juzan v. Toulmin, 0 Ala. 662, 44 Am. Dec. 448.
Kentucky. Matthis v. O'Brien, 137 Ky. 651, 126 S. W. 156.
Maryland. Feigley v. Feigley, 7 Md. 537, 61 Am. Dec. 375.
New Jersey. Phillips v. Pulten, 45 N. J. Eq. 5, 16 Atl. 9.
Pennsylvania. Davidson v. Little, 22 Pa. St. 245, 60 Am. Dec. 81.
Texas. Briscoe v. Bronaugh, 1 Tex. 326, 46 Am. Dec. 108.
Washington. Tausick v. Tausick, 52 Wash. 301, 100 Pac. 757.
Wisconsin. Cooper v. Reilly, 90 Wis. 427, 63 N. W. 885. For adequacy of consideration in an ante-nuptial contract, see Watson v. Watson (Kan.), 180 Pac. 242.
2Scholl v. Hopper, 134 Ky. 83, 110 S. W. 770.
3 Freudenthal v. Espey, 45 Colo. 488, 102 Pac. 280; Threlkeld v. Steward, 24 Okla. 403, 103 Pac. 630; Nelson v. Brassington, 64 Wash. 180, 116 Pac. 620.
4McAuliffe v. Vaughan, 135 Ga. 852, 33 L. R. A. (N.S.) 255, 70 S. E. 322; Nelson v. Brassington, 64 Wash. 180, 110 Pac. 620.
5 United States. Erwin, v. Parham, 53 U. S. (12 How.) 107, 13 L. ed. 052.
Illinois, Ullsperger v. Meyer, 217 111. 262, 75 N. E. 482; Adams v. Pea-body Coal Co., 230 111. 469, 82 N. E. 645,
Indiana. Hamilton v. Hamilton, 162 Ind. 430, 70 N. E. 535.
North Carolina. Combes v. Adams, 150 N. Car. 64, 63 S. E. 186.
Rhode Island. Sweeney v. Brow, 35 R. I. 227, 86 Atl. 115.
Utah. Cummings v. Nielson, 42 Utah 157, 120 Pac. 619.
6 Coles v. Trecothick, 9 Ves. Jr. 234; Deepwater Council v. Renick, 59 W. Va. 343, 53 S. E. 552.
In other jurisdictions it is said that equity will not give specific performance if the consideration is not adequate,11 since equity will give specific performance only if the contract is fair and reasonable. If the consideration which is relied upon consists of valuable improvements upon the realty, equity has refused specific performance where the valuable improvements were less than the rental value of the land.12 The consideration may be so inadequate that specific performance will be denied; and yet rescission may also be denied.13 A promise by a mortgagor to buy mortgaged property from a bidder at a foreclosure sale, at the price at which he bid it in, giving a mortgage for the entire amount of the purchase price with seven per cent. interest, was held to be unenforceable.14
In some states, it is provided by statute that specific performance will not be given unless the consideration is adequate.19 Under a statute which provides that specific performance can not be had unless the consideration is adequate, specific performance has been refused where the property was worth fifteen thousand dollars and the contract price was fourteen thousand dollars, the owners living at a distance from the property and knowing nothing of its condition or value while the purchasers knew such facts.16 A consideration is adequate under a statute requiring adequacy, if it is fair and reasonable, even if it is not the highest consideration which might have been obtained.17
7Watkins v. Collins, 11 Ohio 31. (In this case the purchaser believed that she was getting a fee simple; she was an elderly invalid and the contract was made with her through her stepfather.)
8 Koch v. Streuter, 232 III 504, 83 N. E. 1072; State Security & Realty Co. v. Shaffer, 176 Mich. 639, 142 N. W. 1058.
9 Alabama Central R. R. Co. v. Long, 158 Ala. 301, 48 So. 363; Bethea v. McCullough, 195 Ala. 480, 70 So. 680.
10 Smith v. Bangham, 156 Cal. 359, 104 Pac. 689.
11 England. Day v. Newman, 2 Cox Ch. 77.
Connecticut. Dodd v. Seymour, 21 Conn. 476.
Indiana. Thayer v. Younge, 86 Ind. 259.
Maryland. Warren Mfg. Co. v. Baltimore, 119 Md. 186, 86 Atl. 502.
Missouri. Oliver v. Johnson, 238 Mo. 359, 142 S. W. 274; Walker v. Bohan-nan, 243 Mo. 119, 147 S. W. 1024.
12 Young v. Crawford, 82 Ark. 33, 100 S. W. 87.
13Watkins v. Collins, 11 Ohio 31.
14 Calvary Baptist Church v. Dart, G8 S. Car. 221, 47 S. E. 66.
15 Stein v. Archibald, 151 Cal. 220, 90 Pac. 536; Walter G. Reese Co. v. House, 162 Cal. 740, 124 Pac. 442; Wilson v. White, 161 Cal. 453. 119 Pac. 895.
In some jurisdictions the test of the inadequacy of consideration which will cause equity to refuse to grant specific performance, has been said to be such gross inadequacy as to suggest fraud,18 or to render the contract unconscionable.19 The rule that specific performance will be refused if the consideration is so inadequate as to shock the conscience of the chancellor, is probably equivalent to the rule that such relief will be refused if the inadequacy of consideration is so extreme as to show the existence of fraud.
If adequacy of consideration is to be considered as affecting the validity of the contract, the question of the adequacy or inadequacy of the consideration must be determined as of the time of the making of the contract.20 If the consideration is adequate at the time of making the contract, such contract is enforceable, although by reason of a subsequent change in value the consideration is inadequate at the time of performance.21 If A agrees to support B, such contract can not be held to be inadequate because of the fact that B lives for so short a time that the contract is profitable to A.22 A promise to care for another is consideration for a promise to convey land worth about twenty thousand dollars, though such services are rendered only for three years and a half.23 A's promise to transfer a bank deposit amounting to four thousand dollars, finds sufficient consideration in B's promise to support A, who was eighty-four years of age, for the remainder of her life.24 If the consideration is an unliquidated amount, that fact removes all question as to the adequacy of such consideration.25 Inadequacy of consideration in connection with other circumstances, such as circumstances of oppression, unfair dealing, confidential relationship between the parties, deficient mental or physical caPac.ity, and the like,26 or if so extreme as to suggest fraud of itself,27 may be an important factor in determining the existence of fraud, constructive fraud, or undue influence,28
16 Wilson v. White, 161 Cal. 453, 119 Pac. 895.
17 Wilson v. White, 161 Cal. 453, 119 Pac. 895.
18 Inadequacy "so gross as to shock the moral sense" is said to be ground for rescission in equity, as suggesting fraud. German Corporation v. Negau-nee Qerman Aid Society, 172 Mich. 650, 138 N. W. 343. "Where the inadequacy of price is so great that the mind revolts at it, the court will lay hold on the slightest circumstances of oppression or advantage to rescind the con-tract." Hough's Adm'rs v. Hunt, 2 Ohio 495, 15 Am. Dec. 569.
19 Butler v. Duncan, 47 Mich. 94, 41 Am. Rep. 711, 10 N. W. 123; Howells v. Pacific State Savings, Loan and Building Co., 21 Utah 45, 81 Am. St. Rep. 659, 60 Pac. 1025.
20Charbonier v. Arbona, 63 Fla. 384, 57 So. 887; Warner v. Marshall, 166 Ind. 88, 75 N. E. 582; Drefaht v. Rahe, 132 la. 563, 107 N. W. 179. See Sec. 640.
21Charbonier v. Arbona, 63 Fla. 364, 57 So. 887. See Sec. 640.
22 Warner v. Marshall, 166 Ind. 88, 75 N. E. 582; Drefahl v. Rabe, 132 la. 563, 107 N. W. 179.