Adequacy Doctrine
3. Adequacy Doctrine
As we saw in In re Greene, courts are sometimes skeptical about whether purported consideration embodies a genuine exchange or merely disguises an otherwise unenforceable gift. Parties themselves are sometimes heard to complain that they have not received real or sufficient consideration for their promises. This section explores the doctrinal rules that determine whether this argument succeeds or fails.
3.1 Principal Case – Batsakis v. Demotsis
The court in Greene decided that Leila Trudel had failed to provide legally sufficient consideration to support Greene’s promises. Contrast with Greene the following case in which the court decides to enforce a promise to pay despite one party’s contention that she received inadequate consideration. As you read, try to identify the facts and circumstances that produce these disparate results.
Batsakis v. Demotsis
Court of Civil Appeals of Texas
226 S.W.2d 673 (1949)
McGill, Justice.
[1] This is an appeal from a judgment of the 57th judicial District Court of Bexar County. Appellant was plaintiff and appellee was defendant in the trial court. The parties will be so designated.
[2] Plaintiff sued defendant to recover $2,000 with interest at the rate of 8% per annum from April 2, 1942, alleged to be due on the following instrument, being a translation from the original, which is written in the Greek language:
Peiraeus
April 2, 1942
Mr. George Batsakis
Konstantinou Diadohou #7
Mr. Batsakis:
I state by my present (letter) that I received today from you the amount of two thousand dollars ($2,000.00) of United States of America money, which I borrowed from you for the support of my family during these difficult days and because it is impossible for me to transfer dollars of my own from America.
The above amount I accept with the expressed promise that I will return to you again in American dollars either at the end of the present war or even before in the event that you might be able to find a way to collect them (dollars) from my representative in America to whom I shall write and give him an order relative to this you understand until the final execution (payment) to the above amount an eight per cent interest will be added and paid together with the principal.
I thank you and I remain yours with respects.
The recipient,
(Signed) Eugenia The. Demotsis.
[3] Trial to the court without the intervention of a jury resulted in a judgment in favor of plaintiff for $750.00 principal, and interest at the rate of 8% per annum from April 2, 1942 to the date of judgment, totaling $1163.83, with interest thereon at the rate of 8% per annum until paid. Plaintiff has perfected his appeal.
[4] The court sustained certain special exceptions of plaintiff to defendant’s first amended original answer on which the case was tried, and struck therefrom paragraphs II, III and V. Defendant excepted to such action of the court, but has not cross-assigned error here. The answer, stripped of such paragraphs, consisted of a general denial contained in paragraph I thereof, and of paragraph IV, which is as follows:
IV. That under the circumstances alleged in Paragraph II of this answer, the consideration upon which said written instrument sued upon by plaintiff herein is founded, is wanting and has failed to the extent of $1975.00, and defendant pleads specially under the verification hereinafter made the want and failure of consideration stated, and now tenders, as defendant has heretofore tendered to plaintiff, $25.00 as the value of the loan of money received by defendant from plaintiff, together with interest thereon.
Further, in connection with this plea of want and failure of consideration defendant alleges that she at no time received from plaintiff himself or from anyone for plaintiff any money or thing of value other than, as hereinbefore alleged, the original loan of 500,000 drachmae. That at the time of the loan by plaintiff to defendant of said 500,000 drachmae the value of 500,000 drachmae in the Kingdom of Greece in dollars of money of the United States of America, was $25.00, and also at said time the value of 500,000 drachmae of Greek money in the United States of America in dollars was $25.00 of money of the United States of America.
[5] The allegations in paragraph II which were stricken, referred to in paragraph IV, were that the instrument sued on was signed and delivered in the Kingdom of Greece on or about April 2, 1942, at which time both plaintiff and defendant were residents of and residing in the Kingdom of Greece, and
[Plaintiff] avers that on or about April 2, 1942 she owned money in the United States of America, but was then and there in the Kingdom of Greece in straitened financial circumstances due to the conditions produced by World War II and could not make use of her money and property and credit existing in the United States of America. That in the circumstances the plaintiff agreed to and did lend to defendant the sum of 500,000 drachmae, which at that time, on or about April 2, 1942, had the value of $25.00 in money of the United States of America. That the said plaintiff, knowing defendant’s financial distress and desire to return to the United States of America, exacted of her the written instrument plaintiff sues upon, which was a promise by her to pay to him the sum of $2,000.00 of United States of America money.
[6] Plaintiff specially excepted to paragraph IV because the allegations thereof were insufficient to allege either want of consideration or failure of consideration, in that it affirmatively appears therefrom that defendant received what was agreed to be delivered to her, and that plaintiff breached no agreement. The court overruled this exception, and such action is assigned as error. Error is also assigned because of the court’s failure to enter judgment for the whole unpaid balance of the principal of the instrument with interest as therein provided.
[7] Defendant testified that she did receive 500,000 drachmas from plaintiff. It is not clear whether she received all the 500,000 drachmas or only a portion of them before she signed the instrument in question. Her testimony clearly shows that the understanding of the parties was that plaintiff would give her the 500,000 drachmas if she would sign the instrument. She testified:
Q.…who suggested the figure of $2,000.00?
That was how he asked me from the beginning. He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2,000.00 American money.
[8] The transaction amounted to a sale by plaintiff of the 500,000 drachmas in consideration of the execution of the instrument sued on, by defendant. It is not contended that the drachmas had no value. Indeed, the judgment indicates that the trial court placed a value of $750.00 on them or on the other consideration which plaintiff gave defendant for the instrument if he believed plaintiff’s testimony. Therefore the plea of want of consideration was unavailing. A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place. National Bank of Commerce v. Williams, 125 Tex. 619, 84 S.W.2d 691.
[9] Mere inadequacy of consideration will not void a contract. 10 Tex.Jur., Contracts, Sec. 89, p. 150; Chastain v. Texas Christian Missionary Society, Tex.Civ.App., 78 S.W.2d 728, loc. cit. 731(3), Wr. Ref.
[10] Nor was the plea of failure of consideration availing. Defendant got exactly what she contracted for according to her own testimony. The court should have rendered judgment in favor of plaintiff against defendant for the principal sum of $2,000.00 evidenced by the instrument sued on, with interest as therein provided. We construe the provision relating to interest as providing for interest at the rate of 8% per annum. The judgment is reformed so as to award appellant a recovery against appellee of $2,000.00 with interest thereon at the rate of 8% per annum from April 2, 1942. Such judgment will bear interest at the rate of 8% per annum until paid on $2,000.00 thereof and on the balance interest at the rate of 6% per annum. As so reformed, the judgment is affirmed.
Reformed and affirmed.
3.1.1 The Background of Batsakis v. Demotsis
Here is a compelling account of the harrowing conditions residents faced in German-occupied Athens during the early years of World War II:
During the first winter of the occupation, 1941-2, the blockaded cities and the mountain villages, cut off from the plains which had supplied them with grain, salt, and oil, suffered the most. Athens became a nightmare landscape of skeletal figures with bellies swollen, shuffling hopelessly in search of food, falling dead and lying unburied in the streets. The children and the elderly died first.
In the first two months of winter, 300,000 people starved to death in the capital. In order to keep the deceaseds’ ration cards, families did not report deaths but threw the corpses surreptitiously over the walls of cemeteries ….
The ration cards were nearly worthless, since bread was nonexistent, the food shops closed and shuttered. The smallest purchases required sacks of paper money…. If a baker happened to find enough flour to bake and sell a loaf of bread, he set the price in British gold sovereigns.
Everyone who could walk spent the entire day until curfew searching for food. The poor stripped the countryside of greens for miles outside of Athens. Trees in the avenues and parks were cut down for firewood. Servants of the wealthy were sent to outlying villages and islands with family treasures in search of a loaf of bread or a chicken ….
During the winter of 1941 in Athens, packs of stray dogs howled in the hills below the Acropolis, mass graves were dug in the gardens of the royal palace, and death waited on every street corner.
Nickolas Gage, Eleni 65-67 (1983).
3.1.2 Adequacy Doctrine
Courts ordinarily honor the rule that the parties are the best judge of the value of the promises they choose to exchange. The Restatement (Second) puts the matter this way:
§ 79. Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
Students should read Comment c to § 79 from an outside source for further elaboration.
Additionally, Comment d to § 79 explains the complementary doctrine of nominal or sham consideration and should be read.
A prominent contracts scholar reconciles the doctrines in the following excerpt:
Parting with a document, the contents of which can in fact render no service, has been held to be a sufficient consideration for a promise to pay a large sum. Services or property are sufficient consideration for a promise to pay much more money than anyone else would pay for them ….
The rule that market equivalence of consideration is … to be left solely to the free bargaining process of the parties, leads in extreme cases to seeming absurdities. When the consideration is only a “peppercorn” or a “tomtit” or a worthless piece of paper, the requirement of a consideration appeared to Holmes to be as much of a mere formality as is a seal. In such extreme cases, a tendency may be observed to refuse to apply the rule; but it is a tendency that has not been carried very far. Such cases can sometimes be explained on the ground that the stated consideration was a mere pretense.
1 Corbin on Contracts § 127 (1963).
3.1.3 Discussion of Batsakis v. Demotsis
Why do you suppose that the parties chose to draft a contract saying that Demotsis had received $2,000 when she really received 500,000 drachmae instead?
On what grounds does the court reject Demotsis’s contention that the contract should be unenforceable?
Can you think of any policy justifications for the adequacy doctrine expressed in Batsakis and in § 79 of the Restatement (Second), ?
