Elements of an Effective Contract – Part II

By: Jonathan Bromberg, Esq., Bromberg Rosenthal LLC (301) 251-6200
401 North Washington Street, #500, Rockville, MD 20850
(All rights reserved by the author)

In our prior article we reviewed the basic elements of a contract including offer and acceptance and we examined the legal problems that arise when there is a “mutual mistake of fact” about the subject matter of the contract by the parties.

A basic requirement to the legal enforceability of a contract is “consideration.” That is, some sort of mutual exchange of benefit and burden is required. So, a unilateral promise to give an acquaintance some money, for example, is not enforceable. The other person must have given up something in exchange for that promise. It need not be significant, however, there must be some “consideration” given. The courts will not check into the adequacy of the consideration given.

An interesting case from Michigan in 1928 points out the requirement of consideration. A Mr. Lee Hunter borrowed money and signed a promissory note to his bank for $3,700 and also gave 50 shares of stock in a company as collateral. Later the company became insolvent, the shares of stock were worthless and Mr. Hunter died penniless. After his death, his widow gave the bank a new promissory note that she signed in exchange for her deceased husband’s note and the shares of stock. When the bank sued her for payment on the note, the Court held that the bank could not enforce the note because there was no consideration given. The court found that the shares of stock were worthless. With regard to her husband’s note, the court found that when the bank “surrendered this worthless piece of paper to the Defendant, it parted with nothing of value, and Defendant received nothing of value, the Plaintiff suffered no loss or inconvenience, and Defendant received no benefit.” Since the bank gave no “consideration” it could not enforce the note against the widow.

Aside from the requirement for consideration, if a court finds that a clause in a contract was so oppressive as to be unconscionable, the court may refuse to enforce that clause. The Uniform Commercial Code codifies that principle by specifying that a court may refuse to enforce an unconscionable clause. (See UCC ยง2-302) In fact, if the court believes that a contract is too one sided it may refuse to order specific performance. A famous case embodying those principles involved contracts between Campbell Soup Co. and carrot growers in 1948. In analyzing the terms of the contract in its entirety, the court found that “it is too hard a bargain and too one-sided an agreement to entitle Plaintiff to relief in a court of conscience.” Among many of the one-sided clauses, the contract provided that Campbell is excused from accepting carrots under certain circumstances but even if they refuse to accept them, the grower was not permitted to sell them to any other party unless Campbell agreed. The Court found that this was “carrying a good joke too far” and refused to enforce the contract.

As we saw in our last article, just because something is not in writing does not necessarily mean it is not enforceable. On the other hand, here we learn that, just because it is written, does not mean you will be able to enforce it in a court of law.

If you have any question about your contracts, you should contact your attorney. For further information on this article or other legal matters, feel free to contact Jonathan Bromberg, Esq. at Bromberg Rosenthal LLC (301/251-6200) or by completing the contact form below.