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1464-Eight, Ltd. v. Joppich - 154 S.W.3d 101 (Tex. 2004)

Rule:

Restatement (Second) of Contracts § 87(1)(a) is incorporated into the common law of Texas. As far as option contracts are concerned, the Restatement (Second) has taken the position that a false recital of nominal consideration is sufficient to support the irrevocability of an offer so long as the underlying exchange is fair and the offer is to be accepted within a reasonable time.

Facts:

In July 1997, Gail Ann Joppich entered into an earnest money contract with 1464-Eight, Ltd. and Millis Management Corporation (collectively "Millis") under which Joppich agreed to buy, and Millis agreed to convey, an undeveloped residential lot located in a subdivision being developed by Millis. At the closing later the same month, Millis executed a special warranty deed conveying the lot to Joppich. In addition, the parties executed a separate four-page document entitled "Option Agreement." The Option Agreement did not contain an express statement regarding whether the parties intended the offer to sell real property to be revocable or irrevocable. In October 1999, Joppich filed suit against Millis, seeking a declaratory judgment that the Option Agreement was unenforceable. In her original petition, Joppich asserted that "although the Option Agreement states that a sum of Ten and No/100 dollars was given to Plaintiff in consideration for granting the option, this sum was not then nor has it ever been tendered to nor paid to Plaintiff," and she requested that "the Court declare that the Agreement granting the exclusive right and option to purchase [the Property] to the Developer is void and unenforceable for lack of consideration or alternatively, failure of consideration."

Issue:

Did the failure to deliver nominal consideration recited in an option contract preclude enforcement of the option contract?

Answer:

No

Conclusion:

The option would have been enforceable under Restatement (Second) of Contracts § 87(1)(a), which provided that a false recital of nominal consideration was sufficient to support the irrevocability of an offer, so long as the underlying exchange was fair and the offer was to be accepted within a reasonable time. Upon further review, the court ruled that Restatement (Second) of Contracts § 87(1)(a) should be incorporated into the common law of Texas. Thus, the non-payment of the nominal consideration did not preclude enforcement of the written option agreement. Consideration is designed primarily to protect promisors from their own donative promises. Options, however, are one commercial step in a commercial deal. A number of cases have followed the forthright approach taken by the Restatement (Second). Indeed, it may be urged that the Restatement fails to lead the way to more progressive reform. Having recognized the value of the enforceability of options as commercial devices, it still insists on the fictional recital of a purported consideration. Such fictional charades should not be a part of a mature legal system. Commercial promises such as options and credit guaranties should be enforceable without consideration. The court reversed the judgment of the court of appeals and remanded the case to the court of appeals for further proceedings.

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