T. P. Shepard & Co. v. Rhodes - 7 R.I. 470 (1863)

Rule:

A nominal money consideration, such as one dollar, for a promise to pay upwards of one thousand dollars, is merely technical and colorable, and cannot support such a promise.

Facts:

The count demurred to stated that T.P. Shepard & Co. had discharged to defendants (Rhodes and another unnamed person) from a certain debt, then due and owing from them to T.P. Shepard & Co., in consideration of dividends to be received from the proceeds of certain effects assigned by the defendants. Subsequent to such discharge, the defendants feeling themselves honorably bound to pay to T.P. Shepard & Co. this debt, in consideration thereof and of one dollar to them paid, made the following new promise, to wit, to pay to T.P. Shepard & Co. in one year after a final dividend, any difference that might then exist between their full debt and interest and the amount of any dividend or dividends T.P. Shepard & Co. might have previously received. The count further stated, that more than one year has elapsed since T.P. Shepard & Co. received notice that no dividend would be paid them from the assigned effects. Thus, T.P. Shepard & Co. filed a complaint to recover the sum of two thousand dollars from the defendants.

Issue:

Is the additional one dollar consideration for the second promise to pay sufficient to support the promise to pay the debt of defendants?

Answer:

No.

Conclusion:

Ordinarily, courts do not go into the question of equality or inequality of considerations; but act upon the presumption that parties capable to contract are capable, as well, of regulating the terms of their contracts, granting relief only when the inequality is shown to have arisen from mistake, misrepresentation, or fraud. A different rule would, in every case, impose upon the court the necessity of inquiring into, and of determining the value of the property received by the party giving the promise. Such a course is obviously impracticable. In all cases, therefore, where the assumption or undertaking is founded upon the sale or exchange of merchandise or property, or upon other than a money consideration, and the promise has been deliberately made, the law looks no further than to see that the obligation rests upon a consideration, that is, one recognized as legal, and of some value. But the reason of the rule ceases, and, hence, the rule ceases, when applied to contracts to pay money and founded solely upon a money consideration. How far a forbearance to sue, or the giving of time, or the mere waiver of some right, may support a promise, since the question does not arise. Nor for the like reason, do we consider how far the rule is qualified or limited by special statutes regulating interest; or in that class of contracts peculiar to the law merchant, as bottomry, respondentia, and the course of exchange. Aside from these and some other exceptions, at common law a contract for the exchange of unequal sums of money at the same time, or at different times, when the element of time is no equivalent, is not binding; and, in such cases, courts may and do enquire into the equality of the contract; for its subject matter, upon both sides, has not only a fixed value, but is itself the standard of all values; and so for the difference of value, there is no consideration. In this principle, the earliest prohibitions,--earlier even than the time of Alfred,--and the later legislative enactments against usury, both in England and in this country, have their origin. The rule is deemed to be founded in good policy. In the instant case, the only legal consideration the defendants received was one dollar, for which they engaged to pay a much larger sum. The case, therefore, fell within the principle adverted to. The consideration was not only unequal, but grossly so. It was a mere nominal consideration; if even received by the defendants, it was, no doubt, regarded as such by them, and intended as such by the promisees. It was, at best, purely technical and colorable, and obviously is wanting in that degree of equitable equality sufficient to support the promise declared upon.