1464-Eight, Ltd. v. Joppich
154 S.W.3d 101 (2004)
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Rule of Law:
An offer is binding as an option contract if it is in writing, signed by the offeror, recites a purported consideration, and proposes a fair exchange within a reasonable time, even if the recited consideration was never actually paid.
Facts:
- In July 1997, Gail Ann Joppich purchased an undeveloped residential lot from 1464-Eight, Ltd. and Millis Management Corporation (collectively 'Millis').
- An addendum to the purchase contract required the parties to execute a separate Option Agreement at closing.
- This Option Agreement would give Millis the right to repurchase the property at 90% of the original sale price if Joppich failed to begin construction of a residence within 18 months.
- At closing, both parties signed a notarized four-page 'Option Agreement' separate from the deed.
- The Option Agreement stated that Millis had paid Joppich a $10.00 'Option Fee', the receipt of which Joppich 'acknowledged and confessed' in the document.
- In fact, the $10.00 consideration was never tendered to or paid to Joppich.
- Joppich did not commence construction on the property within the 18-month period specified in the agreement.
Procedural Posture:
- In October 1999, Joppich sued Millis in trial court, seeking a declaratory judgment that the Option Agreement was unenforceable for lack of consideration.
- Millis filed a counterclaim seeking specific performance of the option.
- Joppich moved for summary judgment, which the trial court denied.
- Millis moved for partial summary judgment, which the trial court granted, declaring the Option Agreement enforceable.
- The trial court entered a final judgment ordering Joppich to sell the property to Millis.
- Joppich, as appellant, appealed to the court of appeals.
- The court of appeals reversed the trial court's judgment, holding that summary judgment for Millis was improper.
- Millis, as petitioner, sought review from the Supreme Court of Texas.
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Issue:
Does the nonpayment of a recited nominal consideration in a written option agreement render the agreement unenforceable for lack of consideration?
Opinions:
Majority - Justice Smith
No. The nonpayment of a recited nominal consideration does not preclude enforcement of a written option agreement that otherwise meets the requirements of the Restatement (Second) of Contracts § 87(1)(a). The Court adopts section 87(1)(a), which provides that a written and signed offer reciting a purported consideration is binding as an option contract if it proposes a fair exchange within a reasonable time. The Court was persuaded by the Restatement's rationale that in the context of option contracts, the recital of consideration serves a formal function, providing a reliable signal that the parties intended the offer to be irrevocable. The signed writing is the vital formality, while the actual payment of a nominal sum like one dollar is an 'inconsequential formality.' Adopting this rule prevents a solemn written agreement from being invalidated by easily fabricated oral testimony about nonpayment.
Concurring - Chief Justice Jefferson
No. While concurring in the judgment that the option is enforceable, this opinion argues that the Court should have gone further and eliminated the consideration requirement for option contracts altogether. The concurrence criticizes the majority's adoption of the Restatement's 'fictional charade' of requiring a false recital of consideration, calling it a 'needless hindrance.' It contends that option contracts are commercial tools, not donative promises, so the traditional purpose of consideration—to distinguish gifts from bargains—is not served. Instead of relying on legal fictions like implied promises or estoppel, courts should simply enforce commercial options as written, a position already taken for contracts involving the sale of goods under the UCC's 'firm offer' rule.
Analysis:
This decision formally adopts the minority view, as articulated in the Restatement (Second) of Contracts § 87(1)(a), into Texas common law. By holding that a mere recital of nominal consideration is sufficient to create an enforceable option contract, the court prioritizes the parties' expressed written intent over the actual mechanics of consideration. This ruling enhances the reliability and predictability of commercial option agreements in Texas, making it more difficult for a party to escape a formally executed option by later claiming the nominal fee was never paid. The case solidifies the principle that for certain commercial instruments, form and recital can substitute for the substantive element of a bargained-for exchange.
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