Board of Control of Eastern Michigan University v. Burgess

Michigan Court of Appeals
206 N.W.2d 256, 45 Mich. App. 183 (1973)

ELI5:

Rule of Law:

A written acknowledgment of receipt of consideration in an option contract is not conclusive and creates only a rebuttable presumption that consideration was paid. An option not supported by actual consideration is merely a revocable offer.

Facts:

On February 15, 1966, defendant signed a document drafted by plaintiff's agent, granting plaintiff a 60-day option to purchase her home.
The document acknowledged receipt by defendant of 'One and no/100 ($1.00) Dollar and other valuable consideration'.
Plaintiff concedes that neither the one dollar nor any other consideration was ever paid or tendered to the defendant.
Defendant testified that within hours of signing the document, she telephoned plaintiff's agent to state she would not abide by the option unless the purchase price was increased.
On April 14, 1966, plaintiff delivered a written notice to defendant of its intent to exercise the option.
Defendant testified that upon receiving the notice, she again told the agent that 'the option was off'.
At the scheduled closing, defendant rejected plaintiff's tender of the full purchase price.

Procedural Posture:

Plaintiff commenced an action for specific performance against defendant in the trial court.
The trial judge held that the defendant's acknowledgment of receipt of consideration barred any subsequent contention to the contrary and entered a judgment for the plaintiff.
Defendant, as appellant, appealed the trial court's judgment to the intermediate appellate court.

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Issue:

Does a written acknowledgment of receiving consideration for an option contract bar the defense of failure of consideration, thereby making the option specifically enforceable?

Opinions:

Majority - R. B. Burns, J.

No. A written acknowledgment of receiving consideration for an option contract does not bar the defense of failure of consideration. Such an acknowledgment merely creates a rebuttable presumption that consideration has passed, and evidence may be presented to contradict it. An option for the purchase of land must be based on valid consideration to be an enforceable contract. Without consideration, what purports to be an option is merely a simple, revocable offer to sell. The failure of consideration affects the collateral contract to keep the offer open, but not the underlying offer itself. As a simple offer, it can be revoked by the offeror at any time prior to acceptance. The revocation of an offer to sell land need not be in writing under the Statute of Frauds, as an offer is not a contract and creates no interest in land. The case is remanded for the trial court to determine the factual question of whether the defendant effectively communicated her revocation to the plaintiff before the plaintiff attempted to accept the offer.

Analysis:

This decision reinforces the fundamental contract principle that an option contract, which makes an offer irrevocable, requires its own separate consideration to be valid. The court clarified that a mere recital of consideration (e.g., 'for one dollar received') is not conclusive and can be challenged with evidence showing the consideration was never paid. This prevents the doctrines of estoppel or the parol evidence rule from being used to enforce an option that was never properly formed. The ruling maintains a clear distinction between an unenforceable option, which reverts to a simple revocable offer, and a validly formed contract, thereby protecting property owners from being bound by promises for which they received no bargained-for exchange.

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