Marsh v. Lott
97 P. 163 (1908) (1908)
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Rule of Law:
While any valuable consideration, however small, is sufficient to create a binding and irrevocable option contract, the underlying contract of sale that arises upon exercise of the option must still be just, reasonable, and sufficiently certain in its terms to be specifically enforced in equity.
Facts:
- On February 25, 1905, M. A. Lott granted Robt. Marsh & Co. a written option to purchase her real property for $100,000 in exchange for a stated consideration of twenty-five cents.
- The purchase terms were specified as '$30,000 cash, balance on or before 4 years, 4.5% net.'
- The option was set to expire on June 1, 1905, but included a provision for a 30-day extension.
- On June 1, 1905, Marsh & Co. formally notified Lott that they were exercising their right to the 30-day extension.
- On June 2, 1905, Lott delivered a written notice to Marsh & Co. purporting to revoke the option and withdraw the property from sale.
- On June 29, 1905, within the extended option period, Marsh & Co. delivered a written notice to Lott's residence stating they tendered $30,000 and demanded performance of the sale agreement.
Procedural Posture:
- Robt. Marsh & Co. (plaintiff) sued M. A. Lott (defendant) in a trial court, seeking specific performance of the contract.
- The trial court rendered judgment for the defendant, Lott.
- The trial court found that the consideration for the option was inadequate and that the contract was not just and reasonable to the defendant.
- The plaintiff, Marsh & Co., as appellant, appealed the judgment and the trial court's order denying a motion for a new trial to this appellate court.
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Issue:
Is an option contract specifically enforceable when the consideration for the option itself is minimal, and the terms of the underlying purchase agreement are uncertain as to payment and security for the deferred balance?
Opinions:
Majority - Shaw, J.
No. An option contract is not specifically enforceable if the underlying purchase terms are unjust, unreasonable, or not sufficiently certain to make the precise act to be done clearly ascertainable. The court distinguishes between the consideration for the option and the fairness of the underlying sale. While any money consideration, however small, renders an option irrevocable for its term, the contract created by exercising the option must meet the standards for specific performance. Here, Lott's attempted revocation on June 2 was ineffectual because the 25 cents was valid consideration for the option. However, the underlying agreement to sell the land is unenforceable because its terms are not just, reasonable, or certain. The contract fails to specify how the $70,000 deferred payment is to be secured; enforcing the sale by ordering a deed transfer for only $30,000 would leave the seller with an unsecured debt, which is manifestly unjust. Because the contract lacks certainty regarding security for the balance, a court of equity cannot compel its performance.
Concurring - Taggart, J.
No. While I concur with the majority's conclusion to affirm the judgment, I disagree that the trial court erred in finding the option's consideration inadequate. I believe there was sufficient evidence to support the trial court's finding that the twenty-five cent consideration paid for the option was, in fact, inadequate. This inadequacy provides an additional reason to deny specific performance and affirm the judgment in favor of the defendant.
Analysis:
This case establishes a critical distinction between the consideration required to make an option irrevocable and the requirements for specific performance of the resulting land sale contract. It clarifies that while a nominal sum can bind a seller to an option, courts will not enforce the underlying sale if its terms are vague or inequitable. The ruling reinforces the principle that specific performance is an equitable remedy, not an absolute right, and will be denied if the contract is uncertain or would produce an unjust result. This precedent requires drafters of option contracts to be explicit about all material terms of the potential sale, particularly regarding financing and security, to ensure enforceability.
