Marsh v. Lott

MARSH v. LOTT, 8 Cal. App. 384, 97 P. 163 (1908). The California Civil Code (§3391) provides that specific performance cannot be enforced against a party to a contract "if he has not received an adequate consideration for the contract" (1), or "if it is not, as to him, just and reasonable" (2). The meaning of these provisions was tested in the Marsh case. The defendant on February 25, 1905 in writing had given plaintiff an option to buy his land "for the sum of $100,000, payable $30,000 cash, balance on or before four (4) years, 4½% net." The instrument acknowledged the receipt of 25 cents "in hand paid" and provided the option would expire on June 2 with privilege of 30 days extension. Plaintiff on June 1st in writing exercised his option to extend and on June 2 defendant, also in writing, revoked the option. On June 29 plaintiff in writing exercised the option and tendered the sum of $30,000 in gold coin and demanded performance. When defendant refused to convey, plaintiff sued for specific performance. It was denied by the trial court because "the sum of 25¢ paid for the option was an inadequate and insufficient consideration for the same, and that the option contract was not just and reasonable to defendant, and no adequate consideration was paid to [defendant] for it."

On appeal the interpretation of §3391(1) was held erroneous: payment of 25 cents was adequate, sufficient consideration for the option to buy for $100,000. "From the very nature of the case, no standard exists whereby to determine the adequate value of an option to purchase specific real estate. The land has a market value susceptible of ascertainment, but the value of an option upon a piece of real estate might, and oftentimes does, depend upon proposed or possible improvements in the particular vicinity. To illustrate: If A, having information that the erection of a gigantic department store is contemplated in a certain locality, wishes an option for a specific time to purchase property owned by B in the vicinity of such proposed improvement, and takes the option on B's property at the full market price at the time, must he pay a greater sum therefor because of his knowledge and the fact of B's ignorance of the proposed improvement? It is not possible that B, upon learning of the proposed improvement, can, in the absence of facts constituting fraud, etc., revoke or rescind the option upon the claim that he sold and transferred the right specified therein for an inadequate consideration. In our judgment, any money consideration, however small, paid and received for an option to purchase property at its adequate value is binding upon the seller thereof for the time specified therein, and is irrevocable for want of its adequacy."

Revocation, therefore, was ineffective. Nevertheless, the judgment of the lower court was affirmed because subsection 2 afforded protection to the defendant. "If the payment or tender of the $30,000 was full performance on his part, it necessarily follows that, under this view of the contract, all that defendant would have as evidence of her claim to the deferred payment of $70,000, not payable until the expiration of four years, would be the contract unsigned by anyone charged with the payment thereof and without any security therefor."

The trial court was therefore correct in holding that the contract as to the defendant was not just and reasonable.