Robbins: Consideration, rescission, and impossibility of performance |

Robbins: Consideration, rescission, and impossibility of performance

“The best laid plans of mice and men often go awry.” — adapted from “To a Mouse” by Robert Burns

First you have to have a plan. Then, as you may have noticed, things don’t always go as planned.

What is true in life is true in law.

Let’s say your particular plan is to enter into an agreement or, dressed up in fancy legal duds, a contract. You agree to do this and your counterpart — the one with whom you have contracted — agrees to do that. In legalese, that is called “consideration.”

More formally, consideration may be thought of as the exchange of one thing of value for another thing of value. We agree that you will buy my car. You give me X number of agreed-upon dollars and, in exchange, I hand over your new wheels. “Congratulations! I hope you enjoy as many pleasant miles as I have in this beaut!”

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Consideration is a vital element in the law of contract. It is, in fact, the central reason for each party to enter into the contract. We both want something which we will exchange. Consideration must be of value (at least to the parties), and is exchanged for the performance or promise of performance by the other party (such performance itself is consideration). In a contract, one consideration (thing given) is exchanged for another consideration. Not doing an act (“forbearance”) can also be consideration, such as “I will pay you $1,000 not to build that fence that will impair my view.”

So essential is consideration that contracts may become unenforceable or “rescindable” (undone by “rescission”) for “failure of consideration.“ Rescission (the canceling of the contract) may occur when the intended consideration is found to be worth less than expected, is damaged or destroyed, or performance is not properly performed.

I won’t bore you with all the details, but a seminal case in the law of rescission is the 1886 case of Rose of Aberlone.

Rose was a cow.

In 1886, one C. Sherwood, president of Plymouth National Bank, contracted with one Hiram Walker (yes, that Hiram Walker) of Walkerville, Ontario, for the purchase of Rose, the cow. As history has it, the cow’s formal name was Rose of Aberlone. Both Mr. Sherwood and Mr. Walker believed that Rose was barren and could not breed. That mistake led to one of the most famous contract cases in U.S. history.

Mr. Sherwood tried to pay Mr. Walker the agreed-upon price of $80, but Mr. Walker refused it after discovering that Rose was, in fact, in the delicate state of expectant motherhood. Her value was now 10 times greater than that agreed to by the parties. Mr. Sherwood sued to take possession of Rose at the original price.

In 1887, the Michigan Supreme Court declared in Sherwood versus Walker that, because a mutual mistake affecting the substance of the transaction had been made, Hiram Walker had the right to rescind the contract and to keep the cow. Rose of Aberlone was his to do with as he pleased. I’m not saying what that was but, hey, the cow was his.

By the by, acts which are illegal or so immoral that they are against established public policy cannot serve as consideration for enforceable contracts. A few examples may include prostitution, hiring someone to smack Nancy Kerrigan in the knee, or trading cash for (small c) coke.

Which leads us, however obtusely, yet necessarily, to the elements of contract. Stated perhaps less densely, what are the essential ingredients to make a binding contract?

The basic elements required for the agreement to be a legally enforceable contract are: mutual assent (known in fancy legal lingo as a “meeting of the minds”), expressed by a valid offer and acceptance; adequate consideration (see above); capacity; and legality.

“Capacity” means that the parties are not actually or legally incapable of entering into the agreement. An “actual” incapacity might be a mental disability or lack of authorization to enter into the agreement. A “legal” incapacity may be, for example, that a party is minor; minors are (generally) legally incapable of entering into binding contracts.

What then of impossibility of performance?

Well sometimes, the you-know-what hits the fan. Impossibility is exactly what it sounds like. We agree that you will buy my car. We agree on the price. Buying my car is legal. It is my car, so I am authorized to sell it to you. Neither of us are minors, nor under any incapacity. But oops, before we can complete the transaction, someone steals my car. Which renders it impossible for me to sell it to you. So sorry, but …

As you might imagine, impossibility excuses performance. In the event of impossibility, the contract is kaput. We each lick our wounds and move on to the next set of life’s little challenges.

Contracts are the mortar to the bricks of a civilized society. Even if, sometimes, all falls down.

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