QUESTION; I signed a sales agreement for the sale of my home and we said in the agreement that if either of us defaulted the other party would have to pay $1,000 and that would be the limit of our damages. The Buyer gave me $1,000 hand money. Another person said they would give me $8,000 more for the property, so I sold it to them and gave the first buyer his $1,000 as we agreed. He has now sued me saying that there was no consideration for the agreement, since he only got his same $1,000 back. What does he mean by this?
ANSWER; This sounds like a question on the bar exam. First, consideration used to be required in all contracts so as to differentiate between a gift and a promise. I wrote an article about this a few months ago. That also explains why sometimes you see someone signing a contract for one dollar. That makes it a contract as opposed to a gift because a gift can be revoked and a contract cannot without breaching the agreement.
The agreement for each party to pay a sum certain in case of a breach is known as ‘liquidated damages.’ You usually see this when the parties agree that ascertaining precise damages might be difficult so they agree ahead of time what the damage amount will be.
Your buyer is saying that there was no consideration so it was not a valid contract because he only got his same $1,000 back. That is, he still had damages outstanding if he only gets his hand money back. If a court were to agree with him it would open the door for him to make a claim for any damages he could prove as a result of your breach. However, you showed me this agreement and as I suspected the agreement begins by stating,
“The parties, intending to be bound agree as follows.”
This language is important because in 1927 the Pennsylvania legislature passed an act known as the Uniform Written Obligations Act (UWOA) which states in its’ entirety;
“A written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.”
This explains why in many contracts in Pennsylvania you see the language, “intending to be bound” etc. This supplies the requirements of consideration in a contract. This act was drafted by Professor Williston, who has long been regarded as one of the foremost leading experts in contract law and virtually every law student has spent some time reading Williston. The act does not require any precise language only a statement that the parties intend to be bound. In the older days a seal of wax was impressed upon documents when consideration was passed. The UWOA was intended to supplant the formalities of seals and to dispense with the oftentimes confusing and arcane requirements of consideration. So to attempt to answer your question, I think you have a valid agreement. The Buyer may only get his original $1,000 back but he could have provided for more in the agreement. And it is another rule of law that the Court will not look to the sufficiency of consideration and save a party from entering into a bad bargain. In other words, you are free to make a bad deal.