• June 27, 2011

It is a fact of modern life that commercial transactions are often documented but actual practices (and expectations) do not match up neatly with the written contract terms.

So, for example, a contract might declare that a nominal dollar amount was exchanged “for good and valuable consideration,” a legal formality to ensure that the agreement is later deemed a legally enforceable contract for which there was mutual consideration (which, as every first-year law student knows, requires “consideration”).   But what happens if there was no nominal dollar exchange as set out in the “contract”?  Imagine the agreement is to sell land at a set price by a set date and requires “earnest money” in the purchase agreement, which was not paid by the buyer nor requested by the seller.  Would that allow seller to walk away from the agreement “for lack of consideration”?

Olmstead County District Court Judge Debra A. Jacobson ruled in favor of defendant Schmacher Farms, LLC, that sought to walk away from a land deal based on the failure of potential buyer, BOB Acres, LLC, to put down the $500 earnest money payment for the $70,000 transaction.  Schumacher never requested the earnest money and it is obvious that it was not the lack of the earnest money that caused Schumacher Farms to reneg on the deal.  (The money was subsequently tendered and rejected.)

Minnesota Court of Appeals, in an opinion by retired Judge Crippen, reversed the district court and remanded.  This past week, the Minnesota Supreme Court granted Schumacher Farms’ petition for review.

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