BLTE-8E CASE PROBLEM WITH SAMPLE

ANSWER
Chapter 7: Contracts: Nature, Classification, Agreement, and
Consideration

7.5 Case Problem with Sample Answer

As a child, Martha Carr once visited her mother’s 108-acre tract of unimproved land in
Richland County, South Carolina. In 1968, Betty and Raymond Campbell leased the
land. Carr, a resident of New York, was diagnosed as having schizophrenia and
depression in 1986, was hospitalized five or six times, and takes prescription drugs for
the illnesses. In 1996, Carr inherited the Richland property and, two years later,
contacted the Campbells about selling the land. Carr asked Betty about the value of the
land, and Betty said that the county tax assessor had determined that the land’s
agricultural value was $54,000. The Campbells knew at the time that the county had
assessed the total property value at $103,700 for tax purposes. On August 6, Carr
signed a contract to sell the land to the Campbells for $54,000. Believing the price to be
unfair, however, Carr did not deliver the deed. The Campbells filed a suit in a South
Carolina state court against Carr, seeking specific performance of the contract. At trial,
an expert real estate appraiser testified that the real market value of the property was
$162,000 at the time of the contract. Under what circumstances will a court examine the
adequacy of consideration? Are those circumstances present in this case? Should the
court enforce the contract between Carr and the Campbells? Explain. [Campbell v. Carr,
361 S.C. 258, 603 S.E.2d 625 (2004)]

Sample Answer:

Adequacy of consideration basically concerns the fairness of the bargain. Because

parties are free to bargain as they wish, courts generally do not question the adequacy
of consideration. A court will consider adequacy in rare situations, however, when the
amount of consideration is grossly inadequate because it may indicate that fraud,
duress, or undue influence was involved.

The circumstances present in this case—a grossly inadequate price and a party with
significant mental health problems—would cause a court to consider adequacy and
perhaps undue influence. The seller, Carr, had been diagnosed with schizophrenia in
1986 and had been in and out of mental hospitals for ten years prior to 1996, when she
inherited the property from her mother.

The Campbells had been leasing the property from Carr’s mother since 1968 and likely
knew something about Carr’s mental problems at the time of negotiating the contract.
Carr asked Betty Campbell how much the land was worth, and although the Campbells
knew that the county had assessed the land’s value at over $100,000, Betty Campbell
told Carr that the land’s agricultural value was $54,000. The Campbells managed to get
Carr to enter a contract to sell the land for around half of its assessed value, and a third
of its real market value ($162,000). Nevertheless, the trial court ordered the specific
performance of the contract. When Carr appealed, however, a state intermediate
appellate court reversed the lower court’s order, concluding that the consideration in the
contract was inadequate. The appellate court stated, “When a grossly inadequate
consideration is combined with weakness of mind on the part of the seller, a denial of
specific performance is warranted.” The court explained, “[T]he consideration must be
palpably disproportioned to the real and market value of the property so as to constitute
a hard, unreasonable, and unconscionable contract, or so disproportionate to value as to
offend the normal sense of fair dealing.” In this case, the sales price was significantly
below the assessor’s computed fair market value and the estimated real market value.

“This inadequate consideration combined with Carr’s weakness of mind, due to her
schizophrenia and depression, makes it inequitable to order specific performance.” Also,
the Campbells “had greater knowledge of the real estate value of the land, having leased
the land for thirty years,” compared to Carr, who lived in New York, had visited the
property only once, and was unaware of the land’s value.