Facts
- Johnson gave Otterbein University a written promissory note in which he promised to pay a specified sum of money at a future date.
- The note stated that the money was to be used for the sole purpose of enabling Otterbein to pay an existing debt of the university.
- Johnson did not pay when payment became due under the note.
- Otterbein sued on the note in the court of common pleas and obtained judgment against Johnson.
- Johnson moved for a new trial in the court of common pleas; the motion was denied.
- Johnson appealed to the district court, which affirmed the judgment for Otterbein.
- Johnson then appealed to the Supreme Court of Ohio.
Issues
- Whether a promissory note given to a university, payable in the future and restricted to the purpose of helping the university pay its existing debt, is supported by consideration so that it is enforceable as a contract rather than a gratuitous promise.
Decision
- The Supreme Court of Ohio reversed the judgment for Otterbein.
- The court treated the note as a promise to make a gift for a specified purpose, not as a bargained-for exchange supported by consideration.
- Because Otterbein gave no consideration for Johnson’s promise beyond the stated purpose for which the funds were to be applied, the note was not enforceable as a contract.
Legal Principles
- A contract requires consideration: a bargained-for exchange in which the promisor receives a legal benefit or the promisee suffers a legal detriment induced by the promise.
- A promise to give money to another, even when written in the form of a note and even when limited to a particular use, is not enforceable if it is merely a gift promise and the promisee has furnished no consideration.
- A stated limitation directing how a proposed gift must be used (such as requiring that funds be applied to the donee’s debt) is generally a condition on the gift, not a substitute for consideration.
- The fact that the donee intends to apply the funds to its own existing obligations does not, by itself, supply consideration to support the donor’s promise.
Conclusion
Johnson’s note to Otterbein University was treated as a conditional gift promise aimed at helping the university pay its debt, and because the university did not provide consideration in exchange for that promise, the Ohio Supreme Court held the note unenforceable and reversed the judgment for the university.