Batsakis v. Demotsis
226 SW2d 673 (Court of Civil Appeals of Texas, 1949)
Cooter and Ulen, 3rd Edition  (www.cooter-ulen.com/cases)

[We used the following case in the first and second editions of Law and Economics to illustrate the classical or bargain theory -- specifically, to introduce the classical elements of a bargain: offer, acceptance, and consideration. In this case, the order in which the facts are presented is confusing, so here is a summary to help you get started. Demotsis, finding herself in difficult circumstances in Nazi-occupied Greece, borrowed money from Batsakis. The Greek currency she borrowed was worth about $25 on the international market at the time, but she signed a promissory note to repay the loan in United States currency, specifically, to pay $2,000 plus interest. After the war the two parties met in America, and Batsakis sought repayment of the full amount of the note, whereas Demotsis offered to pay $25 plus interest. At the trial the jury awarded Batsakis $750 plus interest (how the jury computed this odd award is not explained in the opinion), and the case was appealed by Batsakis.]

McGILL, JUSTICE. This is an appeal from a judgment of the 57th judicial District Court of Bexar County. Appellant was plaintiff and appellee was defendant in the trial court. The parties will be so designated.

Plaintiff sued defendant to recover $2,000 with interest at the rate of 8% per annum from April 2, 1942, alleged to be due on the following instrument, being a translation from the original, which is written in the Greek language:

"Piraeus - April 2, 1942

Mr. George Batsakis
Konstantinou Diadohou #7
Piraeus

Mr. Batsakis:

I state by my present (letter) that I received today from you the amount of two thousand dollars ($2,000.00) of United States of America money, which I borrowed from you for the support of my family during these difficult days and because it is impossible for me to transfer dollars of my own from America.

The above amount I accept with the expressed promise that I will return to you again in American dollars either at the end of the present war or even before in the event you might be able to find a way to collect them (dollars) from my representative in America whom I will write and give him an order relative to this. You understand until the final execution (payment) to the above amount an eight per cent interest will be added and paid together with the principal.

I thank you and I remain yours with respects.

The recipient,

(Signed) Eugenia The. Demotsis."

Trial to the court without the intervention of a jury resulted in a judgment in favor of plaintiff for $750.00 principal, and interest at the rate of 8% per annum from April 2, 1942 to the date of judgment, totaling $1163.83, with interest thereon at the rate of 8% per annum until paid. Plaintiff has [brought this appeal.]

[The principal contention on appeal regards the allegations of the following paragraph from the defendant's answer to the plaintiff's complaint:]

Plaintiff avers that on or about April 2, 1942 she owned money and property and had credit in the United States of America, but was then and there in the Kingdom of Greece in straitened financial circumstances due to the conditions produced by World War II and could not make use of her money and property and credit existing in the United States of America. That in the circumstances the plaintiff agreed to and did lend to defendant the sum of 500,000 drachmae, which at that time, on or about April 2, 1942, had the value of $25.00 in money of the United States of America. That said plaintiff knowing defendant's financial distress and desire to return to the United States of America, exacted of her the written instrument plaintiff sues upon, which was a promise by her to pay to him the sum of $2,000.00 of United States of America money.

Defendant testified that she did receive 500,000 drachmas from plaintiff. It is not clear whether she received all of 500,000 drachmas or only a portion of them before she signed the instrument in question. Her testimony clearly shows that the understanding of the parties was that plaintiff would give her the 500,000 drachmas if she would sign the instrument. She testified:

Q ... .Who suggested the figure of $2,000.00?

A. That was how he asked me from the beginning. He said he will give me five hundred thousand drachmas provided I signed that I would pay him $2,000.00 American money.

The transaction amounted to a sale by plaintiff of the 500,000 drachmas in consideration of the execution of the instrument sued on, by defendant. It is not contended that the drachmas had no value. Indeed, the judgment indicates that the trial court placed a value of $750.00 on them or on the other consideration which plaintiff gave defendant for the instrument if he believed plaintiff's testimony. Therefore the plea of want of consideration was unavailing. A plea of want of consideration amounts to a contention that the instrument never became a valid obligation in the first place ...

Mere inadequacy of consideration will not void a contract ...

Nor was the plea of failure of consideration availing. Defendant got exactly what she contracted for according to her own testimony. The court should have rendered judgment in favor of plaintiff against defendant for the principal sum of $2,000.00 evidenced by the instrument sued on, with interest as therein provided. We construe the provision relating to interest at the rate of 6% per annum from April 2, 1942. The judgment is reformed so as to award appellant a recovery against appellee of $2,000.00 with interest thereon at the rate of 8% per annum from April 2, 1942. Such judgment will bear interest at the rate of 8% per annum until paid on $2,000.00 thereof and on the balance interest at the rate of 6% per annum.

Reformed and affirmed.
 

Questions:

  1.  The court states that "[m]ere inadequacy of consideration will not void a contract" and that is said to be the controlling rule in this famous case. What function did this rule serve in common law?

  2.  The sum of 500,000 drachmae supposedly had the wartime exchange value of $25 U.S. And yet the borrower agreed to pay the lender $2,000 in exchange for something objectively worth only $25. Can you think of reasons why the borrower might have knowingly been willing to make this extraordinary exchange? That is, suppose that she knew that the value of the loan was incredibly one-sided in favor of the lender. Under the circumstances given in the opinion, might she have agreed anyway?

  3.  Would your answer change if the borrower did not know the 1942 exchange rate between dollars and drachmae? Suppose she could have known, if only she had taken the time to ask someone. What then?

  4.  What might you do if the testimony had revealed that Batsakis was the only person in 1942 Athens who had money to lend? Is that likely to have been the case?

  5.  Did the borrower expect to be held to the loan? Should she have expected to be held to the loan's terms? Does she appear to be capable of repaying it? Why should we care about her expectations, or those of the lender, and her capability to repay?

  6.  Suppose that the Court of Civil Appeals of Texas had upheld the trial court's finding that the loan was worth only $750. What effect might that holding have had on future contractual exchanges in Texas?

  7.  What effect might there be on future contractual exchanges of the court's holding that it will not inquire into the adequacy of consideration?