Prince’s Briefcase: How Not To Pay Off Your Student Loans (Johnson v. Otterbein University)


Here is a case which a handwritten letter, promising to pay off your student loans, is not a legal consideration to enforce a promise

prince's breifcaseThis case comes from my Contracts class where we are studying the “Doctrine of Consideration.” Below is my case brief which thousands of law students use to help us understand the cases and root out the “issue.”

Case Name, Author, Citation
Johnson v. Otterbein University, Supreme Court of Ohio, 41 Ohio 527 (1885)


Procedural Posture

The defendant (Otterbein University) sues the appellant or plaintiff (Johnson) for failure to fulfill his promise stated in a note sent by the plaintiff. The note was a student repayment loan, and that the defendant alleged that it was without consideration and was denied in the reply. The court entered judgment in favor of the defendant and a motion for a new trial was overruled. The Plaintiff then preceded to appeal in efforts to reverse judgment of the trial court.

Facts.
The case is about the validity of the note, sent by Johnson to Otterbein University in what appears to be a Student Repayment Loan, and whether it should be a valid consideration to enforce his promise:

“$100
Westerville, Ohio, May 6, 1869
Three years after the date, I promise to pay to the trustees of Otterbein University of Ohio, or their agents, one hundred dollars, with interest, at the rate of no per cent., to be used exclusively to liquidate the present, that is, February (1869) indebtedness of said University. Should this donation ever be used for any other purpose than herein specified, the trustees of said University shall be held bound to refund said sum of money to the donor.
–John Johnson”

This note was signed and delivered to Spangler, an agent of Otterbein University, along with similar notes promising to pay $100 to the University in 3 years to help pay off the current University debt. These notes and others were accepted as a fund with which to liquidate his debt. The trustees of Otterbein (the defendant) then sued Johnson in December 1875 claiming that his 1869 note was not paid.

Issue
Prince: Does Johnson’s promise (in the form of a note(s)), that brings benefit to him or detriment to Otterbein University, constitute as a legal consideration?
Legal interpretation: Whether a valid consideration was given in a promise to pay money as a gift?

Holding
No; The court says that the creation of the fund (from the notes he sent) with which to pay the university’s indebtedness was not a consideration for the promise.

Reasoning
*Court: An executory contract “to give” is without consideration, and a promise to pay money as a gift may be revoked at any time before payment
Court: The trustees’ acceptance of the writing containing the direction to apply the fund did not give rise to a case of mutual promise (Prince: a mutual promise which both parties agreed to at the same time.

Prince’s Reasoning
A simple IOU note, or sticky notes, in the form of a letter saying “I promise to pay back my loan” in a fixed time frame is not a legal consideration to enforce a promise from the person who is making the promise (promissor)
**FOLLOW UP FROM CLASS: The fact is Johnson will be paying off his student loan debt regardless of any intervening factors. So his notes don’t count for anything. There is no benefit for Johnson or detriment to Otterbein. And Otterbein did not give a promise in an exchange for Johnson’s Promise. This is not a Bargain; more of a gratuitous promise

Rule
Court: A note to repay a student loan should be in the form of a promissory note. And any other forms should have an implicit duty to apply its proceeds to proper corporate objects that would rise upon acceptance. A promissory note is a valid consideration

Disposition
Judgment of Trial Court is reversed favoring the Plaintiff (instead of the Defendant)

Prince’s Takeaways

  • Know what is a legal consideration to enforce a promise
  • Don’t write a letter to your university promising to pay off your student debt in a fixed time frame. Under this case, a Promissory Note is more acceptable than a letter promising to repay your student loans. This is paying money as gift which is not a legal consideration
  • In Contracts, you will learn that reasonable people are not entirely reasonable in their words or actions when they strike deal–so we have rules to remedy “contract breaches” such as this one
  • This case was back in 1885, and a lot has changed. So don’t take it true to fact
  • Usually its the plaintiff (Johnson) that sues the defendant first. But since this decision came from the Supreme Court of Ohio, I guess the parties may have switched roles when they litigated up the state court system (In this case there is no mention that Johnson sued Otterbein first, just that he appealed)
  • $100 dollars is pretty reasonable for a student today to pay off his/her student loans!

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