SW Legal studies in Business

One Dollar Consideration Usually Irrelevant
Description Appeals court held that a contract was valid despite the failure of one party to pay one dollar in consideration that was mentioned in the contract. All other terms of the contract were clear and proper; the nominal consideration is generally irrelevant to the purpose of the contract.
Topic Contracts
Key Words Assignment; Consideration; One Dollar
C A S E   S U M M A R Y
Facts Employees of AEP developed a process that AEP patented. Each employee had previously signed an employee patent agreement, as a condition of employment, that gave AEP complete rights to all patents and other discoveries of employees while on the job. When AEP patented the new invention, it gave each employee a document to sign that assigned AEP all rights to this specific patent: "In consideration of the sum of One Dollar (1.00), and of other good and valuable consideration paid to the undersigned Assignor, by the Assignee [AEP] ... the undersigned Assignor by these presents do hereby sell, assign, transfer and set over ... unto [AEP] the entire right, title and interest in and to the invention." The invention was profitable for AEP. Several employees sued, contending that there was no contract because the promised consideration of one dollar was never paid. The trial court held for AEP. The employees appealed.
Decision

Affirmed. A valid contract was formed when the employees signed the document granting patent rights to AEP. The rights to the patent were clearly assigned to AEP. The consideration mentioned was $1 and "other good and valuable consideration." That is the same consideration they had been promised previously–their employment and the fact that AEP would incur all expenses in obtaining the patent. As to the failure to pay the one dollar: "Although ancient, the best authorities on the issue hold that nonpayment of such nominal consideration will not constitute breach, at least in instances where the actual value of the subject of the contract does not, in fact, correspond to the nominal consideration." Hence, nonpayment of the nominal consideration did not prevent the contract from being valid and enforceable.

Citation Bennett v. American Electric Power Service Corp., 2001 WL 1136150 (Ct. App., Ohio, 2001)

Back to Contracts Listings

©1997-2002  SW Legal Studies in Business. All Rights Reserved.