When is “Lack of Consideration” a Defense to Breach of Contract?
As we wrote more fully here, a legally enforceable contract requires three main ingredients: offer, acceptance, and consideration. “Consideration” is something of value exchanged to make a contract legally binding.
“Lack of consideration” is a valid defense to a claim for breach of contract. There must be consideration from both sides. Without mutual consideration, a contract is invalid and unenforceable.
What Constitutes Contractual Consideration?
As noted, consideration is a “thing of value.” Often that “thing” is money. Many contracts will say at the beginning, “… in exchange for the consideration of $10.00, the First Party agrees ….” But promises are also valuable “things.” So many contracts are based on the consideration of mutual promises.
Note however, that it is NOT consideration to do something you are already obligated to do. Consideration only exists when you do something — or promise to do something — that you have no legal obligation to do. Refraining from something also counts; but, again, it has to be something that you are not already obligated to refrain from doing.
How Valuable Does the Contractual Consideration Have to Be?
Even if the value of the consideration is tiny — even insignificant — that is sufficient to make a contract enforceable. In general, the courts do not inquire into the adequacy of consideration. As the California Supreme Court said over 100 years ago, “The law does not weigh the quantum of the consideration.” Whelan v. Swain,132 Cal. 389, 64 P. 560 (1901).
Lack of Consideration as a Defense — Case Example: Labriola v. Pollard Group, Inc.
Lack of consideration is a valid defense to a claim for breach of contract. The case of Labriola v. Pollard Group, Inc., 100 P. 3d 791 (Wash. Supreme Court 2004) provides a good example. In Labriola, an employee began working for his employer and, after five years of work, the employer asked him to sign a noncompete agreement. Unlike in California, noncompete agreements are enforceable in Washington state. However, nothing new was provided to the employee. The employee’s status remained “at-will,” he received no additional wages or salary or benefits. The employer incurred no additional obligations from the noncompete agreement.
Several months later, when the employee sought to change jobs, the employer tried to enforce the noncompete agreement in court. The employee argued “lack of consideration” as a defense and the Washington Supreme Court agreed. The fact that the employer continued to allow the employee to work was NOT consideration because the employer would have done that anyway. Likewise, the employer argued that it provided training to the employee after the noncompete was signed. However, again, the court held that was NOT consideration because the employer would have provided the training anyway. Because nothing new was provided to the employee and the employer suffered no detriment, the court held the noncompete agreement to be invalid on the basis of lack of consideration.
Contact San Diego Corporation Law Today
If you would like more information about defenses to breach of contract claims, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2016 by SuperLawyers.com. Mr. Leonard can review your contracts and he has the experience and knowledge to ensure all of your written contracts are enforceable in the California courts. Mr. Leonard can be reached at (858) 483-9200 or via email.