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May 08, 2005
Promise to arbitrate is consideration
One way to prevent enforcement of an agreement to arbitrate is to show that the agreement lacked consideration. If no consideration, then no contract, then no arbitration requirement.
When Shedrick Payne sued his former employer, Kinko's moved to compel arbitration under an agreement Payne had signed. Payne argued there was no consideration, the trial court bought his argument and refused to compel him to arbitrate. According to the trial court, Kinko's gave no consideration in exchange for Payne's promise to arbitrate.
The Florida Court of Appeals reversed. The legal rule is simple. Kinko's agreement to submit to arbitration is sufficient consideration for Payne's agreement to submit to arbitration. Kinko's v. Payne (Florida Ct App 05/06/2005)
The court also trashed Payne's argument that he signed the agreement by mistake. Unless he was prevented from reading it or coerced into signing it, he's bound by what's in it.
My view: One of the state law doctrines that is not preempted by the Federal Arbitration Act (FAA) is the doctrine of consideration. Being state law, the rules vary from state to state. Florida has taken the modern view that "consideration" exists if one party has agreed to do something it otherwise had a legal right not to do. In this case, the right not to arbitrate. Other states sometimes make it more difficult to establish that consideration exists, often looking for some extra payment of money.
The doctrine of consideration historically developed as a means of sorting out enforceable agreements (business deals, mainly) from non-enforceable agreements (e.g. - promises to make gifts, social promises). Arbitration agreements are business deals. However, some courts use the doctrine of consideration as a method for refusing to enforce agreements that they don't like (that is, they don't like for some other reason).
Posted by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
