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Posted: April 22, 2016

Past Consideration Insufficient to Create Contract Unless Clearly Expressed in Writing

On April 15, 2016, the Second Circuit issued a decision in Greenberg v. Greenberg, 15-731-CV, affirming a decision of the EDNY granting a defendant summary judgment on a breach of contract claim because of a lack of consideration.

In Greenberg, the plaintiff’s cousin “was badly injured in a work-related accident . . . and subsequently brought a personal injury suit.” The plaintiff alleged that he and his cousin entered into a contract providing that his cousin would pay the plaintiff $200,000 “if and when upon receiving settlement of his claim and/or lawsuit for bodily injury.” The agreement recited that the $200,000 “gift” was “being given because” in the past the plaintiff had “given many gifts and many loans to” the defendant.

The “defendant settled his personal injury suit, but did not pay plaintiff $200,000.” The plaintiff sued the defendant in the EDNY for breach of contract. The EDNY granted the defendant summary judgment, dismissing the claim. The Second Circuit affirmed, explaining:

The law is well settled that in order for a promise to be enforceable as a contract, the promise must be supported by valid consideration. Consideration is defined as either a bargained for gain or advantage to the promisee or a bargained for legal detriment or disadvantage to the promisor. Generally, past consideration is no consideration and cannot support an agreement because the detriment did not induce the promise.

There is, however, a statutory exception to this general rule. Under New York law,

a promise in writing and signed by the promisor or by his agent shall not be denied effect as a valid contractual obligation on the ground that consideration for the promise is past or executed, if the consideration is expressed in the writing and is proved to have been given or performed and would be a valid consideration but for the time when it was given or performed.

N.Y. Gen. Oblig. Law. § 5-1105. To meet § 5-1105’s requirement that the consideration be expressed in the writing, the recitation of consideration must not be vague or imprecise.

Here, the district court correctly held that the past consideration in the contract was not sufficiently expressed to fall within the confines of Section 5-1105.

(Internal quotations and citations omitted) (emphasis added).

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