Court Rejects Lack of Consideration Defense

On February 24, 2021, Justice Cohen of the New York County Commercial Division issued a decision in Lexon Ins. Co. v. Sanare Energy Partners, LLC, 2021 NY Slip Op. 30692(U), rejecting a lack of consideration defense, explaining:

Clarke asserts that Lexon provided no consideration to them. On this argument, the evidentiary burden falls on Defendants: Plaintiff was not required to demonstrate that there was adequate consideration for the note as part of its prima facie case, so the burden then shifts to Defendants to demonstrate lack of consideration as a defense. And the defense fails where, as here, Defendants concede the note was fully funded (i.e., Lexon provided $3 million) and is clear, complete and unambiguous on its face and recites that it was executed for value. Courts avoid an interpretation that renders a contract illusory and therefore unenforceable for lack of mutual obligation and prefer to enforce a bargain where the parties have demonstrated an intent to be contractually bound.

In light of the undisputed facts, the Court will not invalidate the agreements for lack of consideration.

(Internal quotations and citations omitted).

Contract law--usually straightforward--has traps for the unwary, like the requirement that there be consideration for a contract to exist. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether a contract exists.