Consideration is one of the six elements required for the existence of a valid contract. The Mississippi Supreme Court has defined consideration for a promise as (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification or destruction of a legal relation, or (d) a return promise, bargained for and given in exchange for the promise.
Due to instability within a company, the parties entered into a contract regarding the payment of compensation after several triggering events. When the company refused to pay, the employee filed a breach of contract action. The company appealed after a judgment was entered in favor of the employee. On appeal, the court determined that the contract was not invalid due to a lack of consideration. The contract was not based on past consideration since it dealt with future wages. The company benefitted from the contract because it retained a valuable employee. However, the trial court erred by failing to find that the payment obligation began upon the occurrence of the first triggering event.
Were the promises made by the parties mutually illusory?
The Company argued that the contract was not supported by consideration because the promises by both Mr. Baker and the Company were illusory. First, the Company alleged that Baker's promise to refrain from seeking other employment and forbearance from leaving the Company rendered the promise illusory and thus cannot provide consideration. Second, the Company argued that its absolute right to terminate Baker's employment with the Company at any time rendered the promise illusory because it was conditioned upon something completely within the Company's control. Also, the Company argued that the promises of both Mr. Baker and the Company were illusory because their relationship was unquestionably at-will. Although the court found the Company correct in its contention that no valid promise was given by Mr. Baker in exchange for the Company's promise of payment, it rejected the contention that the Company's promise was also illusory. Accordingly, Mr. Baker could, and did, supply consideration for the Company's promise by "an act other than a promise." Moreover, In the instant case, the Company focused only on the alleged return promise of Mr. Baker and ignored the fact that other consideration, such as Mr. Baker's actual performance, was equally sufficient consideration.