Opinion ID: 222827
Heading Depth: 3
Heading Rank: 1

Heading: Consideration and Mutuality of Obligation

Text: Of those issues remaining that have not been waived, Lincoln Financial first argues that the Account Control Agreement was not supported by consideration. Under Kentucky law, “[c]onsideration” is ‘[a] benefit to the party promising, or a loss or detriment to the party to whom the promise is made.’” Smith v. Bethlehem Sand & Gravel Co., LLC, –S.W.3d–, 2011 WL 1515180, at  (Ky. Ct. App. Apr. 22, 2011) (quoting Phillips v. Phillips, 171 S.W.2d 458, 464 (Ky. 1943)). “[G]enerally speaking, a substantial failure of consideration ordinarily justifies rescission of a contract.” Id. The district court concluded that sufficient consideration existed to support the Agreement because Lincoln Financial executed the Agreement “[a]t the request and for the benefit of its customers” and, in exchange for its promise to represent the value of the account and waive its rights of setoff against the account, Lincoln Financial “retained its customers and continued to receive the corresponding fees and commissions payable under the brokerage account agreement.” Fifth Third Bank, 2009 WL 2523444, at . Lincoln Financial, however, argues on appeal that there is no - 17 - No. 09-6456 Fifth Third Bank v. Lincoln Financial Securities Corporation evidence that Schneider would or could have transferred his account from Lincoln Financial if it had not executed the Agreement and that, absent such evidence, the district court’s conclusion improperly “imputed consideration to the Agreement based on speculation.” Correspondingly, Lincoln Financial argues that there was no mutuality of obligation because “Fifth Third did not assume any legal obligation or liability to Lincoln under the Agreement.” Although the district court and Lincoln Financial addressed the issue of consideration as it pertains to Lincoln Financial’s customer retention and receipt of fees and commissions, Kentucky law actually provides stronger grounds for finding that consideration existed to support the Agreement. See City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 251 (6th Cir. 1994) (noting that this court “may affirm on any grounds supported by the record, even though they may be different from the grounds relied on by the district court”). As the Kentucky courts have explained: If consideration is sufficient for a contract in other respects, it does not matter from or to whom it moves. The consideration may move to the promisor or a third person, and may be given by the promisee or a third person. To constitute consideration, it is not necessary that a benefit should accrue to the promisor; it is sufficient that something valuable flows from the person to whom the promise is made and that the promise is the inducement to the transaction. Whitaker Bank, Inc. v. First Nat’l Bank and Trust of London, No. 2007-CA-000688-MR, 2008 WL 3165251, at  (Ky. Ct. App. Aug. 8, 2008) (quoting Am. Jur. 2d § 113); cf. Simpson v. JOC Coal, Inc., 677 S.W.2d 305, 307–08 (Ky. 1984) (explaining that a third party for whose benefit a contract is made may maintain an action pursuant to that contract, provided the third party was “a party to the consideration”). Furthermore, “‘[c]onsideration to support a promise need not even involve a benefit to the promisor; it is sufficient if the benefit is derived solely by a third person or consists only of - 18 - No. 09-6456 Fifth Third Bank v. Lincoln Financial Securities Corporation detriment to the person to whom the promise is made.’” Whitaker Bank, Inc., 2008 WL 3165251, at  (quoting Am. Jur. 2d § 117). Here, the Schneiders obtained the benefit of the proceeds of the loan and, in order to perfect Fifth Third’s security interest in the brokerage account, they requested that Lincoln Financial execute the Agreement. By executing the Agreement at the Schneiders’ request, the Schneiders granted an interest in the account to Fifth Third that was supported by the consideration they received in the form of the loan. Furthermore, once consideration was “found to be present, mutuality of obligation is not required.” Ramler v. Spartan Constr. Inc., No. 2002-CA-001646-MR, 2003 WL 22064334, at  (Ky. Ct. App. Sept. 5, 2003). Accordingly, the district court did not err in finding that the Agreement was supported by consideration.