Contract drafting presents challenges, but defining consideration usually is not one of them. We spent many hours in law school reviewing the essential elements of an enforceable contract: offer, acceptance and consideration. Every attorney learns early on that without consideration a contract is not enforceable in court. Consideration is the bargained-for exchange of promise, performance or forbearance between parties to a contract. However, courts will not recognize as consideration promises that are “illusory.” A promise is illusory if the promise is too indefinite or permits the promisor to decide whether or not to perform. Nonetheless, a party with discretion to perform may still be subject to the implied covenant of good faith and fair dealing, which assumes that the party must perform under the contract reasonably and in good faith. Courts do not often determine that a party’s promise is illusory and decline to enforce the contract because it lacked consideration. An opinion from the Tennessee Court of Appeals in Pharma Conference Education, Inc. v. State of Tennessee, No. W2021-00999-COA-R3-CV (Tenn. Ct. App. Mar. 13, 2023) presented one of the rare cases where consideration failed under a court’s scrutiny.

In Pharma Conference, Pharma Conference Education Inc. “Pharma” produced continuing education conferences and related programs for the pharmaceutical industry. Pharma and the University of Tennessee Health Science Center “UTHSC" entered a contract pursuant to which Pharma agreed to produce as many programs “as is feasible” and to form committees that would work with the parties to develop as many programs “as feasible.” Pharma also agreed to share a percentage of its program profits with UTHSC. In exchange, UTHSC agreed to sponsor all of the programs, issue continuing education credit for program attendees and advertise its relationship with Pharma on its website. Shortly after executing the contract, the parties disagreed about their responsibilities. UTHSC terminated the contract and Pharma sued UTHSC through the Tennessee Claims Commission. The commission granted the state’s motion for summary judgment (asserting the position of UTHSC that, among other grounds, the contract lacked consideration), and the case was appealed to the Tennessee Court of Appeals. On appeal, the court determined that the phrases “as is feasible” and “as feasible” provided Pharma discretion to perform or withhold performance and that the terms of the agreement were indefinite as to the number of programs Pharma was obligated to produce. Additionally, as the court noted, one of Pharma’s owners stated that Pharma “was not obligated to produce anything at all if it determined that it was not feasible.” Under these conditions, Pharma’s performance could not be governed under the implied covenant of good faith and fair dealing. As a result, the court concluded Pharma’s promise to produce programs was illusory and that the contract was unenforceable against UTHSC because it lacked consideration.

The Pharma Conference case demonstrates that contract terms that are indefinite or leave too much discretion to either party may render the contract unenforceable. As a result, contracts should be drafted with quantifiable or objective standards of performance when possible.

Trey Woodall is a corporate and securities attorney at Riggs Davie PLC in Nashville. He counsels clients on corporate and securities transactions, including mergers and acquisitions, entity formation, capital raising transactions and private fund formation. Woodall also mentors law students at the Belmont University College of Law American Inn of Court program and serves on the advisory board for the Tomorrow Fund of the Community Foundation of Middle Tennessee.