Affirming a district court denial of a motion to compel arbitration, the Fourth Circuit Court of Appeals held that an arbitration agreement was unenforceable, as it lacked consideration because it did not mutually bind both parties.

In Howard v. King's Crossing, Inc., No. 06-1969, 2008 WL 450460 (4th Cir. Feb. 19, 2008), Howard sued King's for various contract and tort claims arising from a condominium purchased from King's. King's removed the case to federal court and moved to compel arbitration. The trial court denied the motion finding the agreement lacked consideration and was unconscionable. King's appealed.

The Court held that the arbitration agreement was invalid, as it lacked consideration. Under Maryland law, a contract must have consideration. A promise becomes consideration for another promise when it constitutes a binding obligation.

The Court found a binding obligation did not exist because the contract required Howard to arbitrate her disputes whereas King's preserved its right to sue in court for specific performance or damages. Because the arbitration agreement did not mutually bind both parties, it lacked consideration and was therefore not an enforceable agreement.