Third Circuit Has “The Talk” With Parties About Whether They “Consummated” Their Relationship

by: Peter J. Gallagher (LinkedIn)

If you thought this would be a salacious post, prepare to be underwhelmed. It is about what it means to “consummate” a contract.

In Fed Cetera, LLC v. National Credit Services, Inc., defendant was a debt collection agency seeking opportunities to contract with the federal government. To do so, defendant had to follow a “convoluted but – within the industry – well-known path.” Defendant first had to work as a subcontractor to a current federal contractor. If that sub-contracting arrangement worked out, then defendant could bid on federal contracts directly.

Plaintiff was “in the business of offering networking relationships to its clients.” Defendant hired plaintiff to introduce it to federal contractors. Defendant’s contract with plaintiff required defendant to pay plaintiff a finder’s fee for any contract defendant “consummated” during the contract term. Defendant eventually signed two contracts with federal contractors. One of them proceeded without incident. The other was signed during the contract term, but did not require defendant to perform until after the term ended. Defendant refused to pay plaintiff a finder’s fee for this contract, arguing that it was not consummated until defendant began performance, which occurred after the contract expired. Plaintiff disagreed, and sued.

The district court dismissed the complaint, holding that the contract language was clear, and that the contract was not “consummated” absent some degree of performance during the contract term. Plaintiff appealed, and the Third Circuit reversed.

The word “consummated” was not defined in the parties’ contract, and case law provided only “competing, context-specific definitions.” For their part, the parties argued that the word was “clear on its face,” but, tellingly, they “differ[ed] on what [was] clear about it.” (This is the problem with arguing “plain meaning” without more.) Plaintiff argued that it meant “signed,” “formed,” or “executed,” while defendant argued that its meaning incorporated some level of performance.

The Third Circuit sided with plaintiff. It held that the text of the agreement and the parties’ intent supported plaintiff’s interpretation. First, it held that “a classical contract is formed, and the legal duties attach, with offer, acceptance and consideration, not upon completion of some sort of performance.” So, unless a contract specifically required performance before it was enforceable, the Third Circuit held that a contract was “consummated” when these three elements were met.

In a portion of the opinion that should appeal to grammar fans, the Third Circuit noted that the district court erred by relying on the “adjective definition of ‘consummate,’ not the verb definition:”

The difference is relevant; the adjective form of consummate, pronounced “consum-it,” carries a different meaning and different common usage. A person who is “the consummate statesman,” or has “consummate elegance,” is the fulfillment of an ideal; complete and satisfied in all respects. Upon hearing something is a “consummate contract,” a typical listener is more likely to understand it as an archetypal contract, not a contract that has been performed in some respect.

Looking at the correct Black’s definition—the verb definition—makes it clearer that “consummate,” pronounced “con-sum-ayt,” carries less emphasis on something being fulfilled or fully completed. While the verb can still mean “to bring to completion,” it can also mean “to achieve” or “to perfect.” To “achieve” a contract suggests that a contract has formed, not that a party started performance on a contract.

The Third Circuit held that the parties’ actions also supported plaintiff’s interpretation of “consummated.” The contract required defendant to pay a finder’s fee to plaintiff “throughout the life of a relevant contract every time [defendant] received revenue from its work on the contract.” Interpreting “consummated” to mean “fully complete performance,” as defendant urged, would be contrary to this provision.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s