Thanks to that one-man research department, Steven Sholk, I learned of this article on Law360, entitled 3 Contract Drafting Myths Debunked.
It’s about TA Operating LLC v. Comdata Inc., C.A. No. 12954-CB (Del. Ch. 11 Sept. 2017) (PDF here). It serves as a reminder that if you regard two contracts as a package deal, with performance under one being conditioned on performance under the other, you should make that clear. In other words, describe in the recitals how the contracts relate to each other, and in the body of each contract explain how breach of obligations under, inaccurate statements of fact made in, or termination of, one of the contracts would affect performance under the other.
But there’s one lesson I wouldn’t draw from this case. At issue was the traditional recital of consideration included in one of the contracts. Here’s what the court said (footnotes omitted; emphasis added in the original):
The Amendment’s only reference to the RFID Agreement appears in the recital, which states, in relevant part, that:
WHEREAS, on December 14, 2011, [TA] and Comdata entered into the FIM Solution Agreement pursuant to which [TA] has agreed to purchase and install RFID (Radio Frequency Identification), a technology distributed exclusively by Comdata, at all of its locations nationwide; and
NOW, THEREFORE, in consideration of the foregoing and the other mutual covenants and agreements described in this Amendment, the parties hereby agree as follows …
Thus, the Amendment, on its face, suggests that the parties’ entry into the RFID Agreement was partial consideration for the Amendment.
Those of a traditionalist bent might pounce on this and say, “Ah ha! Adams tells us to get rid of the traditional recital of consideration, but this court saw value in a traditional recital of consideration! It tested this traditional recital of consideration and saw that it was good!”
Uh, no. Even though the court found a sliver of meaning in this traditional recital of consideration, that’s no reason to give the traditional recital of consideration a reprieve. They’re deeply stoopid, as I demonstrate in MSCD and in my 2015 game-over-case-closed article on the subject (here).
Whatever the relationship between two contracts, you don’t need traditional recitals of consideration to express it.
2 thoughts on “When Entry into One Contract Is Consideration for Entry into Another Contract”
Recently, I encountered a contract situation similar to this. There were two contracts: Contracts A and B.
Contract A was an equipment lease between equipment manager and lessee. Contract B was an option to purchase said equipment at the end of the lease term, between equipment manager and a third-party affiliate of lessee.
Contract A did not reference Contract B. But Contract B stated that, at expiration of Contract A, and so long as lessee had not defaulted under Contract A, affiliate could purchase the equipment leased under Contract A at a certain price.
After reviewing, I concluded (to myself; there was no active dispute or concern) that affiliate did not have a valid contract in Contract B: affiliate offered no new consideration, and the past consideration of lessee to equipment manager would not suffice.
But after reading your post, is it possible that, with the proper description in Contract A, Contract B would be a valid contract? That performance under Contract A could serve as consideration in Contract B, even if not performed by affiliate?
Correct me if I’m wrong, but in the example here, performance under Contract A could not serve as consideration for Contract B as it is a preexisting legal duty and provides no new legal benefit or detriment.
See also Casa Marina Hotel Co. v. Barnes, 105 So.2d 204 (Fla. App. 1958).