A “Consummation” Devoutly to be Avoided

In Fed Cetera, LLC, v. National Credit Services, Inc. (3d Cir., No. 18-1243, September 17, 2019), the court was faced with interpreting the term “consummated” in a finder’s fee agreement. The finder was to identify Federal contractors with whom the defendant would seek to become a sub-contractor, with the goal of using that experience to qualify as a direct Federal contractor. The fee would be payable upon the “consummation” of such a subcontracting relationship or subsequent direct Federal contract arising from a subcontracting relationship that the finder facilitated.

The defendant in Fed Cetera entered into a subcontract facilitated by the finder, and paid a finder’s fee on that subcontract as agreed. As it hoped, this led to a direct Federal contract, which it signed during the stated term of the finder’s agreement but did not begin performance on until after the term had expired. The defendant refused to pay the finder a fee on the Federal contract, arguing that the “consummation” of the contract required not just the signing of a binding agreement but actual performance under the agreement.

The Third Circuit ruled in favor of the finder. It recognized that in some types of transactions, such as an acquisition, “consummation” generally means the actual completion of the principal performance envisaged by the agreement. When I sell you my business, “consummation” occurs not when you and I sign the Purchase Agreement, but when the closing occurs and I give you the keys and you give me my money. The court declined, however, to extend this understanding to contracts such as the Federal contracts and sub-contracts at issue in this case, where there would be extended performance and multiple payments to the defendant, on receipt of each of which the defendant would own the finder its percentage-based fee. The court thus held that the “consummation” of the Federal contract occurred when it was signed, which was during the term of the finder’s agreement, and therefore the finder was owed its related fee.

The court found that the word “consummate” was not ambiguous – but, really, why on earth was this term used by the parties? If you mean to have a payment triggered by the signing or execution of a binding contract, say so. If you want to include oral contracts, you could include entry into a binding contract. Always, always, consult an attorney before entering into any finder’s agreement.

Leave a Reply

Your email address will not be published. Required fields are marked *

Loading