Centech Group, Inc. v. Getronicswang Co.
32 F. App'x 673 (2002)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A subsequent contract that expressly supersedes a prior agreement is supported by valid consideration if it includes a new or more definite promise, and a claim of economic duress requires proof of an improper threat that leaves the aggrieved party with no reasonable alternative but to assent.
Facts:
- The Centech Group, Inc. (Centech) entered into a prime contract with the Navy, requiring Centech to convert 55 million microfiche personnel records into digital form by June 30, 1997.
- Centech awarded I-NET (later Getronicswang Company, LLC) a subcontract to design and develop the data conversion system for the Navy project.
- Centech became delinquent in its performance of the prime contract with the Navy.
- On February 29, 1996, Centech and I-NET signed an Original Memorandum of Understanding (Original MOU) where I-NET agreed to assume liability for the prime contract by either novation, substantial restructuring of the subcontract, or good faith efforts to restructure if the first two were not possible, and I-NET also agreed to provide Centech with $9.25 million in subcontracts and $20 million in bid/teaming opportunities.
- Centech and I-NET were unable to agree on a novation or a substantial restructuring of their subcontract.
- On May 31, 1996, Centech and I-NET entered into a Revised Memorandum of Understanding (Revised MOU), which expressly stated it superseded all previous agreements between the parties regarding the Navy contract.
- Under the Revised MOU, I-NET definitely agreed to assume full liability for the timely and satisfactory performance of the prime contract and to indemnify Centech against all contractual claims and losses, with the understanding that the Navy/Centech contract would terminate and I-NET would enter into a new contract with the Navy.
- The Revised MOU included a reduced commitment for I-NET to use commercially reasonable efforts to identify and pursue bid/teaming opportunities offering $10 million in projected total contract revenue to Centech.
Procedural Posture:
- Centech sued Getronicswang (successor to I-NET) in the United States District Court for the Eastern District of Virginia, claiming breach of the Original MOU and the Revised MOU.
- The district court granted summary judgment for I-NET on Centech’s claim under the Original MOU, finding it had been abrogated (superseded) by the Revised MOU.
- The district court rejected Centech’s claim that the Revised MOU was not a valid contract, implicitly finding it was supported by consideration and not procured by duress.
- Centech appealed the district court's judgment to the United States Court of Appeals for the Fourth Circuit, challenging the validity of the Revised MOU.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a revised memorandum of understanding lack valid consideration if the new promises were allegedly already included in a prior, conditional agreement, or is it invalid due to economic duress if one party threatened to discontinue performance, inducing the other to sign?
Opinions:
Majority - Per Curiam
No, the revised memorandum of understanding did not lack valid consideration and was not invalid due to economic duress. The Revised MOU was supported by valid consideration because I-NET’s promise to assume Centech’s responsibilities under the prime contract was definite and unconditional, unlike the Original MOU where I-NET’s assumption of liability was conditional upon the parties agreeing to a novation, substantial restructuring, or good faith efforts to restructure. The court found Centech’s interpretation of the Original MOU as an unconditional promise by I-NET to be an unfair reading of the document’s conditional language. Furthermore, Centech’s claim of economic duress lacked merit because the alleged threat by I-NET to discontinue performance did not constitute the coercive circumstances required under Virginia law. For duress to exist, the threat must be improper and leave the aggrieved party without any reasonable alternative, which Centech failed to demonstrate given several available alternatives such as filing lawsuits or renegotiating with the Navy. The Revised MOU was the result of arm's-length discussions between sophisticated corporate parties, and Centech consulted its own counsel before signing.
Analysis:
This case reinforces the fundamental contract principles of consideration and economic duress. It illustrates that a superseding agreement is valid when it introduces new, definite obligations, even if some elements were present in a prior, conditional agreement. The ruling also sets a high bar for claims of economic duress, particularly between sophisticated commercial entities, by requiring not only an improper threat but also the complete absence of reasonable alternatives for the aggrieved party, thereby protecting the sanctity of freely negotiated contracts.
