LACK OF CONSIDERATION FOR CONTESTED OPTION AGREEMENT

​

AN ANALYSIS OF THE ESTATE OF DAVID KWINTER’S DEFENCE THAT THE CONTESTED OPTION AGREEMENT WAS UNENFORCEABLE FOR LACK OF PROPER CONSIDERATION

 

This analysis provides an overview of one of the Estate of the late David Kwinter’s (the “Estate”) principal legal defences, the lack of consideration, that was raised in resisting  the legal action (the “Plaintiffs’ Action”) instituted by Aaron Gelber (“Gelber”) and Norman Sternthal (“Sternthal”) against the Estate to enforce the terms of a memorandum of agreement dated June 11, 1984 (the “Contested Option Agreement”), entered into between Gelber, Sternthal and David Kwinter (“Kwinter”), purportedly giving Gelber and Sternthal (hereinafter collectively referred to as the “Plaintiffs”) the right to purchase Kwinter’s one-third interest (“Kwinter’s Interest”) in a rental building complex situated in the City of Beaconsville, Quebec (the “Beacon Hill Villa Project”).  The thrust of the Estate’s overall defence to the Plaintiffs’ Action was an aggressive attack on the validity of the Contested Option Agreement.  The circumstances surrounding the signing of the Option Agreement,  the very one-sided nature of this agreement and the complete lack of consideration that flowed to  Kwinter for agreeing to enter into the Contested Option Agreement presented the Estate with a cogent argument supporting its request that the Courts rule the Contested Option Agreement as being unenforceable in law.

 

THE VALIDITY OF THE CONTESTED OPTION AGREEMENT

 

The evidence at trial showed Kwinter to have been a competent, experienced business man at the time that the Contested Option Agreement was negotiated and signed.  The question, therefore, that the Estate had to pose to the Court was as follows: why would a competent, intelligent and experienced business person have agreed to enter into a contract that was so obviously one-sided if not completely disadvantageous to him?  There can only be 4 rational explanations for Kwinter’s actions: (1) he received some form of consideration for signing the Option Agreement; (2) he agreed to sign because he wanted to bestow a gift on the Plaintiffs (3) he had no understanding of what he was signing; or (4) he was compelled or coerced into signing the Contested Option Agreement.  Now let us closely examine the evidence that came to light in both the pre-trial processes and at trial to see what really happened in 1984.

​

DID DAVID KWINTER RECEIVE ANY CONSIDERATION  FOR ENTERING INTO THE AGREEMENT?

​

The Contested Option Agreement itself is silent as to any consideration or benefit flowing to Kwinter for granting the Plaintiffs the option to purchase Kwinter’s Interest.  The Contested Option Agreement is truly a one way option that was seemingly created for the Plaintiffs’ sole benefit.  Any suggestion that the consideration flowing to Kwinter was the Plaintiffs’ agreement to manage the Beacon Hill Villa Project (while Kwinter resided in Florida) is more than countered by the fact that the Plaintiffs (or at least a private company controlled by them) were fully compensated for providing such managerial services.  Nothing in the pre-trial discovery process  nor at trial  disclosed any evidence that would support a position that Kwinter received good and valid consideration for agreeing to enter into the Contested Option Agreement.  In Gelber’s initial examination held December 12, 2003, he stated that he wanted “to have an agreement with you [Kwinter] so at least we know where we stand in case something happens to you [Kwinter] or me”.  This of course infers that the intentions of the parties was to have a form of agreement that contemplated the parties having some form of mutual rights to resolve issues of succession, etc.  The existence of such mutuality would, of course, establish the necessary consideration to make the Contested Option Agreement a valid and enforceable contract.  That Kwinter was seeking this element of mutuality as consideration  for agreeing to enter into the Option Agreement is clearly stated in Kwinter’s lawyer’s letter dated April 10, 1984 where he writes to the Plaintiffs’ lawyers:

​

“It appears to me that it would be in the best interests of all partners if the agreement would be based not only on the contingency of Mr. Kwinter’s death, but the death of any partner.  As you know, the common law which guides the majority of the United States directs the dissolution of a partnership on the death of any partner unless in the agreement there is specific language relating to continuance of the partnership and purchase of the deceased partner’s interest.  As the draft is now prepared, however, if Mr. Gelber were to pass away, the partnership would in all probability have to be dissolved, which may not be in the best interests of the remaining partners, and in particular as to the interests of Mr. Kwinter and Mr. Sternthal based on the economic conditions or other business factors at the time.  Therefore, I recommend we provide in the agreement an article devoted to the death of any partner.”     

 

Again, in Kwinter’s  lawyer’s letter dated May 18, 1984, after setting out various counter-proposals to the draft agreement the Plaintiffs' lawyer had forwarded to Kwinter for his consideration and execution, Kwinter's lawyer writes:

 

“This letter then is an attempt on my part to try to reach a position that is comfortable to all of the partners, that would allow the partnership to effectively purchase a deceased partner’s share, provided the mechanism for purchase of a partner’s share upon disagreement from which there is no apparent solution forthcoming and a means to equitably and effectively manage their partnership.”

 

There was, of course, no form of mutuality placed in the Contested Option Agreement, nor was there  any evidenced adduced during the pre-trial discovery process that would prove that Kwinter ever received any form of valid consideration, whether direct or collateral, for his agreement to enter into the Contested Option Agreement.   It is interesting to note that the Plaintiffs’ in their Reply To Contestation and Plea to Cross – Demand (the “Plaintiffs Reply”) attempt, rather disingenuously, to imply that the Contested Option Agreement came about as a result of Gelber’s concerns for mutuality.  In the last sentence of paragraph 27 of the Plaintiffs’ Reply, the Plaintiffs plead:

​

“Plaintiff, Aaron Gelber, was convinced that some sort of agreement which would avoid him or his children having to deal with his nephews after David Kwinter’s ultimate death, was in the interests of all partners.”

 

This concern for ‘all partners’ was, of course, nonsense in that the final version of the Contested Option Agreement provides only the Plaintiffs the right or option to buy Kwinter’s Interest in the event of Kwinter’s death or disagreement.  This obvious reality was readily acknowledged by Gelber during his initial examination for discovery when he was asked on page 20 of the transcript of the discovery of Aaron Gelber:

​

Question 95 : I see that this memorandum only provides the triggering of the option in the event of the death of Mr. Kwinter

 

      A.    That is right.  

 

The Contested Option Agreement was a clearly a one-sided agreement that provided benefits and advantages to only the Plaintiffs. The one sidedness of the Contested Option Agreement was confirmed by the Trial Judge, Mr. Justice Gomery, who, in his lengthy reasons for judgement, held:

​

"The main contestation is based on the allegation by the Defendant Estate that the Agreement was signed by the late David Kwinter under duress and without consideration. It is apparent that in signing this document David Kwinter abandoned all of the advice, proposals and suggestions that had been made on his behalf by his lawyer, and accepted totally the terms and conditions that had been proposed by Aaron's lawyer. The Agreement is completely one-sided and provides no protection or consideration to David Kwinter. By signing it he exposed himself throughout the life of the Agreement to the possibility that Aaron and Sternthal would choose to disagree with him at a moment in time chosen by them with respect to the administration of the Property, which would trigger the option provisions granted in their favour.

​

It is impossible to imagine what benefit David Kwinter would realize by the signature of the agreement, except to satisfy the desire of Aaron Gelber that he do so. Plaintiffs argue that the Agreement was signed by him with the benefit of advice from counsel, but the correspondence between the lawyers indicates exactly the contrary; it is most probable that David Kwinter did not obtain or follow his lawyer's advice and signed the draft agreement which had been prepared by Fishman without modification. Like his sons had done on May 3rd, he capitulated."

 

These findings of fact allowed the Trial Judge to conclude that the Contested Option Agreement was secured in circumstances where no valid consideration flowed to Kwinter.

​

​