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When Is a Contract not Really a Contract?

Tesla Motors, Inc.  and the Rio Real Estate Investment Opportunities, LLC (“Rio”) entered into what was entitled the “Development Agreement” on February 19, 2007.   Under the terms of the agreement, Rio planned to build a 150,000 square foot facility for the electric car manufacturer in Bernalillo County, New Mexico where Tesla owns property.

 

The Developer Agreement provides that Tesla will conduct certain of its operations at a facility located in [the Park], in exchange for certain economic incentives that have been outlined in a separate agreement between Tesla and the State of New Mexico. It also envisions (1) Rio finaliz[ing] an agreement with SunCal to convey, at no charge to Tesla, up to 75 acres of land which abuts the proposed site in Cordero Mesa, (2) the New Mexico State Legislature contributing a total of $7,000,000 towards the signing bonuses – promised by Rio to Tesla – by appropriating funds during the 2007 and 2008 legislative sessions  and (3) Rio providing Tesla with written statements from local or state governments “that the proposed uses by Tesla of the Facility have been approved and are consistent with any applicable development plan, zoning, or any other restrictions in use.”  Further, the Developer will ensure that “the site will be fully served with infrastructure”.

 

When Rio sued Tesla for violating the Developer Agreement and committing fraud, after Tesla failed to enter in to a lease agreement and abandoned the project, Tesla moved to dismiss the suit on the grounds that Rio failed to state a claim upon which relief could be granted. Tesla claimed that the Developer Agreement it signed was not an enforceable contract because it contained numerous contingencies outside the control of the parties. If there is no enforceable contract between the parties, since Rio’s claims depend upon the existence of such a contract, the suit must be dismissed.

 

The U.S District Court in New Mexico agreed with Tesla and in 2013 dismissed the case. It found that the parties had not agreed to the essential terms of a contract. The Court determined that “Development Agreement does not specify (1) a time frame for completing the commitments described in the Development Agreement, (2) who will build the facility, (3) the cost of building the facility, (4) the method of financing the entire project, (5) when construction of the facility would begin and end, (6) what would happen if the legislative appropriations were not passed, and (7) performance benchmarks. Additionally, several material and essential terms are simply left to future negotiations. Taking in to consideration each of these elements, the court found the terms too vague and uncertain to support an enforceable contract.

 

This case provides notice to parties who intend to enter in to contracts: there are certain minimal requirements which must be met in order to make an agreement one which courts will enforce. Parties need to ensure they each rely on experienced counsel who can draft agreements which will accurately reflect the intent of the involved parties.

 

Mr. Giddens and the other attorneys at Giddens & Gatton Law, PC have experience representing New Mexico business owners in contract and lease agreement negotiations. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com for more information      

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