Industry Standards and Course of Dealing Prevail in Contracts Case
Once in a while you come across a case that brings you back to your first year of law school contracts class. Earlier this month, the Eighth Circuit took us down memory lane when it decided a contracts case, which dealt with the fundamental issue of whether a contract was even formed.
Offer and acceptance, condition precedents and the parol evidence rule are just some of the fundamental contract principles that this case touches upon. As a contracts law nerd, this case was an exciting read, but if you don't share my enthusiasm (thank you Professor Brickman), then perhaps the summary below will suffice.
Course of Dealing
Grandoe Corporation is a glove manufacturer that sold gloves to Gander Mountain, a retailer of outdoor goods, and beginning in the early 2000s, their customary way of doing business involved oral agreements to purchase gloves.
In 2007, Gander attempted to change the practice of using oral agreements by posting a Vendor Buying Agreement ("VBA") on its website, which provided that all agreements for orders must be in writing. Grandoe did not agree to the VBA. Furthermore, shortly after, the companies negotiated a $3.05 million deal, with the only signed document being a Resource Allowance Contract ("RAC"), which did not set forth contract terms such as quantity, but merely discounts and other ancillary terms.
You can probably guess what happened next. Grandoe manufactured the gloves, Gander bought about $940,000 million worth. Though Grandoe could resell some of the gloves meant for Gander, about $1.5 million worth already had the Gander logo embroidered on them, making them unavailable for resale. Grandoe sued Gander for breaching the oral contract between the two parties; Gander countered by saying the VBA and RAC voided the oral agreement. After trial, a jury found that the parties had entered into a valid oral contract, and awarded Grandoe $2.1 million (roughly $1.5 million in damages, $500,000 in prejudgment interest).
Eighth Circuit's Analysis
Among other things, the court had to determine whether the lower court erred in allowing the jury to determine whether an oral contract had been formed, and whether the jury correctly concluded that an oral agreement had been made. The Eighth Circuit was not convinced by any of Gander Mountain's arguments.
Gander's argument that the VBA and RAC voided the oral agreement assumed that Grandoe had accepted the VBA, however there was "sparse" evidence that Grandoe had accepted the VBA to begin with, so the court concluded, it was a question of fact that was properly before the jury. Without a contract (acceptance of the VBA), the parol evidence rule didn't even kick in.
Regarding the RAC, the court noted that by its terms was a contract with a condition precedent -- needing an underlying contract for the sale of gloves. In affirming the district court, the Eighth Circuit stated, "we conclude that a reasonable jury could have found that the parties orally agreed to the sale of $3.05 million worth of gloves and that no written contract voided that oral agreement."
See? All those contracts cases we read are still relevant. It's interesting to see fundamental contracts principles at play in current litigation. Who knows? Maybe this case will make it in the next edition of a contracts textbook.
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