101 F.3d 63 (7th Cir. 1996), 96-1476, Hill's Pet Nutrition, Inc. v. Fru-Con Const. Corp.

Docket Nº:96-1476.
Citation:101 F.3d 63
Party Name:HILL'S PET NUTRITION, INC., Plaintiff-Appellee, v. FRU-CON CONSTRUCTION CORPORATION and Fru-Con Engineering Inc., Defendants-Appellants.
Case Date:November 21, 1996
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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101 F.3d 63 (7th Cir. 1996)

HILL'S PET NUTRITION, INC., Plaintiff-Appellee,



Inc., Defendants-Appellants.

No. 96-1476.

United States Court of Appeals, Seventh Circuit.

November 21, 1996

Argued Nov. 1, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied Jan. 2, 1997.

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Terrill D. Albright, John Joseph Tanner, Baker & Daniels, Indianapolis, IN, Sherman A. Botts, Lathrop & Gage, Kansas City, MO, for Plaintiff-Appellee.

Donald J. Graham, Paul A. Bokota, Bingham, Summers, Welsh & Spilman, Indianapolis, IN, Andrew W. Manuel, Michael E. Wilson, Greensfelder, Hemker & Gale, St. Louis, MO, for Defendants-Appellants.

Before CUMMINGS, BAUER, and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

Parties who have ongoing business relations can establish a contract even when they have not been able to agree on all terms, and the mirror-image rule applicable to executory agreements therefore has not been satisfied. See Roberts & Schaefer Co. v. Merit Contracting, Inc., 99 F.3d 248 (7th Cir.1996); Restatement (2d) of Contracts § 34(2) (1981); E. Allan Farnsworth, I Farnsworth on Contracts § 3.8c (1990). A corollary to this principle is that the contract contains only the agreed-on terms; one side cannot use partial agreement to enforce proposals to which the other side did not assent. Venture Associates Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir.1996). That corollary is dispositive today.

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Hill's Pet Nutrition hired Fru-Con Construction and Fru-Con Engineering to renovate and enlarge its pet food plants. Fru-Con agreed to do the work on a cost-plus basis, with incentive payments for keeping total costs down. While corporate executives and their lawyers were negotiating the precise terms of a master agreement to govern the $200 million deal, Fru-Con commenced one large project and a few smaller ones under oral understandings. Work began in March 1994. Negotiations over basic terms went smoothly, but the parties ultimately could not agree on some fundamental issues: how "cost" would be defined (specifically, what percentage of salaried employees' wages would be deemed to represent the cost of fringe benefits such as pensions and health care); whether certain costs would be estimated from a schedule or calculated exactly; and whether Hill's would guarantee Fru-Con a minimum profit even if, because of cost overruns, the incentive clauses could expose Fru-Con to loss. Hill's discharged Fru-Con in November 1995, and each believes that the other owes it money. Hill's commenced litigation under the diversity jurisdiction, and Fru-Con demanded arbitration--which Hill's resisted on the ground that the parties' inability to complete their negotiations meant that it is not obliged to arbitrate. After receiving testimony, the district judge concluded that each side had signed a different version of the proposed master agreement and held that they had therefore not agreed on anything at all, precluding the possibility of arbitration. Fru-Con took an immediate appeal under 9 U.S.C. § 16(a)(1)(A).

One of Fru-Con's arguments on appeal--that Hill's and Fru-Con really finished the master agreement, and that what the district...

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