Beanstalk Group, Inc. v. Am General Corp.

• Decision Date: 15 March 2002
• Docket Number: No. 01-2164.,01-2164.
• Citation: 283 F.3d 856
• Parties: BEANSTALK GROUP, INC., Plaintiff-Appellant, v. AM GENERAL CORPORATION and General Motors Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

283 F.3d 856

BEANSTALK GROUP, INC., Plaintiff-Appellant, v. AM GENERAL CORPORATION and General Motors Corporation, Defendants-Appellees.

No. 01-2164.

United States Court of Appeals, Seventh Circuit.

Argued January 7, 2002.

Decided March 15, 2002.

Rehearing and Rehearing En Banc Denied April 24, 2002.

Marc S. Dreier, argued, Dreier & Baritz, New York, NY, for Plaintiff-Appellant.

Mark D. Boveri and Patrick D. Murphy, argued, Boveri Murphy Rice Ryan & LaDue South Bend, IN, for Defendant-Appellee.

Victoria L. Nilles, argued, Barnes & Thornburg, South Bend, IN, for Defendant-Appellee.

Before POSNER, ROVNER, and EVANS, Circuit Judges.

POSNER, Circuit Judge.

Beanstalk, which serves owners of intellectual property by negotiating licenses of their property, brought this diversity suit for breach of its contract with AM General; the substantive issues are governed by the law of Indiana. The contract, called a "representation agreement," appointed Beanstalk an agent of AM General to obtain licenses to use the latter's "HUMMER" trademark. When the contract was made in 1997, AM General was the manufacturer of the Humvee, a military vehicle that is the successor to the jeep and like the jeep is also sold in a version intended for the civilian market, under the name "Hummer." Beanstalk named General Motors as an additional defendant for reasons that will appear in a moment. The district judge granted the defendants' motion to dismiss the complaint (to which Beanstalk had attached the representation agreement) for failure to state a claim. Fed.R.Civ.P. 12(b)(6). Since the representation agreement was part of a pleading rather than submitted separately, the judge could consider it without converting the defendants' motion to one for summary judgment. Fed.R.Civ.P. 12(c); Berthold Types Ltd. v. Adobe Systems Inc., 242 F.3d 772, 775 (7th Cir.2001).

The agreement made Beanstalk AM General's "sole and exclusive nonemployee representative" for the purpose of licensing the Hummer trademark and entitled Beanstalk to 35 percent of the "gross receipts... received on Owner's [AM General's] behalf ... under any License Agreements" made while the representation agreement was in force. Each license agreement "shall provide for all payments thereunder to be made to Beanstalk on Owner's behalf," and Beanstalk is required to account quarterly to AM General for "all gross receipts actually received during the preceding calendar quarter under any License Agreements." AM General is given "the absolute right to veto, without cause and at its sole discretion," any proposed license, including renewals. "License agreement" is defined as "any agreement or arrangement, whether in the form of a license or otherwise, granting merchandising or other rights in the Property," which in turn is defined to mean trademarks and related rights. The contract, which is assignable (though by Beanstalk only with AM's consent) and contains an integration clause, was to continue until the end of 2000.

The agreement was drafted by Beanstalk, but this fact has little interpretive significance since AM General is a commercially sophisticated party represented by counsel. Most courts now agree with this exception to the principle that contracts are to be construed against the party that drafted it. Western Sling & Cable Co. v. Hamilton, 545 So.2d 29, 31-32 (Ala. 1989); Wood River Pipeline Co. v. Willbros Energy Services Co., 241 Kan. 580, 738 P.2d 866, 872 (1987); Kinney v. Capitol-Strauss, Inc., 207 N.W.2d 574, 577 (Iowa 1973); Dawn Equipment Co. v. Micro-Trak Systems, Inc., 186 F.3d 981, 989 n. 3 (7th Cir.1999); Northbrook Excess & Surplus Ins. Co. v. Procter & Gamble Co., 924 F.2d 633, 638-39 and n. 6 (7th Cir.1991); Missouri Pacific R.R. v. Kansas Gas & Electric Co., 862 F.2d 796, 799-800 (10th Cir.1988); First State Underwriters Agency of New England Reinsurance Corp. v. Travelers Ins. Co., 803 F.2d 1308, 1311-12 (3d Cir.1986); Eagle Leasing Corp. v. Hartford Fire Ins. Co., 540 F.2d 1257, 1261 (5th Cir.1976). There are hold-outs, illustrated by Eastern Bus Lines Inc. v. Board of Education, 7 Conn.App. 581, 509 A.2d 1071, 1073-74 (1986), where the court, quoting an earlier opinion, said that "the party who actually does the writing of an instrument will presumably be guided by his own interests and goals in the transaction. He may choose shadings of expression, words more specific or more imprecise, according to the dictates of these interests." No doubt; but the other party, if commercially sophisticated and represented by counsel, will insist on clarification. Indiana has yet to take a stand on the exception, though the only case from Indiana that we can find which bears on it, Nationwide Mutual Ins. Co. v. Neville, 434 N.E.2d 585, 599 (Ind.App.1982), leans in favor of rejecting it. No matter; AM does not need the rule in order to prevail. We add that the rule is in practice a makeweight rather than a tie breaker.

Beanstalk set about obtaining agreements for the licensing of the Hummer trademark. In 1999, however, two years into the representation agreement with Beanstalk, AM General entered into a joint-venture agreement with General Motors under which GM would design and engineer a new version of the Hummer, would make an interest-free loan of $235 million to AM General for the construction of a factory to manufacture the new version, would promise to buy a minimum number of the new vehicles, would obtain an option to buy up to 40 percent of AM General's common stock — and would acquire the Hummer trademark. GM informed Beanstalk that it had not assumed any of AM General's obligations under the representation agreement and that it would not compensate Beanstalk for any license agreements made or renewed after the effective date of the joint-venture agreement.

Beanstalk argues that the agreement between AM General and GM, although of course not labeled a license agreement, was one because it transferred the Hummer trademark to GM and thus was an "agreement or arrangement, whether in the form of a license or otherwise, granting merchandising or other rights in the Property"; for the transfer gave GM the right, indeed the exclusive right, to merchandise the Hummer trademark, that is, the "Property." The contract thus is clear, Beanstalk argues — the joint venture was an "agreement" that "grant[ed]" GM "merchandising ... rights" in the Hummer trademark and it did not have to be "in the form of a license" because the representation agreement says "in the form of a license or otherwise" — and under accepted principles of contract law we should look no further. Beanstalk wants 35 percent of so much of the consideration running from GM to AM General as represents the value of the Hummer trademark. We do not know what the consideration was, or what that value is, because no evidence has been taken — in fact, the joint-venture agreement is not even in the record, though the sketch we have just given of its terms is not contested.

Beanstalk is correct that written contracts are usually enforced in accordance with the ordinary meaning of the language used in them and without recourse to evidence, beyond the contract itself, as to what the parties meant. This presumption simplifies the litigation of contract disputes and, more important, protects contracting parties against being blindsided by evidence intended to contradict the deal that they thought they had graven in stone by using clear language. It is a strong presumption, motivated by an understandable distrust in the accuracy of litigation to reconstruct contracting parties' intentions, but it is rebuttable — here by two principles of contract interpretation that are closely related in the setting of this suit. The first is that a contract will not be interpreted literally if doing so would produce absurd results, in the sense of results that the parties, presumed to be rational persons pursuing rational ends, are very unlikely to have agreed to seek. USA Life One Ins. Co. of Indiana v. Nuckolls, 682 N.E.2d 534, 539 (Ind.1997); Haworth v. Hubbard, 220 Ind. 611, 44 N.E.2d 967, 970 (1942); Merheb v. Illinois State Toll Highway Authority, 267 F.3d 710, 713 (7th Cir.2001); Funeral Financial Systems v. United States, 234 F.3d 1015, 1018 (7th Cir.2000); Grun v. Pneumo Abex Corp., 163 F.3d 411, 420 (7th Cir.1998); Catalina Enterprises, Inc. Pension Trust v. Hartford Fire Ins. Co., 67 F.3d 63, 66 (4th Cir.1995).

This is an interpretive principle, not a species of paternalism. "The letters between plaintiff and defendant were from one merchant to another. They are to be read as businessmen would read them, and only as a last resort are to be thrown out altogether as meaningless futilities.... If literalness is sheer absurdity, we are to seek some other meaning whereby reason will be instilled and absurdity avoided." Outlet Embroidery Co. v. Derwent Mills, 254 N.Y. 179, 172 N.E. 462, 463 (1930) (Cardozo, C.J.). "There is a long tradition in contract law of reading contracts sensibly; contracts — certainly business contracts of the kind involved here — are not parlor games but the means of getting the world's work done.... True, parties can contract for preposterous terms. If contract language is crystal clear or there is independent extrinsic evidence that something silly was actually intended, a party may be held to its bargain, absent some specialized defense." Rhode Island Charities Trust v. Engelhard Corp., 267 F.3d 3, 7 (1st Cir.2001); see also Dispatch Automation, Inc. v. Richards, 280 F.3d 1116, 1118-19 (7th Cir.2002). The second principle is that a contract must be interpreted as a whole. Freigy v. Gargaro Co., 223 Ind. 342, 60 N.E.2d 288, 291 (1945); Harseim v. Booth, 134 Ind. 281, 33 N.E. 1016, 1017 (1893); Allstate Ins. Co. v. Hammond, 759 N.E.2d 1162, 1168 (Ind.App. 2001); United States v. Schilling, 142 F.3d 388, 395 (7th Cir.1998); LaSalle National Trust, N.A. v. ECM Motor Co., 76 F.3d 140,...