Axelson, Inc. v. McEvoy-Willis, a Div. of Smith Intern. (North Sea), Ltd.

• Decision Date: 29 November 1993
• Docket Number: No. 91-4073,A,EVOY-WILLI,91-4073
• Citation: 7 F.3d 1230
• Parties: 22 UCC Rep.Serv.2d 467 AXELSON, INC., Plaintiff-Appellee, v. McDIVISION OF SMITH INTERNATIONAL (NORTH SEA), LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1230

7 F.3d 1230

22 UCC Rep.Serv.2d 467

AXELSON, INC., Plaintiff-Appellee, v. McEVOY-WILLIS, A DIVISION OF SMITH INTERNATIONAL (NORTH

SEA), LTD., Defendant-Appellant.

No. 91-4073

Summary Calendar.

United States Court of Appeals,

Fifth Circuit.

Nov. 29, 1993.

Mike A. Hatchell, Gregory D. Smith, Tracy Crawford, Ramey & Flock, P.C., Tyler, TX, for appellant.

Sidney Powell, Jeffrey S. Osgood, Mark M. Donheiser, Strasburger & Price, Dallas, TX, for appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before DAVIS, JONES, and DUHE, Circuit Judges.

DUHE, Circuit Judge:

This case presents classic battle-of-the-forms questions. ¹ We must determine which of various writings, if any, was an offer, which an acceptance, and the final terms of the perfected contract. Understanding how the parties arrived at a contract must turn on an examination of the parties' negotiations and conduct. We affirm, holding that the parties concluded a contract without agreeing to a cancellation provision. The law fills in the gap left by the parties. Alternatively, the cancellation provision in the initial quotation may have been part of the contract, but because that provision is identical to the measure of contract damages under the general law, the result is the same.

I. THE FACTS

The facts of this case sound like the delight of a contracts professor, if no one else. Statoil, the Norwegian state oil company, planned to build oil rigs in the North Sea. McEvoy was to build Christmas trees for the rigs, and Axelson was to supply McEvoy with actuators, an important part of Christmas trees. ² McEvoy was unable at the time to make actuators that would satisfy Statoil's requirements, but Axelson was.

In 1984 Axelson received an inquiry from Statoil about supplying it with the actuators. On July 12, Axelson sent a quotation, with all material terms, to McEvoy, with "note 18" stating that the quotation would remain valid for only 60 days. The "notes" were just enumerated terms and conditions. Note 20 required that Axelson approve any cancellations of orders accepted by Axelson and stated the usual common-law and U.C.C. formula for determining contract damages. ³ McEvoy asked that various notes, including note 18, be modified. McEvoy also stated in this telex, "We expect no notes, which will be considered as exceptions, to apply...." In "Revision 1," a subsequent telex, Axelson extended the validity of the quotation under note 18 for an additional 60 days, as McEvoy had requested. Later, in "Revision 2," Axelson extended the validity of the quotation until December 31, 1984.

The new year arrived and the parties had not yet concluded the contract, but they were getting closer. McEvoy pressured Axelson for data books so that the Norwegian government could approve the technical specifications. McEvoy's R.W. Clarke stated in a telex to Axelson,

... I am continually being pressed for the drawings and data enabling a design review to be done....

... I do ask you proceed immediately as you have my sincerest assurance that the P.O. will be placed just as soon as I can tie up one or two items.

Please confirm you will proceed and let me have a date when you can send same.

Thank you in advance.

Axelson, however, refused to furnish data books until McEvoy placed an order.

On March 7, McEvoy sent its "telex of intent for commencement of [its] purchase order number P 62675." The "official purchase order [was] to follow in due course." The telex of intent stated the object, quantity, price, and delivery terms for the contract, with the prices subject to escalation as agreed. It also required the data books within eight weeks. Axelson apparently expressed reluctance to provide the data books without an official order, but Axelson received further assurances from Mr. Clarke, via Axelson's London agent. On March 8, Axelson sent a telex to McEvoy saying that the data books would be issued within eight weeks. Axelson thus began performance, and the books were sent May 2 with an invoice to follow.

Not until June 4 did McEvoy actually send its form purchase order to Axelson. The order, in fine print, stated Acceptance of the offer represented by this order is expressly limited to the provisions overleaf. Acceptance of this order shall be constituted on the receipt by the buyer of the acknowledgement copy of this order (attached hereto) duly signed or in any event delivery in whole or in part of the articles described. This is the entire contract and no changes of any kind whatsoever are binding on buyer nor shall any counter offers be deemed to be accepted by buyer unless they are in writing and signed by an authorized representative of buyer's purchasing department. ⁴

The overleaf included the following cancellation provision:

TERMINATION: Without prejudice to any other right or remedy of Buyer, Buyer shall have the right to terminate this order (1) in respect of any article at any time prior to their delivery or performance, by written notice, cable or telex provided that the Buyer shall pay a fair and reasonable price for work in progress at the time of such notice and subsequently received by Buyer provided that Buyer shall not be liable for any loss or damage suffered by Seller including consequential loss or damage. ⁵

Axelson manufactured and delivered 28 actuators, and McEvoy paid for them. Then Axelson manufactured eight more, and they were ready for shipment, when McEvoy withdrew from the contract. Forty more actuators remained to be built under the contract.

Axelson sued McEvoy for breach of contract, tortious interference with contract, fraud, breach of the duty of good faith and fair dealing, wrongful appropriation of trade secrets, and promissory estoppel. The trade-secrets claim was settled during the bench trial. Chief Judge Justice found that Axelson's cancellation provision was part of the contract because it was contained in the original quotation, which the parties continued to reference throughout their negotiations. He also found that the original quotation was an offer whose expiration date was extended orally, and that both parties treated the quotation as a valid offer. Judge Justice concluded that McEvoy breached the contract by cancelling, and he awarded damages of $684,905.29 plus interest. He rendered judgment for McEvoy on the remaining claims. McEvoy appealed the judgment of breach of contract. Axelson cross-appealed on the other claims but later dismissed its cross-appeal.

The facts given above are not disputed and they are all we need to resolve the case.

II. THE LAW

In the district court, the parties argued extensively about whether to apply English law or Texas law. The opinion of the district court rests primarily on Texas law, but it decided that the results would be the same under English law. McEvoy has not briefed the issue and is considered to have abandoned it. Villanueva v. CNA Ins. Cos., 868 F.2d 684, 687 n. 5 (5th Cir.1989); Harris v. Plastics Mfg. Co., 617 F.2d 438, 440 (5th Cir.1980). Axelson seems content for Texas law to be applied. This Court, therefore, will apply Texas law.

The parties agree that the applicable Texas substantive law is the Texas equivalent of the U.C.C. article on sales. The subchapter on "Form, Formation and Readjustment of Contract" will inform most of our analysis. See generally Tex.Bus. & Com.Code Ann. §§ 2.201-.210 (West 1968 & Supp.1991).

III. THE ANALYSIS

Under the Code, "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.... even though the moment of its making is undetermined." Id. § 2.204(a)-(b). In the present case, it is hard to tell exactly when the contract was perfected. The quotation from Axelson can be construed as an offer. An offer is an act that leads the offeree reasonably to believe that assent (i.e., acceptance) will conclude the deal. E.g., Mid-south Packers, Inc. v. Shoney's, Inc., 761 F.2d 1117, 1121 (5th Cir.1985). The telex quotation of July 12, 1984, which contained all material terms, lapsed on December 31, but ongoing negotiations between the parties show that the terms of the quotation, after being modified by negotiation, were still subject to McEvoy's acceptance. If at any point in the negotiations McEvoy had sent a telex saying, "We accept," the contract would have been concluded on the terms as negotiated to that point. McEvoy's telex of intent was the definite and seasonable acceptance and perfected the contract. See Tex.Bus. & Com.Code Ann. § 2.207(a) (West 1968).

There is one problem with this analysis. Axelson's cancellation provision states, "Orders accepted by Axelson, Inc. are not subject to cancellation or alterations by customers except with the consent of Axelson...." (Emphasis added). McEvoy argues that this language means that Axelson had to accept an order before a contract could be concluded. Then the quotation could not be an offer; it would only be an invitation for an offer. These words may just mean, however, that if Axelson has taken no affirmative act to accept, then the customer can still cancel the order without Axelson's consent. In that case, this language would present no problem.

Even if McEvoy is correct, though, it cannot reach the result it wants. The quotation would not be an offer, but the terms on which McEvoy was invited to make its offer were still clear enough. McEvoy made its offer by its telex of intent, asking for immediate preparation of the data books that Axelson until then had refused to compile. Axelson telexed back that it would start work and send the data books as requested. McEvoy had made its offer, and Axelson accepted. Under either analysis, the contract was concluded by the middle of March 1985. Both parties understood that they had a contract; they celebrated, and they commenced performance. Conduct by both parties...