Family Snacks of N.C. v. Prepared Products Co., 01-3560.

• Decision Date: 11 July 2002
• Docket Number: No. 01-3560.,01-3560.
• Citation: 295 F.3d 864
• Parties: FAMILY SNACKS OF NORTH CAROLINA, INC., Appellee, v. PREPARED PRODUCTS COMPANY, INC., Thomas W. Lehmer, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 864

295 F.3d 864

FAMILY SNACKS OF NORTH CAROLINA, INC., Appellee, v. PREPARED PRODUCTS COMPANY, INC., Thomas W. Lehmer, Appellants.

No. 01-3560.

United States Court of Appeals, Eighth Circuit.

Submitted: April 19, 2002.

Filed: July 11, 2002.

Madison S. Spach, Jr., argued, Newport Beach, CA (Douglas S. Carter and Kevin T. O'Connor, on the brief), for appellants.

Alok Ahuja, argued, Kansas City, MO (Gary D. Justis and Carrie Josserand, on the brief), for appellee.

Before: WOLLMAN, BEAM, and LOKEN, Circuit Judges.

BEAM, Circuit Judge.

Prepared Products Company, Inc. ("Prepco") appeals the decision of the district court¹ granting summary judgment in favor of Family Snacks of North Carolina, Inc. ("Family Snacks"). We affirm the district court.

I. BACKGROUND

This action arises out of a supply agreement entered into by Family Snacks and Prepco on February 17, 1998. Pursuant to the agreement, Prepco agreed to buy $10 million worth of private label canister nut products and kettle chip products from Family Snacks during the first year of the contract, beginning on July 1, 1998. These products were to be produced at a snack processing facility in North Carolina previously owned by Prepco and sold to Family Snacks in February 1998. In fact, the purchase price of the North Carolina facility was based upon an agreement between Family Snacks and Prepco that Prepco would reduce the purchase price of the facility and would recoup the difference through the implementation of a low-cost manufacturing arrangement with Family Snacks. This compact is outlined in the supply agreement, facilitating Prepco's plan to market to mass merchandisers under their private labels.

Under the supply agreement, Family Snacks would sell the products to Prepco on a "cost plus" basis, designed to yield a purchase price lower than the market price for wholesale snack foods. Thomas Lehmer, Prepco's CEO, personally guaranteed the full and timely payment and performance of all of Prepco's obligations under the contract. Further, the agreement contained a formula for calculating the price of the products. The charges were to be calculated through a formula based upon the manufacturing costs of the particular product, plus a fifteen percent profit margin. The manufacturing costs were to be determined using factors outlined in the formula, which was attached as Exhibit A. In addition, the manufacturing costs included a fixed overhead expense of twenty-nine cents per pound of product.

It is undisputed that during the first year of the supply agreement, Prepco bought nothing from Family Snacks. As a result, Family Snacks filed this suit for breach of contract seeking to collect $1.5 million in liquidated damages. In response to the lawsuit, Prepco claims that the supply agreement is not an enforceable contract because it is illusory. Prepco further argues that Family Snacks hindered Prepco's performance under the contract by failing to provide necessary pricing information, thereby limiting Prepco's ability to solicit orders, and by refusing to acknowledge that Prepco's purchase of any product other than kettle chips and canister nuts would reduce its minimum purchase obligations under the agreement.

The district court entered judgment in favor of Family Snacks on its motion for summary judgment, concluding that under the Uniform Commercial Code and general principles of usage of trade, it was reasonable to require Prepco to first identify the products it wished to buy. The court held that Prepco breached its duty in this regard. As a result, the district court concluded that Family Snacks established its claim for breach of contract as a matter of law. As to Prepco's affirmative defense of hindrance, the district court held that because Prepco was required to act first, and failed to do so, the record did not support a finding that Family Snacks interfered with Prepco's obligation to purchase products. Finally, the court denied the admission of two of Prepco's proffered affidavits, finding them unreliable and a sham.

II. DISCUSSION

A. Standard of Review

A moving party is entitled to summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). When considering a motion for summary judgment, a court must scrutinize the evidence in the light most favorable to the nonmoving party and the nonmoving party "must be given the benefit of all reasonable inferences." Mirax Chem. Prods. Corp. v. First Interstate Commercial Corp., 950 F.2d 566, 569 (8th Cir.1991) (citation omitted). Under Missouri law,² "summary judgment is appropriate [in a contract case] where the language of the contract is clear and unambiguous such that `the meaning of the portion of the contract in issue is so apparent that it may be determined from the four corners of the document.'" Missouri Consol. Health Care Plan v. BlueCross BlueShield of Mo., 985 S.W.2d 903, 908 (Mo.Ct.App.1999) (citation omitted) (quoting MECO Sys., Inc. v. Dancing Bear Entertainment, Inc., 948 S.W.2d 185, 191 (Mo.Ct.App.1997)).

B. Analysis

1. Contract Enforceability

To prevail in its claim against Prepco, Family Snacks must establish (1) the making and existence of a valid and enforceable contract between the parties; (2) Family Snacks' rights and Prepco's obligations under the contract; (3) a breach; and (4) resulting damages. McGraw v. Andes, 978 S.W.2d 794, 802 (Mo.Ct.App. 1998). Prepco argues that Family Snacks failed to establish that the supply agreement is an enforceable contract, the first element of the breach of contract claim. Prepco bases this argument on the allegation that the supply agreement is illusory because Family Snacks is not obligated to perform for any particular period of time resulting in a lack of mutuality of contract, and because no price term is specified, rendering the contract fatally uncertain.

Prepco argues that the lack of mutuality at the inception of the supply agreement renders it unenforceable for lack of consideration. As stated by the Missouri Supreme Court, "`[m]utuality of contract means that an obligation rests upon each party to do or permit to be done something in consideration of the act or promise of the other; that is, neither party is bound unless both are bound.'" Aden v. Dalton, 341 Mo. 454, 107 S.W.2d 1070, 1073 (Mo.1937) (quoting Gillen v. Bayfield, 329 Mo. 681, 46 S.W.2d 571, 575 (Mo. 1931)). The question of whether mutuality exists, then, is a question of whether the contract fails for lack of mutual consideration. Prepco argues that under the supply agreement, Family Snacks' obligations are qualified to the point of rendering them illusory. We disagree.

Under the supply agreement, Family Snacks reserved the right to change the private label products manufactured by Family Snacks and sold to Prepco. Further, Family Snacks made no representations or warranties to Prepco regarding the exact date of operations of the manufacturing facility or whether operations would continue for a definite time. Prepco claims this language overly qualifies Family Snacks' obligation under the contract. However, Family Snacks' contract qualifications were not unrestricted, and do not render its other promises illusory. There is no requirement that each stipulation or term in a contract concerning Family Snacks must correspond with a stipulation or term binding upon Prepco. Laclede Gas Co. v. Amoco Oil Co., 522 F.2d 33, 36 (8th Cir.1975).

In Laclede Gas, we considered the effect of a cancellation clause that allowed one party to terminate the agreement on thirty days notice, with or without cause, and contained no reciprocal right for the other party. Id. at 37. Even though the agreement was virtually terminable at will by Laclede, the court found that, under Missouri law, the contract was not illusory.

"Since the courts ... do not favor arbitrary cancellation clauses, the tendency is to interpret even a slight restriction on the exercise of the right of cancellation as constituting such legal detriment as will satisfy the requirement of sufficient consideration; for example, where the reservation of right to cancel is for cause, or by written notice, or after a definite period of notice, or upon the occurrence of some extrinsic event, or is based on some other objective standard."

Id. (quoting 1 S. Williston, Law of Contracts § 105, at 418-19 (3d ed.1957) (footnotes omitted)). Here, as in Laclede Gas, Family Snacks' right was restricted in that it was only excused from its performance obligations where it ceased operations at the manufacturing facility, or where it altered the production of private label canister nut products and kettle chip products. These restrictions clearly bring this case within the rule, embedded in traditional contract law, and applied in Laclede Gas.

Prepco next argues that the supply agreement is unenforceable because there is no price term specified. Section 3 of the supply agreement, which provides for the price of the product, states in part that "[t]he prices for the Products sold to [Prepco] pursuant to this Agreement shall be as is set forth in Exhibit A attached hereto (the `Manufacturing Costs') plus an amount equal to the `Profit Margin.'" The supply agreement then defines "profit margin" in greater detail. Prepco argues that no prices are set forth in Exhibit A and that Family Snacks attempted to reserve for itself the unilateral ability to set whatever price it wished. We disagree.

The supply agreement in this case embodies a sophisticated and highly detailed "cost plus" pricing formula. This hardly renders the supply agreement unenforceable. Although the process is tedious, the product price is certainly ascertainable. As long as the parties agreed to a process by which price was to...