Merritt-Campbell, Inc. v. RxP Products, Inc.

• Citation: 164 F.3d 957
• Decision Date: 27 January 1999
• Docket Number: No. 97-11114,INC,MERRITT-CAMPBEL,97-11114
• Parties: 37 UCC Rep.Serv.2d 565 , Plaintiff-Counter Defendant-Appellee-Cross-Appellant, v. RxP PRODUCTS, INC., Defendant-Counter Plaintiff-Appellant-Cross Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 957

164 F.3d 957

37 UCC Rep.Serv.2d 565

MERRITT-CAMPBELL, INC., Plaintiff-Counter Defendant-Appellee-Cross-Appellant, v. RxP PRODUCTS, INC., Defendant-Counter Plaintiff-Appellant-Cross Appellee.

No. 97-11114.

United States Court of Appeals Fifth Circuit.

Jan. 27, 1999.

Rehearing Denied Feb. 26, 1999.

Ralph Henry Bauer, Arlington, VA, for Merritt-Campbell, Inc.

James H. Baumgartner, Jr., Richard A. Rodgers, Vial, Hamilton, Koch & Knox, Dallas, TX, for RxP Products, Inc.

Appeals from the United States District Court for the Northern District of Texas.

Before REYNALDO G. GARZA, STEWART and PARKER, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

I. Factual and Procedural Background

In August, 1995, Carl Merritt ("Merritt") telephoned RxP and talked to its President, Don Woodward ("Woodward"), about selling a fuel additive known as "RxP Gas Kicker" as a private label product. Woodward referred Merritt to RxP's National Sales Manager, James Potts ("Potts"). On August 19, 1995, Potts met with Merritt. During the next few weeks, the parties had numerous discussions relating to the potential private label arrangement. On September 18, 1995, Merritt-Campbell, Inc. ("M-C") was incorporated by Merritt and Harvey Campbell ("Campbell").

On September 28, 1995, Merritt gave Potts a proposed agreement which Potts faxed to Woodward the following day. Woodward made changes to the proposal, signed it, and returned it to Potts to be signed by M-C. On October 3, 1995, Merritt signed the agreement on behalf of M-C.

The agreement in its entirety states:

This agreement is made on this 28th day of September, 1995, between RxP Products, Inc., hereafter referred to as RxP, and Merritt-Campbell, Incorporated, hereinafter referred to as Merritt-Campbell. In consideration of the sum of ten dollars ($10.00), the receipt of which is acknowledged, RxP agrees to sell to Merritt-Campbell the product marketed as "RxP Gas Kicker" under the following terms:

1. RxP guarantees the following price to Merritt-Campbell for a period of five (5) years from the date of first order.

a. RxP Gas Kicker bottled in 2.5 ounce quantities-$1.25 per bottle (excluding labels).

b. RxP Gas Kicker in 55 gallon drum quantity-$1,280,00 (sic) per drum.

Said pricing may be increased only in the case of documented price increases to RxP for raw materials.

2. RxP will bottle RxP Gas Kicker in either green or black bottles, as provided as samples, upon request for Merritt-Campbell.

3. RxP guarantees shipment within fourteen (14) days from receipt of order from Merritt-Campbell.

4. Both RxP and Merritt-Campbell agree unconditionally to maintain confidentiality regarding the relationship between the two companies. This confidentiality includes, but is not limited to, any disclosure of the source product market by RxP and Merritt-Campbell. The scope of this confidentiality includes, but is not limited to, any director, officer, employee, or agent of both RxP and Merritt-Campbell.

5. It is understood by RxP that it is the intention of Merritt-Campbell to market the product heretofore referred to as "RxP Gas Kicker" under a private label.

On November 9, 1995, Merritt presented to Potts a purchase order for 25,000 bottles of product with 60-day credit terms. Potts refused the purchase order because it contained credit terms. On April 8, 1996, RxP received a second order and a cashier's check from M-C for a total of 8,016 bottles of RxP Gas Kicker. RxP refused the order and returned the cashier's check to M-C uncashed.

On May 17, 1996, M-C filed suit against RxP in the United States District Court for the Northern District of Texas. M-C claimed that RxP breached a requirements contract entered into by RxP and M-C in September of 1995. M-C claimed that the contract entitled it to purchase from RxP quantities of RxP Gas Kicker. M-C described the contract as one for the sale of goods and acknowledged that it was governed by the Uniform Commercial Code ("UCC"). M-C sought specific performance and in the alternative, damages in the sum of $2,020,000.

RxP counterclaimed seeking a declaration that the agreement was not an enforceable contract. RxP also pleaded the affirmative defenses of failure to satisfy the statute of frauds, failure of consideration, failure to satisfy conditions precedent, repudiation by M-C, failure to provide adequate assurance of performance, and failure by M-C to perform in a commercially reasonable manner.

Pursuant to 28 U.S.C. § 636(c), the case was assigned to a United States Magistrate. The parties consented to the assignment and agreed that any appeals would be taken directly to this Court.

On April 21, 1997, RxP filed its motion for summary judgement raising the following issues: (1) the contract was unenforceable per the statute of frauds for lack of a stated quantity term; and (2) M-C was unable, as a matter of law, to prove lost profit damages because it was a new business and it failed to register an "ER-1" with the Environmental Protection Agency.

In opposing RxP's motion, M-C conceded the agreement lacked a quantity term, but M-C claimed that the agreement was a requirements contract and argued that requirements contracts are not subject to the statute of frauds. M-C also claimed that damages for lost profits could be recovered with respect to requirements contracts even though they may not be otherwise recoverable for lost profits allegedly lost by a new, speculative, and enviable business. M-C did not file its own motion for summary judgment, and the magistrate judge did not advise the parties he was considering any relief other than that requested by RxP.

On June 30, 1997, the magistrate judge granted RxP's motion with respect to damages holding that M-C was not entitled to recover damages for lost profits. The judge denied RxP's motion with respect to the enforceability of the contract between RxP and M-C. Without a motion before him the magistrate judge held that the contract was not one for the sale of goods. The court characterized the agreement as an option contract and held that option contracts are not subject to the UCC or the statute of frauds. The court also held that the agreement was potentially enforceable as an option contract.

A jury trial was scheduled for July 21, 1997. On July 14, 1997, the parties filed their pretrial order, which was approved and signed by the magistrate judge. The issues included: (1) whether the agreement is an enforceable contract; (2) whether the agreement is unenforceable because it lacks a quantity term; (3) whether the parties intended to form an option contract; (4) whether option contracts for the sale of goods are subject to the UCC; (5) whether the September 1995 agreement was intended to be the entire agreement between the parties; and (6) whether an option contract lacking numerous terms, including a quantity term, is capable of specific performance.

On July 21, 1997, the magistrate judge announced that a trial would not be held and that the parties would not be allowed to present evidence concerning the contested issues.

On September 9, 1997, the judge held that the agreement entered into by the parties is an option contract whereby M-C purchased from RxP, for consideration of $10.00, the right to purchase RxP Gas Kicker for a specified price over five years from the date of first order. The magistrate judge also held that the option contract was not one for the sale of goods and was not subject to §§ 2.102, 2.106(a) and 2.201 of the Texas Business and Commercial Code. ¹ The magistrate judge also held that the option contract represented the full and complete agreement between RxP and M-C and could not be supplemented by evidence of additional terms. The judge awarded M-C specific performance of the contract and attorney's fees that amounted to $32,156.25.

On October 2, 1997, RxP filed a timely appeal to this Court. On October 10, 1997, M-C cross appealed.

II. Standard of Review

This Circuit reviews a district court's grant of summary judgment de novo, applying the same standard of review as would the district court. Ellison v. Connor, 153 F.3d 247, 251 (5th Cir.1998). Summary judgment evidence is viewed in the light most favorable to the party opposing the motion. Eastman Kodak v. Image Technical Services, 504 U.S. 451, 456-58, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). Summary judgment is proper only when it appears that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); Ellison, 153 F.3d at 251. Disputes concerning material facts are genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Douglass v. United Auto. Ass'n, 79 F.3d 1415, 1429 (5th Cir.1996) (en banc) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue is "material" if it involves a fact that might affect the outcome of the suit under the governing law. Id. at 248, 106 S.Ct. 2505; Thomas v. LTV Corp., 39 F.3d 611, 616 (5th Cir.1994).

As a general rule, the interpretation of a contract is a question of law, not fact. Hidden Oaks Ltd. v. City of Austin, 138 F.3d 1036, 1048 (5th Cir.1998). "Whether a contract exists involves both questions of fact--such as the intent of the parties--and questions of law--such as whether, the facts as found constitute a contract. On appeal, a trial court's findings of fact must be accepted unless clearly erroneous or influenced by an incorrect view of the law." Zimmerman v. H.E. Butt Grocery Co., 932 F.2d 469, 471 (5th Cir.), cert. denied, 502 U.S. 984, 112 S.Ct. 591, 116 L.Ed.2d 615 (1991).

The magistrate judge held that the agreement was an option contract. In addition, the judge concluded that the agreement was not a contract for the sale of goods and therefore was not subject to the Texas Business and Commercial Code section 2.201. Both of these legal conclusions are subject to de...