OPEN MEMORu KONG.docx
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OPEN MEMORu KONG.docx
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OPENMEMORuKONG
MEMORANDUM
TO:
SandraEllingsonTrimble
FROM:
RuKONG
RE:
meritsofCDI'sclaimtorecoverthepriceofitsdesignsagainstTSC
DATE:
November20,2009
________________________________________________________________________________________________
ISSUE
UnderNewYorkLaw,doesT-ShirtsforChampions(“TSC”)haveobligationsbasedontheallegedcontracttopayforthe18designs,whichTSCrejectedbywritingREJECTEDacrossthemandthe15manufacturedbutnotmarketedPistonsdesigns,whenTSCsaidithaveagreedwithCreativeDesigns,Inc.(“CDI”),whichprovidedthedesignservices,overtelephonethatpaymentisonlydueforthedesignsareultimatelyused?
SHORTANSWER
ThereisanenforceablecontractbetweenTSCandCDI.HoweverwhetherTSChastopayforthe18rejecteddesignsdependsonwhattheparties’usualpriordealingsare.WhetherTSChastopayforthe15destroyeddesignsdependsonwhatthetermultimatelyusedmeans,whichcanbedecidedbytradeusageintherelatedfield.However,ifthereisnotradeusageaboutwhatultimatelyusedmeans,thecourtislikelytograndCDIacontractualremedybasedonequityprinciple.
FACTS
In2005,TSCbecametheconcessionaireforchampionshipmerchandiseofthe2004-2005NationalBasketballAssociationFinals.AfterSpursandPistonsbecamethefinalteamsthatwouldplayinthechampionshipseries,TSCrequestedCDI,adesigncorporationthathaspreviouslyprovidedesignsforTSC,24differentdesignsincorporatingthelogosforeachteamandtheword“2004-2005NBAChamps”.Aweeklater,CDIprovided48designswithaninvoiceindicatingtheamountowningtoCDIforeachdesignwas$685.ThenundertheusualprocedurewithCDI,TSCselected30designsitwantedbywritingACCEPTEDacrossthechosendesigns,rejected18designsitdidnotwantbywritingREJECTEDacrossthosedesigns,andreturnthemtoCDI.CDIcontinuedtoimprovethefinaldesignsunderTSC’sverbaldeliveryinstructions.SinceTSCwasnotsurewhichteamwouldwonthegame,itbegantoadd“2004-2005NBAChamps”tomerchandiseforbothteams.AftergottheresultthatSpurswon,TSCdestroyedthePistons’itemsthathadalreadybeencompletedwiththechampionshipdesigns.AfterreceivedCDI’sinvoicefor$32,880,TSConlypaidforthe15designsitusedfortheSpursmerchandise.AccordingtoTSC’spresident,CDIandTSChadagreedoverthetelephonethatpaymentwouldonlybedueforthosedesignsthatwereultimatelyused.Finally,CDIthreatenedtofilealawsuitagainstTSCfortheunpaidamountbasedonTSC’sbreachofthecontractbetweenthem.
DISCUSSION
IfCDIclaimstherecoveryofthepriceforthe9rejectedSpursdesignsandtheunusedPistonsdesigns,ithastosatisfythefollowingrequirements:
Firstlytheremustbeanenforceablecontract.Thenunderthecontract,TSChastheobligationtopay9rejectedSpursdesignsandtheunusedPistonsdesigns.Finally,theclaimhastosatisfythestatuteoflimitation.
WhetherNewYorkGeneralObligationsLaworNewYorkUniformCommercialCodegovernsourissuedependingonwhattheallegedcontractisabout.InRullev.IvariInt'l,Inc.,746N.Y.S.2d338,340(N.Y.App.Div.2d2002)thecourtheldacontractwhichwaspredominantlyacontractforservicesisnotsubjecttotheN.Y.U.C.C..Further,inPerlmutterv.BethDavidHospital,308N.Y.100,105(N.Y.1954)thecourtstatedacontracttopaintapicturehasbeenheldtobeacontractforwork,laborandservicesratherthanasale,althoughthetitletothecanvasisactuallytransferredtothecustomer.Becausetheservicepredominates,andtransferofpersonalpropertyisbutanincidentalfeatureofthetransaction.Likewise,inourcase,CDI’smainobligationistodesignlogos,whichisunderacontractforwork,althoughthetitleofthesamplemaybetransferredtoTSCaswell.
(1)whethertheallegedoralagreementhereisanenforceablecontract
“Toestablishtheexistenceofanenforceableagreement,aplaintiffmustestablishanoffer,acceptanceoftheoffer,consideration,mutualassent,andintenttobebound.Thatmeetingofthemindsmustincludeagreementonallessentialterms.”Kowalchukv.Stroup,873N.Y.S.2d43,46 (Sup.Ct.ofNY,2009)
A.WhetherthereisanOffer
“Noparticularformisnecessarytomakeanoffer;allthatisrequiredisconductthatwouldleadareasonablepersonintheotherparty'spositiontoinferapromiseinreturnforperformance.”Einhornv.MergatroydProds.,426F.Supp.2d189,193(S.D.N.Y.2006)Inaddition,itisrecognizedthatanofferisthemanifestationofwillingnesstoenterintoabargainandthatitmustbedefiniteandcertain.Concillav.May,214A.D.2d848,849(N.Y.App.Div.,1995)Inourcase,withtherequesttoprovidetwodozendifferentdesignsincorporatingthelogosforSpurandPistonbyTSC,CDIsent48designsalongwithinvoiceindicatingthepriceof$685peritemtoTSC.Thisactconstitutesanoffer.BecauseitleadsTSCinferapromisefromCDIthatifTSCpaysforthe48itemsonthepriceof$685,itcanusethesedesigns.Meanwhiletheofferisdefiniteandcertaininprice,numberandqualityofthedesigns.
ThenTSC,followingtheusualprocedurewithCDI,selected15designsforeachteambywriting"ACCEPTED"inlargelettersacrossthechosensamples,and"REJECTED"inlargelettersacrossthesamplesitdidnotwant,andreturnedthemtoCDI.Here,TSCacceptedCDI’sofferwithaconditionthatitonlywants30designsamong48ones.InNewYorkYankeesPartnershipv.SportsChannelAssociates,126A.D.2d470(N.Y.App.Div.1987),thecourtstatedthataqualifiedacceptanceisequivalenttoarejectionandacounteroffer.Itthenregardedaletterfromthesportteam,whichacceptedthebroadcaster'soffertotelevisethegame,reducedthenumberofgamestobetelevisedwhileexpresslyrejectingtheremainderofthebroadcaster'smultifacetedproposalasnothingmorethanacounteroffer.ThoughunlikeSportsChannel,TSCdidnotexpresslyreducethenumberofdesignsitwanted.TSCmadethepartialrejectioninawaybasedontheirusualprocedure,whichCDIcanreasonablyinfer.ThecourtwilllikelytoregardTSC’sconditionalacceptanceasacounteroffer.
B.Acceptanceofoffer
Anoffermaybeacceptedbyacquiescence.Silencecanbedeemedasacquiescence.InArcherManagementServices,Inc.v.Pennie&Edmonds,287A.D.2d343,(N.Y.App.Div.2001),thecourtregardedalawfirm’snoobjectiontothemonthlyinterestrateprintedonweeklyinvoicesovermanyyearsasanacceptancethatsuchinterestratebecameintegratedintotheparties'agreementformailroomservices.Inourcase,afterreceivedtherejectedsamples,CDInevermadeanobjectionexplicitlyorimplicitly.Meanwhile,inLinerTechnologyv.Hayes,213A.D.2d881,882(N.Y.App.Div.1995),thecourtestablishedanacceptancecanbeaconduct.Inthatcase,thedefendantcontentedthattheletteragreementoflegalservicefor$20.000wasneveracceptedbyplaintiff.Howevertheuncontestedproofofperformances oftheagreementasperitstermsbytheparties,whichthedefendantprovidedlegalservicewhiletheplaintiffpaidforit,beliessuchcontention.Likewise,inourcase,afterreceivedTSC’scounteroffer,CDIcontinuedtoimprovefinaldesigns,theaccepted30designsbyTSC,underTSC’sverbaldeliveryinstructions.CDImayargueitneveracceptedtheagreementthatTSConlywanted30designs,nevertheless,itsperformanceofworkingonlyonthe30designsbeliessuchcontention.
C.Consideration
InKowalchuk,873N.Y.S.2d43,thecourtestablishedthattheconsiderationforbilateralcontracts,inwhichpromisesareexchanged,consistoftheactsmutuallypromised.Thenthecourtconcluded“theplaintiff’sagreementtowithdrawtheclaimtheymadetotheNASD,anddefendant’sagreementtopaythemoney,constitutedfairconsideration”.Id.at49Similarly,therequirementofconsiderationislikelysatisfiedhere.CDIagreedtoprovideserviceofdesignandTCSagreetopayforit.Eachofthepartyrenderedthevalidconsideration.
D.Mutualassentonallessentialterms
Thereiscertainlyamutualassentonprice,mannerofperformanceandothermaterialterms,sinceneitherpartydisagreesonthem.TheonlydisputedtermiswhetherTSCmeanttopayforthe18rejecteddesignsandthe15destroyedPistondesigns.Thisissuewillbeexploredundertheintentdiscussion.
E.Anintenttobebound
“Ifthepartiesintendedtobeboundbytheiroralagreement,theremaybeabindingcontracteventhoughthepartiesneversetforththeiragreementinafullyexecuteddocument”ConsarcCorp.v.MarineMidlandBank,N.A.,996F.2d568,575(2dCir.1993)
InCiaramellav.Reader’sDigestAss’n,Inc.,131F.3d320(2dCir.1997),thecourtconsideredfourfactorstodeterminewhetherthepartiesintendedtobelegallyboundbytheiroralagreement:
“
(1)whethertherehasbeenanexpressreservationoftherightnottobeboundintheabsenceofasignedwriting;
(2)whethertherehasbeenpartialperformanceofthecontract;(3)whetherallofthetermsoftheallegedcontracthavebeenagreedupon;and(4)whethertheagreementatissueisthetypeofcontractthatisusuallycommittedtowriting.Nosinglefactorisdecisive,buteachprovidessignificantguidance.”Id.at323Inaddition,theirintentshouldbeobjectiveasmanifestedbytheirexpresswordsandconductatthetimeoftheallegedagreement.Wintersv.AmericanExpressTaxandBusinessServices,Inc.,2007WL632765,5(S.D.N.Y.2007)
ThusIdividetheintentissueintofoursteps:
a.Whethertherehasbeenanexpressreservationoftherightnottobeboundintheabsenceofasignedwriting.
InReprosystem,B.V.v.SCMCorp.,727F.2d257,(2dCir.19
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