Caseflicks

Court of Appeals for the Fifth Circuit • 1976

Three-Seventy Leasing Corporation, Cross-Appellee v. Ampex Corporation, Cross-Appellant

528 F.2d 993 | 1976 U.S. App. LEXIS 12319

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Takeaway

In short, this case shows that apparent authority and conduct can establish acceptance of a sales contract, but a valid commercial exclusion of consequential damages can bar lost-profit recovery; even so, a party proving breach is entitled to nominal damages and prevailing-party status for costs.

Background

Three-Seventy Leasing Corporation (370), a leasing company operated by Joyce, sought to buy six Ampex computer-core memory units and lease them to Electronic Data Systems (EDS). Ampex salesman Kays and his supervisor, Mueller, negotiated with Joyce. Ampex submitted a document setting out the equipment, price, financing terms, and delivery to EDS. Joyce signed it on November 6, 1972, but no Ampex representative signed it.

After Joyce signed, Mueller circulated an internal memorandum saying that Ampex had been awarded an agreement by 370. Kays then sent Joyce a November 17 letter confirming delivery dates for the equipment. Ampex ultimately did not deliver. 370 sued for breach, seeking lost profits from its anticipated EDS lease and future business with EDS.

After a bench trial, the district court found that Ampex and 370 had formed an enforceable contract. It nevertheless entered judgment for Ampex because the contract excluded the damages 370 sought, and it awarded costs to Ampex. 370 appealed the damages and costs rulings; Ampex cross-appealed the finding that a contract existed.

Issues

Issue #1

Whether Ampex and 370 formed an enforceable contract for the sale of six computer-memory units.

Holding

Yes. Joyce's signed document was an offer to buy, and Ampex accepted that offer through Kays's November 17 delivery-confirmation letter.

Reasoning

The unsigned document was not itself an offer by Ampex. It contained a signature block for an Ampex representative, which remained unsigned, and nothing else showed that Ampex had already manifested an intent to be bound before Joyce signed. Thus, when Joyce executed the document, he made an offer to purchase rather than accepting a completed Ampex offer.

The record supported the conclusion that Kays had apparent authority to accept for Ampex. Kays was Ampex's salesperson, and a reasonable customer ordinarily may assume that a salesperson has authority to bind the seller in the usual course of sales. Ampex did not tell Joyce that Kays lacked contractual authority or that only its contract department could approve the transaction.

Ampex's conduct reinforced that reasonable belief. At Mueller's direction, Kays provided the proposed agreement to Joyce; the document did not disclose any limit on Kays's authority. Joyce also asked that all communications be routed through Kays, Mueller agreed, and Ampex never told Joyce that acceptance would have to come from a different employee.

In that setting, Kays's November 17 letter confirming the shipping and installation schedule could reasonably be understood as Ampex's promise to perform on the previously stated terms. The letter therefore accepted Joyce's offer, and it also supplied a sufficient writing to satisfy the statute of frauds. The district court's finding of contract formation was not clearly erroneous.

Issue #2

Whether 370 could recover lost profits from the EDS lease and anticipated future EDS transactions despite the contract's limitation of remedies.

Holding

No. The lost profits were consequential damages, and the contract validly excluded consequential damages.

Reasoning

The contract selected California law, and the Fifth Circuit applied that choice-of-law provision. Under California Commercial Code section 2713, a buyer ordinarily may recover the difference between the market price when it learned of the breach and the contract price, plus authorized incidental and consequential damages.

370 offered no proof of the market-price differential and no proof of incidental damages. Its claim was therefore limited to lost profits arising from the EDS arrangement and anticipated future dealings.

Under California Commercial Code section 2715(2), consequential damages include losses stemming from the buyer's requirements and needs that the seller had reason to know about and that could not reasonably be avoided. California authority treats lost profits of the kind 370 claimed as consequential damages because they arise from the buyer's downstream business needs.

Paragraph 8 expressly provided that Ampex would not be liable for incidental or consequential damages. California Commercial Code section 2719 permits a commercial contract to limit or exclude consequential damages unless the limitation is unconscionable. 370 did not raise unconscionability or introduce evidence supporting it, so the limitation was enforceable and barred the claimed lost profits.

Issue #3

Whether the district court could award costs to Ampex after finding that Ampex breached the contract but that 370 had no recoverable compensatory damages.

Holding

No. 370 was entitled to nominal damages and was therefore the prevailing party; the court could deny or apportion 370's costs, but it could not award costs to Ampex as the nonprevailing party.

Reasoning

A party that proves a breach of contract is entitled to nominal damages even when it cannot establish compensatory damages. That rule applied under both California and Texas law. The Fifth Circuit therefore directed the district court to enter nominal damages for 370.

By obtaining nominal damages, 370 became the prevailing party for purposes of Federal Rule of Civil Procedure 54(d). The fact that its recovery was nominal did not make Ampex, the breaching party, the prevailing party.

Rule 54(d) generally allows costs to the prevailing party unless the district court directs otherwise. The rule gives the court discretion to require the prevailing party to bear some or all of its own costs, but it does not authorize an affirmative award of costs to the nonprevailing party. The case was remanded so the district court could decide whether to award 370 its costs or require 370 to bear some or all of them.