OPEN MEMORu KONG.docx

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