Capitol Vial, Inc. v. International Bioproducts, Inc.
Capitol Vial, Inc. v. International Bioproducts, Inc.
Opinion of the Court
MEMORANDUM-DECISION AND ORDER
Introduction
This diversity action arose out of a dispute over the interpretation and scope of an exclusive sales and distribution agreement between Plaintiff, Capitol Vial, Inc. (“CVI”), a New York corporation that manufactures and sells plastic vials,
Background
In June of 1992, IBP became interested in selling CVT’s hinge-capped plastic vials to its medical and scientific laboratory customers.
On April 26, 1995, CVI brought this action in New York State Supreme Court and the action was thereafter removed to this Court.
Presently before the Court are the following motions: (1) motion by IBP for summary judgment on both of CVI’s claims;
I. Motion by IBP for Summary Judgment of CVI’s Entire Complaint
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is warranted if, when viewing the evidence submitted in a light most favorable to the nonmoving party, the court determines that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(e); Eastman Ko
Pursuant to the terms of the contract, the Court will apply the laws of the State of Washington to the interpretation and validity of the CVI-IBP agreement.
As stated, CVI’s first cause of action seeks to have the September 22, 1993 agreement declared void and unenforceable on the grounds of lack of material terms, lack of mutuality or consideration, impossibility, and breach of contract by IBP.
A. IBP’s Motion for Summary Judgment on CVI’s First Claim
1. Lack of Material Terms
Material terms that are essential to the formation of an enforceable contract are: identification of the parties, the subject matter of the agreement, term of years, quantity, quality of the goods, and price. See Kysar v. Lambert, 76 Wash.App. 470, 887 P.2d 431, 436 (1995).
The nine page agreement between CVI and IBP stated that it would be in effect for five years, identified both parties, defined “product,” “field of use,” and “territory,” and stated a price of $0.085 per vial. The contract also required CVI to sell the vials and IBP to cause the vials to be filled with dilution solution. Thereafter, IBP had the exclusive right to promote and sell the prefilled vials in certain areas of the world. Clearly, the contract contained all material terms. Hence, the Court grants IBP’s motion for summary judgment on CVI’s claim of lack of material terms.
2. Lack of Mutuality of Obligation or Consideration
CVI argues that the agreement lacked consideration because IBP had complete liberty to decide the specific quantity of vials it would purchase, and, in fact, could even choose to purchase none. IBP contends that the requirement of IBP to use its best efforts in promoting and selling the vials constituted sufficient consideration.
If one of the parties to a contract has the freedom to choose whether or not to perform, the contract is void for lack of consideration. See Parks v. Elmore, 59 Wash. 584, 110 P. 381, 382-83 (1910); see also Sargent v. Drew-English, Inc., 12 Wash.2d 320, 121 P.2d 373, 376 (1942). However, under the laws of the State of Washington, a promise to promote and develop to the best of abilities is valid and sufficient consideration for an exclusive dealings contract. See Sargent, 121 P.2d at 377.
Article 4 of the agreement required IBP to “maintain, as appropriate, adequate stock of PRODUCT(S) to cover the normal requirement of its customers.” Furthermore, under Article 7, IBP was to “stimulate the sales of the PRODUCT(S) to the best of its ability.” Despite the fact that IBP was not obligated to purchase a specific quantity of vials, the clause which required IBP to use its best efforts to stimulate the sales of the vials would appear to constitute a valuable form of consideration. Cf. Sargent, 121 P.2d at 377 (holding that the highly analogous promise to use its best efforts to promote and develop a market was sufficient consideration). Therefore, the Court finds no genuine issue of material fact "with respect to CVI’s claim that the contract lacked mutuality or consideration. Therefore, IBP is entitled to summary judgment on CVI’s claim of lack of consideration, and the claim is dismissed.
3.Impossibility
CVI argues that the parties’ intention while negotiating the contract was to require the vials to be manufactured out of plastic that could withstand gamma irradiation, and that such a vial is impossible to construct. While IBP admits that its preferred method of sterilization was gamma irradiation, IBP
Impossibility may excuse a party from performing its obligations under a contract when the party will suffer extreme and unreasonable hardship due to an unavoidable event or occurrence. See Metropolitan Park District of Tacoma v. Griffith, 106 Wash.2d 425, 723 P.2d 1093, 1102 (1986). To determine whether the performance of the contract is impossible, the Court must ascertain the intention of the parties when they entered into the contract. See Berg v. Hudesman, 115 Wash.2d 657, 801 P.2d 222, 229 (1990). In the State of Washington, extrinsic evidence is admissible to determine such intent.
Although the contract is somewhat ambiguous on this point, Annex I to the contract defined the “PRODUCTS” as “vials [which] may include tamper evident devices and other closure devices to ensure that the vial does not come open in transit.” The definition also mandated these vials to have a certain level of technical performance, such as a minimum evaporative loss rate, and to be manufactured out of clear or opaque polypropylene.
4. Breach of Contract by IBP
CVI alleges that IBP breached the contract in two ways: (1) by not purchasing any vials from the inception of the contract until April 1995; and (2) by selling dilution solution in another manufacturer’s bottle.
Although the contract gave IBP the exclusive right to promote and sell CVI plastic vials filled with dilution solution, the contract does not prohibit IBP from continuing to sell its solution products in another supplier’s bottle.
B. IBP’s Motion for Summary Judgment as to CVI’s Second Claim
As stated, CVI’s second claim seeks to have the Court declare the contract void and unenforceable on the grounds of fraudulent misrepresentation.
A contract is voidable if one party entered into the agreement as a result of a fraudulent misrepresentation. See Yakima County Fire Protection Dist. No. 12 v. City of Yakima, 122 Wash.2d 371, 858 P.2d 245 (1993). The nine elements that must be established by the party seeking to avoid the contract due to fraudulent misrepresentation by clear and convincing evidence are: (1) a representation of as existing fact; (2) materiality; (3) falsity; (4) scienter; (5) intent to have the other party act on the representation; (6) the party who relied on the statement was unaware of its falsity; (7) reliance on the representation; (8) a right to rely; and (9) damages. See Williams v. Joslin, 65 Wash.2d 696, 399 P.2d 308, 308-09 (1965); see also Turner v. Enders, 15 Wash.App. 875, 552 P.2d 694, 696 (1976).
In order for CVI’s fraudulent inducement claim to survive the motion for summary judgment, each element of the cause of action must be supported by evidence. While a genuine issue of fact may exist concerning whether the misrepresentation was actually made, CVI has not come forth with evidence to establish the remaining elements. Specifically, CVI has not submitted evidence from which scienter, intent to induce, or justifiable reliance can be inferred.
II. IBP’s Motion for Summary Judgment on its Counterclaim
IBP argues that CVI breached by refusing to sells vials to IBP and by entering into an exclusive sales and distribution agreement for the same product and roughly the same territory with Weber Scientific, Inc. (‘Weber”), a competitor of IBP. The CVI-Weber contract required CVI to sterile fill Mold 84 vials with dilution solution, then sell the prefilled vials to Weber, who in turn would market and sell the vials to scientific, medical, and research laboratories. CVI argues that its contract with IBP covered only unfilled vials, and therefore CVI was only precluded from selling empty vials to IBP competitors who would fill the vials with dilution solution themselves. Thus, CVI contends that it could, without breaching the contract, sell filled vials to any other company.
The contract between IBP and CVI explicitly described the products and field of use as being “prefilled dilution vials for use by the laboratory for the dilution of samples.” While the term “prefilled” could be stretched to mean an empty vial prior to being filled, the Court finds that the term more accurately means a filled vial, especially beeause the contract continues by stating that “[t]hese hinged cap vials contain diluent volumes of approximately 90 ml and 99 ml.”
III. CVI’s Motion for Partial Summary Judgment on IBP’s Claim for Damages
CVI seeks partial, summary judgment to limit the amount of damages for which it can possibly be held liable. Specifically, CVI contends that IBP’s damages should include only those areas encompassed by both contracts.
Conclusion
After carefully considering the papers submitted, the arguments of counsel, the applicable law, and the entire file in this matter, it is hereby
ORDERED that IBP’s motion for summary judgment on CVI’s first claim is
ORDERED that IBP’s motion for summary judgment on CVI’s second claim is GRANTED, and it is further
ORDERED that IBP’s motion for summary judgment on its counterclaim is DENIED, and further
ORDERED that CVI’s motion for partial summary judgment is DENIED.
IT IS SO ORDERED.
. The vials are made out of polypropylene homo-polymer and are manufactured using a patented process which produces leak-proof single-piece vials in a unitary molding operation. The vials can-be filled with a variety of liquids. CVI is the only manufacturer to produce such vials.
. IBP also brought a second counterclaim for punitive damages which was dismissed on March 20, 1996.
. Prefilled sterile dilution solution containers were a relatively new product in the laboratory supply business. The containers eliminated the time consuming preparation and sterilization that laboratory technicians had to perform before Phosphate, and 0.1% Peptone Water.
. IBP brought this motion first to dismiss for failure to state a cause of action; then in the alternative for summary judgment. Because IBP filed its Fed. R. Civ. Pro. 12(b)(6) motion after serving its answer, the Court will consider the summary judgment motion as the appropriate motion. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure, § 1357 (2d ed. 1990).
. The Court previously denied the Plaintiff's motion for entire summary judgment on the counterclaim.
. Article 12 of the contract contains a choice-of-law clause indicating that the agreement is to be governed by the laws of the State of Washington.
. IBP claims there were two possible methods of achieving the sterility of the product. The first method was to fill the vial with non-sterile solution and then sterilize the vial through terminal gamma irradiation. The second method was to sterile fill the vials, thereby eliminating the need for the vial to be made of gamma stable plastic.
. "Such evidence is admissible regardless of whether or not the contract language is deemed ambiguous. At the same time, however, .... extrinsic evidence cannot be considered for the purpose of varying terms of a written contract.” U.S. Life Credit Ins. Co. v. Williams, 129 Wash.2d 565, 919 P.2d 594, 597 (1996); see also Berg, 801 P.2d at 229-30.
. The exact contract language is:
2. The technical performance specifications of the PRODUCTS include the following:
a. The evaporative loss rate is less than 1% of the liquid mass inside the vial at 95°F for a period of six months.
b. The vial is made of polypropylene which is clear or opaque so that any liquid in the vial can be easily seen by the user when the vial is closed.
. IBP began selling sterile filled dilution bottles manufactured by AidPak/Nutramax in March 1992, over one year before the CVI-IBP contract was signed.
. The Mold 84 vial was being developed especially for IBP. The Intermed vial was short-skirted and holds 120 cc, while the long-skirted Mold 84 vial holds 145 cc.
. The only language that may suggest otherwise is contained in Article 3 which states, "All PRODUCT(S) shall be purchased by IBP from
. The Court does not reach the issue of whether such a breach of contract by IBP, if proven, could be sufficiently material to justify a rescission of the entire contract.
. Although neither party addressed negligent misrepresentation in their papers, CVI did assert it as a basis for voiding the contract in its complaint. Even if there was a genuine issue of material fact surrounding a false statement that was negligently made, the Court was unable to find precedent in any case decided by a Washington State court that supported the proposition that negligent misrepresentation is a viable ground for nullifying a contract. Therefore, the Court will only discuss the fraudulent misrepresentation claim that was briefed by both parties.
.On the contrary, only lack of justifiable reliance can be inferred from the evidence submitted. For example, CVI’s Marketing Director stated in his affidavit that, IAP “never said what the product was, and [CVI representatives did not have] any idea what [IAP] was talking about as far as the product was concerned. In fact, we did not care so long as IAP’s product would be ‘proprietary,’ that is a product that no one else could duplicate.” Daggett Aff., V 6.
. Prior to signing the contract, CVI recommended a change to Article 19(b). Then upon signing the contract, CVI made a pen and ink change to Article 2 entitled “Scope of the Contract.”
. Interestingly, the CVI-Weber contract used nearly the same language as the CVI-IAP contract by describing the vials as "accurately prefilled.” Undisputedly, the CVI-Weber contract encompassed filled vials. Furthermore, a Weber advertisement for the vials and an AidPak advertisement for dilution bottles used the word "prefilled" to describe the product which are filled with dilution solution. Thus, customary usage of the term "prefilled” in the laboratory supply business obviously means filled, not empty.
.The CVI-IBP contract encompassed the United States, Mexico, Canada, the European Common Market, Australia, and New Zealand. The CVI-Weber contract included only North America and South America.
Reference
- Full Case Name
- CAPITOL VIAL, INC. v. INTERNATIONAL BIOPRODUCTS, INC.
- Cited By
- 4 cases
- Status
- Published