United States Court of Appeals,
Fifth Circuit.
No. 91-4073
Summary Calendar.
AXELSON, INC., Plaintiff-Appellee,
v.
McEVOY-WILLIS, A DIVISION OF SMITH INTERNATIONAL (NORTH SEA), LTD.,
Defendant-Appellant.
Nov. 29, 1993.
Appeal from the United States District Court for the Eastern District of Texas.
Before DAVIS, JONES, and DUHÉ Circuit Judges.
DUHÉ, Circuit Judge:
This case presents classic battle-of-the-forms questions.1 We must determine which of various
writings, if any, was an offer, which an acceptance, and the final terms of the perfected contract.
Understanding how the parties arrived at a contract must turn on an examination of the parties'
negotiations and conduct. We affirm, holding that the parties concluded a contract without agreeing
to a cancellation provision. The law fills in the gap left by the parties. Alternatively, the cancellation
provision in the initial quotation may have been part of the contract, but because that provision is
identical to the measure of contract damages under the general law, the result is the same.
I. THE FACTS
The facts of this case sound like the delight of a contracts professor, if no one else. Statoil,
the Norwegian state oil company, planned to build oil rigs in the North Sea. McEvoy was to build
Christmas trees for the rigs, and Axelson was to supply McEvoy with actuators, an important part
of Christmas trees.2 McEvoy was unable at the time to make actuators that would satisfy Statoil's
1
See generally 1 James J. White & Robert S. Summers, Uniform Commercial Code § 1-3 (3d
ed. 1988).
2
A "Christmas tree" is a piece of equipment used on oil rigs. Christmas trees and actuators, for
present purposes, may be considered technically complex widgets.
requirements, but Axelson was.
In 1984 Axelson received an inquiry from Statoil about supplying it with the actuators. On
July 12, Axelson sent a quotation, with all material terms, to McEvoy, with "note 18" stating that the
quotation would remain valid for only 60 days. The "notes" were just enumerated terms and
conditions. Note 20 required that Axelson approve any cancellations of orders accepted by Axelson
and stated the usual common-law and U.C.C. formula for determining contract damages.3 McEvoy
asked that various notes, including note 18, be modified. McEvoy also stated in this telex, "We
expect no notes, which will be considered as exceptions, to apply...." In "Revision 1," a subsequent
telex, Axelson extended the validity of the quotation under note 18 for an additional 60 days, as
McEvoy had requested. Later, in "Revision 2," Axelson extended the validity of the quotation until
December 31, 1984.
The new year arrived and the parties had not yet concluded the contract, but they were getting
closer. McEvoy pressured Axelson for data books so that the Norwegian government could approve
the technical specifications. McEvoy's R.W. Clarke stated in a telex to Axelson,
... I am continually being pressed for the drawings and data enabling a design review
to be done....
... I do ask you proceed immediately as you have my sincerest assurance that the P.O.
will be placed just as soon as I can tie up one or two items.
Please confirm you will proceed and let me have a date when you can send same.
Thank you in advance.
Axelson, however, refused to furnish data books until McEvoy placed an order.
On March 7, McEvoy sent its "telex of intent for commencement of our purchase order
number P 62675." The "official purchase order [was] to follow in due course." The telex of intent
stated the object, quantity, price, and delivery terms for the contract, with the prices subject to
escalation as agreed. It also required the data books within eight weeks. Axelson apparently
expressed reluctance to provide the data books without an official order, but Axelson received further
3
Cancellation was conditioned on "terms which will indemnify Axelson against loss or damage
occasioned by such cancellation."
assurances from Mr. Clarke, via Axelson's London agent. On March 8, Axelson sent a telex to
McEvoy saying that the data books would be issued within eight weeks. Axelson thus began
performance, and the books were sent May 2 with an invoice to follow.
Not until June 4 did McEvoy actually send its form purchase order to Axelson. The order,
in fine print, stated,
Acceptance of the offer represented by this order is expressly limited to the provisions
overleaf. Acceptance of this order shall be constituted on the receipt by the buyer of the
acknowledgement copy of this order (attached hereto) duly signed or in any event delivery
in whole or in part of the articles described. This is the entire contract and no changes of any
kind whatsoever are binding on buyer nor shall any counter offers be deemed to be accepted
by buyer unless they are in writing and signed by an authorized representative of buyer's
purchasing department.4
The overleaf included the following cancellation provision:
TERMINATION: Without prejudice to any other right or remedy of Buyer, Buyer
shall have the right to terminate this order (1) in respect of any article at any time prior to
their delivery or performance, by written notice, cable or telex provided that the Buyer shall
pay a fair and reasonable price for work in progress at the time of such notice and
subsequently received by Buyer provided that Buyer shall not be liable for any loss or damage
suffered by Seller including consequential loss or damage.5
Axelson manufactured and delivered 28 actuators, and McEvoy paid for them. Then Axelson
manufactured eight more, and they were ready for shipment, when McEvoy withdrew from the
contract. Forty more actuators remained to be built under the contract.
Axelson sued McEvoy for breach of contract, tortious interference with contract, fraud,
breach of the dut y of good faith and fair dealing, wrongful appropriation of trade secrets, and
promissory estoppel. The trade-secrets claim was settled during the bench trial. Chief Judge Justice
found that Axelson's cancellation provision was part of the contract because it was contained in the
original quotation, which the parties continued to reference throughout their negotiations. He also
found that the original quotation was an offer whose expiration date was extended orally, and that
both parties treated the quotation as a valid offer. Judge Justice concluded that McEvoy breached
the contract by cancelling, and he awarded damages of $684,905.29 plus interest. He rendered
4
The punctuation in this paragraph is illegible on the copy in the record. This Court has
guessed where the periods are in the original.
5
Again, this Court has added the punctuation because it is illegible in the record.
judgment for McEvoy on the remaining claims. McEvoy appealed the judgment of breach of
contract. Axelson cross-appealed on the other claims but later dismissed its cross-appeal.
The facts given above are not disputed and they are all we need to resolve the case.
II. THE LAW
In the district court, the parties argued extensively about whether to apply English law or
Texas law. The opinion of the district court rests primarily on Texas law, but it decided that the
results would be the same under English law. McEvoy has not briefed the issue and is considered to
have abandoned it. Villanueva v. CNA Ins. Cos., 868 F.2d 684, 687 n. 5 (5th Cir.1989); Harris v.
Plastics Mfg. Co., 617 F.2d 438, 440 (5th Cir.1980). Axelson seems content for Texas law to be
applied. This Court, therefore, will apply Texas law.
The parties agree that the applicable Texas substantive law is the Texas equivalent of the
U.C.C. article on sales. The subchapter on "Form, Formation and Readjustment of Contract" will
inform most of our analysis. See generally Tex.Bus. & Com.Code Ann. §§ 2.201-.210 (West 1968
& Supp.1991).
III. THE ANALYSIS
Under the Code, "A contract for sale of goods may be made in any manner sufficient to show
agreement, including conduct by both parties which recognizes the existence of such a contract....
even though the moment of its making is undetermined." Id. § 2.204(a)-(b). In the present case, it
is hard to tell exactly when the contract was perfected. The quotation from Axelson can be construed
as an offer. An offer is an act that leads the offeree reasonably to believe that assent (i.e., acceptance)
will conclude the deal. E.g., Mid-south Packers, Inc. v. Shoney's, Inc., 761 F.2d 1117, 1121 (5th
Cir.1985). The telex quotation of July 12, 1984, which contained all material terms, lapsed on
December 31, but ongoing negotiations between the parties show that the terms of the quotation,
after being modified by negotiation, were still subject to McEvoy's acceptance. If at any point in the
negotiations McEvoy had sent a telex saying, "We accept," the contract would have been concluded
on the terms as negotiated to that point. McEvoy's telex of intent was the definite and seasonable
acceptance and perfected the contract. See Tex.Bus. & Com.Code Ann. § 2.207(a) (West 1968).
There is one problem with this analysis. Axelson's cancellation provision states, "Orders
accepted by Axelson, Inc. are not subject to cancellation or alterations by customers except with the
consent of Axelson...." (Emphasis added). McEvoy argues that this language means that Axelson
had to accept an order before a contract could be concluded. Then the quotation could not be an
offer; it would only be an invitation for an offer. These words may just mean, however, that if
Axelson has taken no affirmative act to accept, then the customer can still cancel the order without
Axelson's consent. In that case, this language would present no problem.
Even if McEvoy is correct, though, it cannot reach the result it wants. The quotation would
not be an offer, but the terms on which McEvoy was invited to make its offer were still clear enough.
McEvoy made its offer by its telex of intent, asking for immediate preparation of the data books that
Axelson until then had refused to compile. Axelson telexed back that it would start work and send
the data books as requested. McEvoy had made its offer, and Axelson accepted. Under either
analysis, the contract was concluded by the middle of March 1985. Both parties understood that they
had a contract; they celebrated, and they commenced performance. Conduct by both parties
recognized the existence of a contract.
McEvoy argues that too much weight is being given to its telex of intent. But the very case
McEvoy cites states that a letter of intent can be a contract itself. Garner v. Boyd, 330 F.Supp. 22,
25-26 (N.D.Tex.1970), aff'd per curiam, 447 F.2d 1373 (5th Cir.1971). The telex of intent included
no cancellation term, so either Axelson's term or the general law would apply. They are the same.
That the telex of intent said the form purchase order was to follow in due course does not
avail McEvoy. Because the parties had a meeting of the minds months before, the additional terms
on the June form purchase order never became part of the contract. Migerobe, Inc. v. Certina USA,
Inc., 924 F.2d 1330, 1335-36 (5th Cir.1991) (Mississippi U.C.C.).
The result is no different even if the writings of the parties did not constitute a contract. The
drafters of the U.C.C. had this situation in mind when they wrote subsection 2.207(c):
Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise establish a
contract. In such case the terms of the particular contract consist of those terms on which the
writings of the parties agree, together with any supplementary terms incorporated under any
other provisions of this title.
The conduct of the parties here recognizes the existence of a contract. The parties' writings do not
agree on a particular cancellation provision, so the law provides one. See id. §§ 2.207, 2.703, 2.708.6
Regardless of which of the above approaches we take, the result is the same. The finding of
damages for the principal amount is therefore affirmed.
IV. INTEREST AND ATTORNEYS' FEES
Texas law allows a prevailing party to collect prejudgment interest in contract cases "in all
but the most exceptional circumstances." Campbell, Athey & Zukowski v. Thomasson, 863 F.2d 398,
402 (5th Cir.1989) (citing Texas cases). No such circumstances have been shown here, so only the
rate needs to be determined. When the interest award is based on equity, the rate under article 5069-
1.05 applies. Law Offices of Moore & Assocs. v. Aetna Ins. Co., 902 F.2d 418, 422 (5th Cir.1990)
(citing Perry Roofing Co. v. Olcott, 744 S.W.2d 929 (Tex.1988); Cavnar v. Quality Control
Parking, Inc., 696 S.W.2d 549 (Tex.1985)). The rate under that article for the time in question is
ten percent. See Tex.Rev.Civ.Stat.Ann. art. 5069-1.05 (West 1987).
McEvoy argues that the interest rate should be determined under article 5069-1.03, which
mandates a rate of six percent "on all accounts and contracts ascertaining the sum payable,
commencing on the thirtieth (30th) day from and after the time when the sum is due and payable."
Tex.Rev.Civ.Stat.Ann. art. 1.03 (West 1987). If the contract does not "unambiguously[ ] establish
the amount owed," article 5069-1.05 applies, however. Moore, 902 F.2d at 421 (quoting Campbell,
863 F.2d at 402); Lubrizol Corp. v. Cardinal Constr. Co., 868 F.2d 767, 771-72 (5th Cir.1989).
The issue, then, is whether the contract unambiguously establishes the amount owed. It does
not. Under our analysis, either the general law or Axelson's cancellation provision establishes the
6
The statute of frauds does not present a problem. The statute only requires (1) "some writing
sufficient to indicate that a contract for sale has been made," (2) a signature (in a loose sense), and
(3) a quantity term. "All that is required is that the writing afford a basis for believing that the
offered oral evidence rests on a real transaction." Tex.Bus. & Com.Code Ann. § 2.201(a) & cmt.
1 (West 1968). There can be no dispute that the writings, although they may not form a contract
themselves, indicate that a contract for sale was made. The concerns of the statute of frauds are
different from those of § 2.207, and the situation that the statute of frauds protects against is not
present here. See Tri-State Petroleum Corp. v. Saber Energy, Inc., 845 F.2d 575, 579 (5th
Cir.1988).
amount owed. Because Axelson's cancellation provision uses the same measure as the law would,
even giving article 1.03 its broadest possible reading, the contract does not indicate the amount owed.
The court had to determine that amount, employing general legal concepts. This contract is not
within the contemplation of article 1.03.
McEvoy also contends that the Texas Constitution prohibits a rate of ten percent, citing
article XVI, section 11. That section applies only to lending and credit transactions and is
inapplicable to the rate of prejudgment interest set by a court. Sage St. Assocs. v. Northdale Constr.
Co., No. D-1349, --- S.W.2d ----, ----, 1993 WL 233410 at *3, 1993 Tex. LEXIS 103, at *7 (June
30, 1993). The one case that McEvoy cites for support of its argument was disapproved by the Sage
Street court. Id. at ---- n. 3, 1993 WL 233410 at *10 n. 3, 1993 Tex. LEXIS 103 at *7 n. 3. The
Texas Supreme Court has held that the rate provided in article 5069-1.05 should be used in contract
cases in which the interest award is based on equity, and we follow the Texas Supreme Court.
McEvoy further complains that the district court has erred in computing the date for
commencement of interest accrual and the compounding method. McEvoy is looking at the wrong
section of the statute; it cites the section "wrongful death, personal injury, and property damage."
Tex.Rev.Civ.Stat.Ann. art. 5069-1.05 § 6 (West Supp.1991). Section 2, which applies to judgments
in general, applies to this contract case. The district court was correct in determining the date that
interest began to accrue and the compounding method. The award of interest at ten percent is
therefore affirmed.
McEvoy, in a footnote, questions the district court award of attorneys' fees. McEvoy only
argues that the fees award should be reversed because the entire district court decision should be
reversed. Because we affirm that McEvoy breached by withdrawing from the contract, this argument
does not apply. Because McEvoy does not press any other theory for reversal of the fees award, it
and the rest of the judgment of the district court are
AFFIRMED.