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European Import Company, Inc. et al. v. Lone Star Company, Inc.

Court of Civil Appeals of Texas, Houston (1st Dist.)
596 S.W.2d 287 (1980)
ELI5:

Rule of Law:

A contract for the sale of goods may be formed by the conduct of the parties, and a party that receives, retains, and appropriates unordered merchandise to its own use is liable for the price of those goods.


Facts:

  • Lone Star Company, a liquor wholesaler, engaged in numerous transactions to supply alcoholic beverages to European Import Company, a retailer, during 1974.
  • Rose Marie Bagnoli, the president of European Import, was experiencing financial difficulties and hired Dr. William Blachman to help manage the company.
  • Disagreements arose between Bagnoli and Blachman concerning who had the authority to place orders with suppliers like Lone Star.
  • Lone Star delivered substantial quantities of alcoholic beverages to European Import's stores.
  • Upon delivery, many of the invoices for the merchandise were stamped by European Import, indicating receipt.
  • Dr. Blachman, an employee with apparent authority to negotiate with wholesalers, was involved in the company's operations.
  • Bagnoli tendered a check to Lone Star as payment for the merchandise.
  • European Import was ultimately closed by the Internal Revenue Service for unpaid taxes in November 1974.

Procedural Posture:

  • Lone Star Company, Inc. sued European Import Company on a sworn account and Rose Marie Bagnoli on a personal guaranty in a Texas trial court.
  • European filed a sworn denial and counterclaim, and Bagnoli denied executing the guaranty, alleging fraud and duress.
  • The case was tried before a jury, which answered six special issues, finding that European did not order the merchandise but did accept it and owed $98,621.99.
  • The trial court entered a judgment in favor of Lone Star based on the jury's answers.
  • European Import Company and Bagnoli's motion for a new trial was overruled.
  • European Import Company and Bagnoli, as appellants, appealed the trial court's judgment to the Texas Court of Civil Appeals.

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Issue:

Does a party's acceptance and retention of unordered goods, demonstrated by conduct such as stamping invoices and tendering payment, constitute a valid and enforceable contract for sale?


Opinions:

Majority - Doyle, Justice.

Yes. A valid contract for sale is formed when a party's conduct demonstrates acceptance of unordered goods. The Texas Business & Commerce Code § 2.204 provides that a contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties. Although the jury found that European Import did not explicitly order the merchandise, its subsequent actions constituted acceptance. The court reasoned that liability for unordered goods arises when the recipient appropriates them for their own use. Evidence of appropriation and acceptance in this case included European Import's practice of stamping the delivery invoices, the involvement of its employee Dr. Blachman who had authority to negotiate, and Bagnoli's act of tendering a check to Lone Star for payment. Citing precedent like Johnson v. Gattegno, the court affirmed the principle that retention and use of unordered goods demonstrates an intention to ratify the delivery, thereby creating a binding contract.



Analysis:

This case illustrates a core principle of the Uniform Commercial Code (UCC), as adopted in Texas, that a contract can be formed through conduct even without a formal offer and acceptance. It establishes that a party cannot avoid liability for goods by claiming they were unordered if that party's subsequent actions—such as retaining, using, or attempting to pay for the goods—are inconsistent with non-acceptance. This decision reinforces the importance of a party's actions and course of performance in commercial transactions, showing that the law will infer a 'meeting of the minds' from objective conduct rather than relying solely on subjective intent or formal orders. For future cases, it provides a clear example of what kind of conduct is sufficient to constitute acceptance of unordered goods.

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