Graulich Caterer Inc. v. Hans Holterbosch
5 U.C.C. Rep. Serv. (West) 440, 243 A.2d 253, 101 N.J.Super. 61 (1968)
Rule of Law:
Under the Uniform Commercial Code (UCC), a contract for the sale of goods may be formed even if some terms are left open, as long as the parties intend to contract and there is a reasonably certain basis for a remedy; furthermore, a buyer may cancel an installment contract if a non-conforming installment substantially impairs the value of the whole contract and the seller fails to cure the defect.
Facts:
- Hans Holterbosch, Inc. (Holterbosch) obtained the franchise to operate the Lowenbrau Pavilion at the 1964 New York World's Fair, with an April 15, 1964 opening target.
- Holterbosch hired Becker & Becker Associates, industrial design consultants, to plan food service, aiming for a "quality concept of merchandising."
- On March 17, 1964, Holterbosch, along with Becker employees, approved six food samples from Graulich Caterer Inc. (Graulich), committing to Graulich's microwave preparation method.
- Graulich requested a $50,000 security deposit, which Holterbosch refused.
- On April 1, 1964, Holterbosch signed a "letter of general intention" from Graulich, which specified menu items, delivery terms, pricing, and an exclusivity clause, but a rider was added stating it indicated "intent only" and providing for cancellation if quality fell below standards.
- In reliance on the signed letter, Graulich incurred expenses by contracting for specific platters, trays, and dollies, and established a production commissary in Long Island.
- On April 23, 1964, Graulich made the first delivery of 955 food units; Holterbosch immediately rejected these units, finding they did not match the quality of the samples.
- Holterbosch and Graulich conferred on ways to improve the food quality, and Holterbosch provided staff to assist.
- On April 25, 1964, Graulich made a second delivery of 2520 units, which Holterbosch also found unacceptable, stating the food was still not "German food" and did not meet established standards.
- Following the second failed delivery, Holterbosch converted the microwave cooking area into a conventional kitchen to prepare acceptable food.
Procedural Posture:
- Graulich Caterer Inc. (plaintiff) initiated a lawsuit against Hans Holterbosch, Inc. (defendant) for breach of contract.
- The trial court entered a judgment in favor of Hans Holterbosch, Inc., finding that the "letter of intent" did not constitute a contract and thus rejected Graulich's claims.
- Graulich Caterer Inc. (plaintiff-appellant) appealed the trial court's decision to the Superior Court of New Jersey, Appellate Division, with Hans Holterbosch, Inc. as the defendant-respondent.
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Issue:
Does a "letter of intent" with open terms, coupled with the parties' conduct, constitute an enforceable contract under the Uniform Commercial Code, and if so, does a seller's failure to cure substantially non-conforming deliveries in an installment contract justify the buyer's cancellation of the entire agreement?
Opinions:
Majority - Foley, J.A.D.
Yes, a contract was formed, and the buyer was justified in cancelling it. The court determined that the April 1, 1964 "letter of intention" and rider, combined with the parties' conduct, constituted an enforceable installment contract under the Uniform Commercial Code (UCC) of New Jersey. The UCC, specifically N.J.S. 12A:2-204, allows for contract formation even with open terms if the parties intend to contract and a reasonably certain basis for a remedy exists. Here, the documents explicitly referred to a menu, delivery, pricing, and exclusive dealing, and the parties' conduct (Holterbosch's commitment to the microwave concept, Graulich's capital investment and establishment of a commissary) demonstrated a clear intent to be contractually bound. The rider's cancellation clause, based on established quality standards (the March 17 samples), served as an express warranty and a condition subsequent, further evidencing a contractual state. The court found that Graulich's first two deliveries on April 23 and 25 did not conform to the approved samples, breaching express warranties under N.J.S. 12A:2-313(1)(c) and implied warranties of fitness. Under N.J.S. 12A:2-612(2), Holterbosch had the right to reject non-conforming installments if the non-conformity substantially impaired their value and could not be cured. Despite Graulich's assurance of cure after the first delivery, the second delivery was also substantially non-conforming. Because time was critical and Graulich failed to cure the persistent quality issues, the non-conformity of the second delivery substantially impaired the value of the whole contract, justifying Holterbosch's cancellation under N.J.S. 12A:2-612(3).
Analysis:
This case is significant for its application of the Uniform Commercial Code (UCC) to contract formation and breach, particularly regarding installment contracts and the "substantial impairment" test. It demonstrates that courts will look beyond mere "letters of intent" to the totality of the parties' writings and conduct to determine contractual intent, even when some terms are open. Furthermore, it clarifies that in installment contracts, a buyer is justified in cancelling the entire contract only if a non-conformity in an installment substantially impairs the value of the whole contract and cannot be cured, a higher bar than for a single-delivery contract. This ruling underscores the UCC's preference for upholding commercial agreements and providing mechanisms like "cure" to preserve contracts where possible, while also protecting buyers from fundamental breaches.
