Sagent Technology, Inc. v. Micros Systems, Inc.
51 U.C.C. Rep. Serv. 2d (West) 59, 276 F. Supp. 2d 464, 2003 U.S. Dist. LEXIS 14022 (2003)
Rule of Law:
Under the Uniform Commercial Code (UCC) parol evidence rule, prior oral agreements that contradict or add significant terms to a final written contract for the sale of goods are generally inadmissible unless the writing is not a complete expression of the agreement and the additional terms are consistent, or unless there is a showing of intentional fraudulent misrepresentation. A buyer's failure to pay for goods received and accepted constitutes a material breach of contract, entitling the seller to the purchase price.
Facts:
- On June 6, 2000, executives from Sagent Technology, Inc. (Sagent) and MICROS Systems, Inc. (MSI) met to discuss MSI's purchase of Sagent software for resale to MSI's customers.
- During this meeting and in subsequent phone calls, Sagent executives (Gene Garret and Dan Van Veelan) allegedly made promises to MSI executive Peter Rogers, including that Sagent would help MSI resell the software and that MSI could return the software for a full refund if it could not resell it.
- On June 20, 2000, Dan Van Veelan sent a price quote for certain software, related products, and technical support to Peter Rogers.
- On June 30, 2000, Peter Rogers sent a purchase order for the same software, related products, and technical support, totaling $136,000, but this written purchase order did not include the alleged prior promises.
- MSI received the software sometime in the fall of 2000.
- From the fall of 2000 to October 2001, MSI did not pay Sagent, initially believing the invoices were incorrect, with no written correspondence indicating non-payment was due to lack of resale assistance.
- In October 2001, Sagent sent a corrected invoice to MSI, removing a $24,000 charge for technical support.
- In December 1999, Sagent and MSI had previously entered into a Joint Intellectual Property Agreement (JIPA) which contained a forum selection clause requiring any action relating to it to be brought in Santa Clara County, California.
Procedural Posture:
- Sagent Technology, Inc. (Sagent) initiated a lawsuit against MICROS Systems, Inc. (MSI) for breach of contract.
- The original action was filed in the U.S. District Court for the Northern District of California.
- MSI successfully moved to transfer the case from the Northern District of California to the U.S. District Court for the District of Maryland.
- MSI filed a counterclaim against Sagent, alleging fraud, negligent misrepresentation, and breach of the covenant of good faith and fair dealing.
- Sagent filed a motion in limine to exclude parol evidence.
- Sagent filed a motion for summary judgment on its breach of contract claim.
- MSI filed a motion for summary judgment on Sagent's breach of contract claim.
- Sagent filed a motion to dismiss MSI's counterclaims, or in the alternative, for summary judgment.
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Issue:
Does the Uniform Commercial Code’s parol evidence rule preclude the admission of prior oral promises that would certainly have been included in a final written purchase order for goods, or that do not demonstrate intentional fraudulent misrepresentation, and does a buyer's failure to pay for accepted goods constitute a material breach entitling the seller to the purchase price?
Opinions:
Majority - Motz, District Judge
Yes, the Uniform Commercial Code’s parol evidence rule precludes the admission of prior oral promises not included in the written purchase order, and a buyer’s failure to pay for accepted goods constitutes a material breach entitling the seller to the purchase price. The court determined that the Maryland Uniform Commercial Code (U.C.C. Md. Code Ann., Com. Law I § 2-202) applied to the transaction because the software, distributed on CD-ROM, qualified as "goods." Under the U.C.C., parol evidence is inadmissible to contradict or supplement a writing intended as a complete expression, or to prove consistent, additional terms if those terms would certainly have been included in the document. The court found that the alleged promises of resale assistance and a full refund were significant business agreements that would "certainly have been included" in the purchase order if agreed upon, thus barring their admission as additional terms. Furthermore, these terms were inconsistent with the written purchase order because they imposed new legal obligations. The court also held that the parol evidence was inadmissible to prove fraud because MSI failed to show intentional misrepresentation. While the U.C.C. allows parol evidence for fraud, this exception requires a showing of scienter (fraudulent intent), which cannot be inferred merely from a company's financial struggles or desire for a large sale; direct evidence or specific circumstances suggesting intent beyond mere failure to perform a promise are required. The court granted Sagent's motion for summary judgment on its breach of contract claim because the price quote, purchase order, and delivery created a binding contract for the sale of goods. MSI received and accepted the software but failed to pay, which constitutes a material breach under U.C.C. §§ 2-607 and 2-709, entitling Sagent to the $112,000 purchase price plus prejudgment interest. Regarding MSI's counterclaims, the court granted Sagent's motion to dismiss or for summary judgment. It found that the forum selection clause in the JIPA was enforceable for MSI's counterclaims for breach of the covenant of good faith and fair dealing and fraud in the inducement (Counts III and IV), requiring them to be heard in Santa Clara County, California, and Sagent had not waived this objection. The court granted summary judgment against MSI's fraud counterclaim for insufficient evidence of fraudulent intent, reiterating its prior reasoning regarding the parol evidence rule. Lastly, it dismissed MSI's negligent misrepresentation claim, finding that Sagent owed no duty to MSI. In cases of pure economic harm from negligent misrepresentation, Maryland law requires an "intimate nexus" between the parties (contractual privity or its equivalent involving personal trust and reliance). The court concluded that precontractual, arm's-length negotiations for a routine software sale did not establish such an intimate nexus.
Analysis:
This case significantly reinforces the U.C.C.'s parol evidence rule, particularly in its application to software transactions and the high bar for exceptions such as fraud. By classifying software on a CD-ROM as "goods" under the U.C.C., the court aligns with a trend to apply commercial law principles to technological products, impacting how software license agreements might be interpreted. The ruling emphasizes the importance of carefully drafting written contracts, especially for significant commercial terms, as prior oral representations are unlikely to be admitted unless explicitly included. Furthermore, it clarifies the stringent requirement for proving fraudulent intent, protecting parties from speculative fraud claims based solely on commercial pressures or alleged non-performance of unwritten promises, and limits negligent misrepresentation claims in arm's-length business dealings to situations demonstrating a strong "intimate nexus" of trust.
