Schaefer v. Spence
1991 Mo. App. LEXIS 1068, 1991 WL 119666, 813 S.W.2d 92 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An option contract must be exercised strictly according to its specified terms; acquiring the subject matter from a third party does not constitute acceptance. Additionally, under Missouri law, the tort of conversion does not apply to the appropriation of intangible property such as a secret formula or idea.
Facts:
- George Schaefer developed a secret barbeque sauce recipe over several decades, keeping the spice formula confidential.
- Schaefer entered into a business partnership with John and Betty Spence, forming Schaefer's Gourmet, Inc., to produce and market the sauce.
- To scale up production, Schaefer disclosed the spice formula to a company, Spicecraft, after obtaining a nondisclosure letter from them.
- Schaefer and the Spences later dissolved their partnership through a written agreement which stipulated that the recipe would remain Schaefer's property.
- The agreement granted the Spences a 90-day option to purchase the recipe for $50,000, which had to be exercised by providing "written notification" to Schaefer.
- The Spences did not provide written notification to exercise the option.
- Instead, the Spences contacted Spicecraft directly and obtained a copy of Schaefer's secret spice blend formula and a large quantity of the spice mixture.
- The Spences then attempted, but failed, to duplicate Schaefer's barbeque sauce using the formula they obtained from Spicecraft.
Procedural Posture:
- George Schaefer sued John and Betty Spence in a Missouri trial court.
- Schaefer's first amended petition alleged breach of contract, conversion, and fraud, seeking $50,000 in actual damages plus punitive damages.
- After a bench trial, the trial court found in favor of the Spences and denied recovery to Schaefer.
- Schaefer (appellant) appealed the trial court's judgment to the Missouri Court of Appeals, Southern District, where the Spences were the respondents.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a party's acquisition of a secret formula from a third party constitute 1) an exercise of a contractual option to purchase that formula, which required written notification to the owner for acceptance, and 2) the tort of conversion under Missouri law?
Opinions:
Majority - Shrum, J.
No. The Spences' actions did not constitute an exercise of the option, nor did they amount to the tort of conversion. For the contract claim, the court held that an option must be accepted in strict accordance with its terms. The contract explicitly required 'written notification to Schaefer,' and the Spences' act of obtaining the formula from a third party was not a valid substitute. The court declined to adopt the Restatement of Contracts § 69, which suggests that exercising dominion over offered property can be treated as acceptance, because the contract specified a clear and different method for acceptance. Regarding the conversion claim, the court determined that a secret formula is intangible property, akin to an idea. The tort of conversion in Missouri does not extend to the appropriation of purely intangible property. Because Schaefer still possessed his knowledge of the formula, the Spences did not exercise dominion over a chattel in a way that interfered with Schaefer's right of control.
Analysis:
This decision reinforces the formalistic common law principle that option contracts require strict compliance with their terms of acceptance. It illustrates the judiciary's reluctance to find acceptance through conduct when an agreement specifies a particular method. Furthermore, the case highlights the historical limitations of the tort of conversion, distinguishing between tangible chattels and purely intangible intellectual property like trade secrets. By refusing to expand conversion to cover the appropriation of a formula, the court signals that plaintiffs with such claims should seek remedies through other legal avenues, such as misappropriation of trade secrets or unfair competition, rather than traditional property torts.
