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Situation Management Systems, Inc. v. Malouf, Inc.

Supreme Judicial Court of Massachusetts
724 N.E.2d 699 (2000)


Situation Management Systems, Inc. (SMS) (plaintiff) sold training materials. Malouf, Inc., doing business as LMA, Inc. (LMA) (defendant), was an agent of SMS and sold SMS’s products. SMS and LMA had three agency agreements over the years, all with substantially the same terms. At one point, between contracts, the parties continued doing business together without having a contract in place. Malouf had several discussions with SMS president Earl Rose about LMA purchasing another SMS agent, The Kasten Company (Kasten), but repeatedly told Rose that he needed a five-year commitment with SMS before he could commit to purchasing Kasten. Alex Moore, SMS’s chairman, and Rose told Malouf that SMS was committed to a five-year contract with LMA. Based on those statements, Malouf negotiated an agreement to purchase Kasten. SMS later sent a contract to LMA that contained significant changes from past contracts. The parties were unable to agree on the terms, and their existing contract expired. SMS sued LMA for payment for the training materials, and LMA counterclaimed for breach of contract. The parties settled SMS’s claim. The trial jury found that SMS had promised a five-year commitment to LMA and that LMA had suffered $3.8 million in damages consisting of lost profits. SMS appealed.

Rule of Law


Holding and Reasoning (Ireland, J.)

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