Webb Business Promotions, Inc. v. American Electronics & Entertainment Corp.

On May 16, 1995, American Electronics & Entertainment Corporation (AE&E) (defendant) contracted to sell 300,000 videotapes, along with accompanying promotional material, to Target Corporation. The AE&E-Target contract permitted Target to cancel the order before delivery if the videotapes failed Target’s quality standards. On May 24, AE&E (1) contracted with Webb Business Promotions, Inc. (Webb) (plaintiff) for Webb to provide AE&E with 300,000 promotional units for $684,000 and (2) sent Webb a 300,000-unit purchase order. The purchase order was contingent on Target’s order, but AE&E did not disclose Target’s cancellation rights. Nor did AE&E inform Webb when Target expressed quality concerns (and AE&E later falsely told Webb that Target raised no quality concerns). Based in part on quality concerns, Target reduced its order to 85,000 units, leading Webb eventually to agree to supply 85,000 units to AE&E. Webb invoiced AE&E for approximately $190,000 for the 85,000 units. AE&E did not pay Webb’s invoice but sent Webb a letter that explicitly referenced the May contract and purchase order and stated that (1) AE&E would pay Webb only $150,000 (due to claimed errors) and (2) by cashing the check, Webb would accept that amount as a final settlement. AE&E’s letter accompanying its check contained similar language. After cashing the check, Webb sued AE&E. In response, AE&E asserted the affirmative defense of accord and satisfaction. At trial, Webb contended that the check satisfied the $190,000 invoice but did not settle Webb’s claim regarding the May contract and purchase order. Webb further claimed that there was no accord and satisfaction because AE&E acted in bad faith. AE&E countered that it expressly referenced the May contract and purchase order and that the May purchase order was expressly contingent on Target’s order. The district court ruled that AE&E breached the Webb contract and that there was no accord and satisfaction because (1) AE&E acted in bad faith by concealing and misrepresenting key facts regarding Target’s quality concerns and cancellation rights and (2) the parties did not mutually agree to settle their dispute about the May agreement and purchase order. The court of appeals affirmed the district court’s findings but also ruled that an accord and satisfaction did not require mutual assent. AE&E appealed.