Tingstol Company v. Rainbow Sales Inc ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1163
TINGSTOL COMPANY,
Plaintiff-Appellee,
v.
RAINBOW SALES INCORPORATED,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 8867--William J. Hibbler, Judge.
Argued June 2, 2000--Decided July 7, 2000
Before FLAUM, EVANS, and WILLIAMS, Circuit Judges.
EVANS, Circuit Judge. This case requires
interpreting what a contract meant by the word
"orders" and whether something called a "blanket
order" qualified.
Tingstol Company of Chicago manufactures printed
circuit boards, a car part. In 1983 Rainbow Sales
Incorporated became Tingstol’s exclusive sales
agent in Florida, which entitled Rainbow to a 5
percent commission on all of Tingstol’s sales
there. Under the terms of their 1993 written
contract, either side could pull out of the deal
with 60 days notice. Tingstol gave Rainbow 60
days notice to end the relationship in November
1996.
The contract required Tingstol to pay Rainbow
"the commissions provided for herein only on
orders received by [Tingstol] prior to the
termination date." Before Rainbow’s termination,
Tingstol’s biggest Florida customer, United
Technologies Automotive (UTA), placed a "blanket
order." After the termination, UTA executed a
"release" and it was only then that UTA paid
Tingstol and Tingstol shipped the circuit boards
to UTA.
Rainbow demanded that Tingstol fork over
commissions for the sales that followed the
blanket order. Going to federal court under
diversity jurisdiction, 28 U.S.C. sec. 1332
(a)(1), Tingstol sought a declaratory judgment
that it owed Rainbow nothing. District Judge
William J. Hibbler sided with Tingstol on summary
judgment, and we now take up Rainbow’s appeal.
We review de novo the district court’s summary
judgment order, mindful that summary judgment is
particularly appropriate in cases involving the
interpretation of written contracts. Independent
Constr. Equip. Builders Union v. Hyster-Yale
Materials Handling, Inc., 83 F.3d 930, 932-33
(7th Cir. 1996); Omnitrus Merging Corp. v.
Illinois Tool Works, Inc., 628 N.E.2d 1165, 1168
(Ill. App. Ct. 1994). A contract is unambiguous
if it is susceptible to only one reasonable
interpretation. Hyster-Yale, 83 F.3d at 933;
Omnitrus, 628 N.E.2d at 1168. Whether a contract
is clear or ambiguous is a matter of law for the
court, but the meaning of any ambiguity is a
question of fact for a jury. Atlantic Mut. Ins.
Co. v. Metron Engr. and Constr. Co., 83 F.3d 897,
901-02 (7th Cir. 1996); Omnitrus, 628 N.E.2d at
1168. Extrinsic evidence is considered only if
the contract itself is ambiguous. Metron, 83 F.3d
at 901-02; Omnitrus, 628 N.E.2d at 1168.
Rainbow gives two reasons why it deserves
commissions (or at least a trial) for the post-
termination Tingstol-UTA transaction that
followed UTA’s pre-termination blanket order.
First, it contends that the meaning of "orders"
in the contract is ambiguous, does not
necessarily connote a binding sale, and requires
resolution by a trier of fact. Second, even if
only a binding transaction constitutes an order,
Rainbow says the blanket order at issue was
binding and thus qualifies as an order that
generates commissions.
Neither side tarries long--and neither will we--
over whether by "orders" the contract could have
meant anything less than a firm commitment to
buy. The contract’s failure to define "orders"
does not automatically render the term ambiguous.
Sales agents generally earn commissions when
there is a sale, not when a customer expresses a
vague or tentative interest in a product.
Webster’s Third New International Dictionary
defines this use of order as "a commission to
purchase, sell, or supply goods: a direction in
writing to furnish supplies." Black’s Law
Dictionary says "an ’order’ is a direction to pay
and must be more than an authorization or
request." Common understanding of the term is the
same. When you place an order at a restaurant, or
at a hardware store, or through a web site, you
pledge to pay for the goods that the seller will
provide. There may be circumstances when you may
return the food or the merchandise and get your
money back, but there is nothing ambiguous or
exploratory about the order itself. Courts that
have interpreted similar termination clauses have
held that "orders" means enforceable contracts.
See Chicago Fineblanking Corp. v. D.J. Cotter &
Co, 1996 U.S. Dist. LEXIS 21882, *12-13 (E.D.
Mich. 1996), aff’d, 1998 U.S. App. LEXIS 639 (6th
Cir. 1998); Robich v. Patent Button Co., 417 F.2d
890, 892-93 (6th Cir. 1969). Similarly, in this
context the only reasonable interpretation of
"orders" is that it means a definite commitment
by the customer to buy.
The crux of this case is whether UTA’s "blanket
order" constitutes a binding sale. If the blanket
order really was an enforceable sale, Rainbow
deserves commissions; if not, Rainbow gets zilch.
Rainbow, naturally, contends that the blanket
order was the all-important moment and that the
"release" was merely a timing device that
controlled payment and delivery. Tingstol,
unsurprisingly, pooh-poohs the significance of
the blanket order and argues that the release is
what locked UTA into buying and Tingstol into
selling at a certain price.
The blanket order itself expressly limited UTA’s
liability to the parts it scheduled for release.
In other words, UTA had no obligation to buy
until it executed a release, and in this case the
release came after Rainbow was cut out as
Tingstol’s sales agent.
The deposition testimony also is consistent on
this point. John P. Zopp, Jr., Tingstol’s
president and chief executive officer, said that
the toughest part of getting an order is setting
the price, and the price is determined in the
release. Zopp said "the only thing that counts in
this business is the release." William M. Shaw,
UTA’s purchasing manager, said that UTA’s
liability was limited to the amount of circuit
boards the company ordered in the release. And
Charles M. Plotts, Rainbow’s sole shareholder,
said in his deposition that he received
commissions only after Tingstol shipped the
parts--and Tingstol shipped the parts only after
they were scheduled for release. He characterized
a blanket order as "the carrot that [UTA] waves
in front of you. ’This is what we think we’re
going to use.’ You jump on that. Business is
business." Asked whether the blanket order was a
commitment by UTA to buy, Plotts answered, "No.
It’s their way out when they want to."
Because it did not bind UTA and there was no
element of exclusivity, the blanket order was not
a requirements contract. Because there was no
consideration, the blanket order was not an
options contract, either. What purpose the
blanket order served and why Tingstol bothered
with something it claimed was so superfluous is
puzzling, but unraveling that mystery is
unnecessary to resolving this case. Rainbow only
deserves commissions if the blanket order was a
firm commitment by UTA to buy. Based on the
language of the blanket order itself and the
deposition testimony of Zopp, Shaw, and Plotts,
there is no genuine issue over the material fact
that the blanket order was not binding on UTA.
This case is another example that trust and
long-standing personal relationships are no
substitute in the business world for a well-
written contract. Zopp and Shaw testified that
Rainbow was canned because Plotts was not
providing good service. Plotts, on the other
hand, thought that because he first brought in
UTA as a Tingstol customer he deserved
commissions from all subsequent Tingstol sales to
UTA "until hell freezes over." It is unclear
whether Plotts’ service truly had deteriorated or
whether Zopp turned on his old friend to earn a
few extra bucks by cutting out the middle man.
What is clear is that the contract only provided
sales commissions for pre-termination orders,
that orders means binding sales, and that a
blanket order was not a binding sale.
Consequently, we AFFIRM the district court’s grant
of summary judgment.