E.C. Styberg Engineering Co. v. Eaton Corp.

Eaton Corp. (D), an automobile parts producer purchased different components from E.C. Styberg Engineering Co. (Styberg) (P), a manufacturer of components. Within a period of two years, Eaton (D) made use of I-brake, a component which Styberg (P) had produced in certain transmission it produced. Initially, I-brake prototype units were made available to Eaton (D) who later commenced purchased of limited quantities of I-brake unit for it to test how acceptable the product was in the marketplace. Thereafter, Eaton (D) came to a decision to go into the full production of I-brakes and both parties began negotiating an agreement in which Styberg (P) was to produce I-brakes in commercial quantities for Eaton (D). In order to embark on this capital intensive project, Styberg (P) needed to get a minimum unit commitment from Eaton (D) which resulted in both parties making frantic efforts through e-mails, phone calls, letters and meetings in order to reach an agreement.A proposal for 60,000 units was sent by Styberg (P) to Eaton (D) on the 8th of July, 1999 and enumerated in the proposal; Styberg (P) stated that the first batch of 13,000 units would be sold at $544.88 with the initial price of the units being $595 but was reduced due to the perfection of Styberg’s (P) manufacturing process. Also, in other to make sourcing of material easier for the customized production of the I-brakes, Styberg (P) requested for $343,000 assistance as “tooling money” and a production schedule was set forth. On the 29th of July, 1999, Eaton (D) communicated its willingness to make $293,000 available for tooling and to purchase 13,000 units at $544.88. Styberg (P) thanked Eaton for its July 29 commitment but also emphasized it needed a minimum commitment of between 25,000 and 30,000 units in order to cover its costs for embarking on the project. Thereafter, employees of both parties participated in a conference call on the 1st of September 1999, at which Styberg (P) reiterated the insufficiency of the 13,000 commitment made by Eaton (D) which could not cover its costs and emphasized it needed a 30,000 commitment.This call, noted by Eaton (D) revealed that “Styberg will come back w/capacity + quotes for 13k flat out”. A production schedule was hereafter sent by Styberg (P) on the 9th of September 1999, containing a detailed break-down of Styberg’s (P) anticipated monthly production capacity for 13,000 units of I-brakes as well as a quote for the initial unit price of $595 including a $31/unit until a certain part became available. The acceptance of this proposal was alleged to have been confirmed by Eaton on the 27th of September 1999, but evidence to prove that this was communicated could not be found. There was no prove to show that Styberg (P) sent a purchase order for 13,000 I-brakes nor did Eaton (D) issue a specific purchase order for 13,000units. However, Eaton (D) did notify Styberg (P) in April 2000 that it expected 240 units of I-brakes to be delivered, which Styberg (P) reciprocated by sending the specified units under an existing purchase order and payment was effected by Eaton (D). A subsequent request for another 240 units of I-brakes was made by Eaton (D) on the 8th of May 2000 to be delivered the following month. But this did not see the light of the day because it was cancelled three days later by Eaton (D), who neither placed another order nor paid for any I-brakes after May 11, 2000. This action of made Styberg (P) to sue Eaton (D) for breaching their contract and sought damages to the tune of $3.4 million. Judgment was awarded in favor of Eaton (D) by the district court on the ground that no contract had been formed for the purchase of 13,000 units of I-brakes. The court held that the e-mail, telephone and letter exchanges were evidence of ongoing negotiations in which the parties could not come to terms on key issues such as the quantity, price and monthly production volume. A review to this judgment was later granted by the court of appeals.