Brookside Farms v. Mama Rizzo’s, Inc.

Brief Fact Summary.

Brookside Farms (Brookside) (plaintiff) and Mama Rizzo’s, Inc. (MRI) (defendant) entered into a requirements contract whereby Brookside promised to supply fresh basil leaves. After entering into the contract, MRI requested that Brookside remove the stems from the basil leaves. Brookside agreed and MRI promised to pay an additional $0.50 per pound for the removal. MRI promised to note this change on its copy of the original contract due to the contract clause forbidding oral modifications. This notation was never provided to Brookside.

Synopsis of Rule of Law.

The Statute of Frauds requires that any contract for the sale of goods for the price of $500 or more must be evidenced by some writing sufficient to indicate the contract between the parties and must be signed by the party against whom enforcement is sought.

Facts.

Brookside Farms (Brookside) (plaintiff) and Mama Rizzo’s, Inc. (MRI) (defendant) entered into a requirements contract whereby Brookside promised to supply fresh basil leaves. After entering into the contract, MRI requested that Brookside remove the stems from the basil leaves. Brookside agreed and MRI promised to pay an additional $0.50 per pound for the removal. MRI promised to note this change on its copy of the original contract due to the contract clause forbidding oral modifications. This notation was never provided to Brookside. Following this change, 12 purchase orders were filled and invoiced at the new price. There were two additional price modifications. MRI issued 15 purchase orders under the first modification and 67 purchase orders under the second. Each of these were filled and paid for. MRI then issued 21 purchase orders, which were filled and invoiced by Brookside. MRI accepted these orders and issued a check for them, but its bank refused to honor the check due to insufficient funds. Brookside filed suit and sought payment for the final 21 purchase orders. Brookside filed a motion for partial summary judgment, claiming that it is entitled to payment for the 3,041 pounds of basil delivered, but not paid for. MRI filed a motion for summary judgment, claiming breach of contract by Brookside and seeking damages for any amount paid to Brookside over and above the prices originally agreed to in the contract.

Issue.

Whetheroral modifications of a contract that fall under the Statute of Frauds are enforceable.

Held.

The contract at issue falls under the statute of frauds. However, the oral modifications at issue are enforceable under both the doctrine of estoppel and Texas statutory law. Regarding estoppel, MRI’s promise to note the original modification for the purpose of bringing it within the controlling language of the contract was reasonably relied upon by Brookside. It is immaterial that the notation was never delivered to Brookside. Additionally, though the promise was made with regard to only the initial price increase, it was reasonable for Brookside to assume that subsequent price increases would similarly be reduced to writing so that the parties could continue their business.   Regarding statutory law, the contract is enforceable because all shipments of basil leaves that are at issue were received and accepted. Because MRI accepted all shipments at issue, MRI has admitted, according to the statute, that the contract, including all oral modifications, was valid and enforceable. Moreover, MRI is required to honor the price increases due to its duty of good faith and fair dealing. MRI participated in the price increases, including the final one where payment was not made only because MRI’s bank refused to honor the payment. It is bad faith for MRI to now complain about a course of action that it willingly engaged in. Accordingly, the contract, including all oral modifications, is enforceable and Brookside’s motion for partial summary judgment on this issue is granted.

Discussion.

Additionally, any oral agreement that materially modifies a contract under the Statute of Frauds is unenforceable. However, the oral modification may be enforceable, notwithstanding the Statute of Frauds, when there is evidence of promissory estoppel. The doctrine of promissory estoppel may be invoked when one party reasonably relies on the oral promise of another to reduce the oral modification to writing. This writing need not be supplied to the other party to be enforceable. Additionally, Texas statutory law provides that the oral modification may be enforceable, notwithstanding the Statute of Frauds, “with respect to goods for which payment has been made and accepted or which have been received and accepted.” Furthermore, the Uniform Commercial Code implies in all contracts a duty of good faith and fair dealing. When the parties to the contract are merchants, the standard of good faith and fair dealing requires honesty and the observance of all reasonable commercial standards of fair dealing in the trade.