By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC
There are three elements of an express contract – offer, acceptance and consideration. The case ofRekal Company, Inc. v. PGT Industries, Inc., 2013 WL 5487370 (M.D.Fla. 2013) examines the element of consideration. In Rekal Company, Inc., PGT Industries, Inc. (“PGT”) a manufacturer and distributer of doors, windows and enclosure systems owned the registered trademark EZE-BREEZE. In May 2009, PGT notified Rekal Company, Inc. (“Rekal”) that Rekal met the standards required of a PGT distributor for the purchase and distribution of many of PGT’s product lines. In connection with its distribution of PGT’s products, Rekal signed PGT’s Terms and Conditions of Sale. The Terms and Conditions stated in pertinent part: “Your order is binding only when accepted, orally, electronically, or in writing at our offices in Venice, Florida. . . .”
Rekal developed a system for online, direct to consumer sales of PGT’s Eze-Breeze products, and purchased the “ezebreeze.com” domain and other related domain names allegedly with PGT’s consent. In October 2012, PGT accused Rekal of trademark infringement, and subsequently sent a cease and desist letter to Rekal stating, in part, that Rekal cease infringing trademark use of the EZE-BREEZE® mark, remove and/or correct any infringing trademark use of the EZE-BREEZE® mark on its website, and to transfer to PFT the domain name www.ezebreeze.com and any other domain name containing the registered trademark EZE-BREEZE®. The letter further stated that PGT was discontinuing sales of all PGT products to Rekal. Rekal denied any violation of the registered trademark or any other alleged wrongdoing or damage to PGT. As a result of PGT discontinuing sales of PGT products to Rekal, Rekal filed a Complaint against PGT for breach of contract and other actions. PGT filed a Motion to Dismiss Rekal’s Complaint.
In analyzing PGT’s Motion to Dismiss, the Court reasoned that Rekal’s action for breach of contract turned on whether an enforceable contract existed between Rekal and PGT. Rekal argued that the above-referenced May 2009 letter from PGT to Rekal and the Terms and Conditions formed the contract between Rekal and PGT. The Court disagreed with Rekal.
It is a fundamental principle of contract law that a promise must be supported by consideration to be enforceable. When a promise appears on its face to be so insubstantial as to impose no obligation at all on the promisor, then the promise may be characterized as an illusory promise. In a contract where the parties exchange promises of performance, if either of those promises is illusory or unenforceable, then there is no consideration for the other promise. Further, where one party retains to itself the option of fulfilling or declining to fulfill its obligations under the contract, there is no valid contract and neither side may be bound.
The Court held that the May 2009 letter and the Terms and Conditions did not form an enforceable contract because the documents did not obligate either side to act. The Court reasoned that at no point did the Terms and Conditions specify any obligation on the part of either party sufficient to create an enforceable contract as the documents did not require a minimum number of units to be ordered, a minimum duration of exclusivity, nor a fixed price at which goods could be purchased. The Terms and Conditions governed only matters directly contingent upon future, hypothetical transactions between Rekal and PGT. Hence, PGT and Rekal were free to walk away from the relationship at any time as the Terms and Conditions reserved PGT’s right to refuse any orders placed, and Rekal was under no obligation to place any orders. Therefore, the Court held that the Terms and Conditions did not constitute a contract, and the Court granted PGT’s Motion to Dismiss Rekal’s action for Breach of Contract with an opportunity to amend the Complaint.
This case demonstrates that in order to have an enforceable contract, the contract must be supported by consideration. Consideration is what is given, relinquished or performed in exchange for a promise, property or performance. If the promise is illusory or unenforceable, then there is no consideration, and therefore no contract.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].