Copeland v. Baskin Robbins

California Court of Appeal · Contracts

Contractsagreement to negotiateagreement to agreegood faith negotiationpreliminary agreementreliance damagesexpectation damages unavailablesummary judgment

Facts

Copeland sought to acquire Baskin Robbins's Vernon ice cream plant, but from the outset made clear the deal depended on Baskin Robbins also agreeing to buy ice cream from him under a co-packing arrangement. In a May 1999 letter, Baskin Robbins set out approved terms for sale of equipment and stated it would agree, subject to a separate co-packing agreement and negotiated pricing, to a three-year co-packing arrangement for specified gallon amounts; Copeland accepted and sent a $3,000 deposit. The parties continued negotiating important co-packing terms, including price, flavors, quality controls, spoilage responsibility, and trademark protection, and those issues were not resolved. In July 1999 Baskin Robbins ended negotiations over co-packing, returned the deposit, and Copeland sued seeking lost-profit damages rather than reliance damages.

Issue

May a party in California sue for breach of a contract to negotiate an agreement, or is such an arrangement merely an unenforceable agreement to agree? If such a claim exists, what damages are available, and was summary judgment proper where the plaintiff sought only expectation-based lost profits?

Rule

A contract to negotiate an agreement is distinct from an unenforceable agreement to agree and may be formed and breached like any other contract. Failure to reach the ultimate agreement is not itself a breach; liability arises only if the failure resulted from a breach of the obligation to negotiate or to negotiate in good faith. For breach of a contract to negotiate, the injured party may recover only reliance damages caused by reliance on the agreement to negotiate, not expectation damages based on the unconsummated underlying deal.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Nora Patel and Evergreen Harbor Foods signed a letter stating that the company 'will negotiate in good faith for 60 days toward a regional distribution agreement' for Nora's prepared soups. The letter fixed the negotiation period but left price, delivery schedules, packaging standards, and return policies for later discussion.

If Evergreen Harbor Foods stops all discussions after one week, which is the strongest characterization of the letter under the majority rule?

Explanation. The majority distinguishes a contract to negotiate from an unenforceable agreement to agree. A promise to negotiate is enforceable in its own right because the promised performance is the negotiation process, not necessarily execution of the ultimate deal. The fact that important substantive terms of the future distribution agreement remain unresolved does not defeat formation of a separate contract to negotiate.