Sethness-Greenleaf, Inc. v. Green River Corporation and Daniel J. Meyers

Citations: 65 F.3d 64; 27 U.C.C. Rep. Serv. 2d (West) 360; 1995 U.S. App. LEXIS 23913; 1995 WL 497553Docket: 94-3566

Court: Court of Appeals for the Seventh Circuit; August 21, 1995; Federal Appellate Court

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In Sethness-Greenleaf, Inc. v. Green River Corporation, the dispute arose over a 1985 agreement where Green River Corporation (GRC) purchased trademarks and secret formulas from Sethness-Greenleaf for $75,000, with payments made over time in exchange for Green River concentrate. By mid-1986, GRC fell behind on payments and eventually signed notes totaling approximately $26,000, which did not resolve its growing debt. By August 1989, GRC owed over $60,000 and was warned by Sethness-Greenleaf to pay in cash within 30 days or face default, allowing Sethness-Greenleaf to reclaim the escrowed trademarks and formulas. GRC admitted to the debt but contested the right of Sethness-Greenleaf to demand payment, claiming no default occurred. GRC's offer to settle the debt in November 1989 was rejected as too late, leading Sethness-Greenleaf to seek a preliminary injunction against GRC's unauthorized use of the Green River label on a different product. The appellate court supported Sethness-Greenleaf's request for injunction and directed expedited proceedings. Ultimately, the district court found no oral agreement existed allowing GRC to delay payments, affirming Sethness-Greenleaf's right to demand payment at any time.

GRC's failure to fulfill a demand constituted an event of default, enabling Sethness-Greenleaf to reclaim rights to the soft drink. A judgment on the contract claim was entered under Rule 54(b) following a 1993 injunction against GRC from selling imitation Green River products. The case remains ongoing, particularly regarding damages owed under the Lanham Act.

GRC raises two objections regarding the district court's decision. First, it claims it did not agree to the payment terms in the invoices, highlighting a 14-month arrears period. However, under Section 2-207 of the Uniform Commercial Code (UCC), the absence of a specified payment timeline in GRC's order implies acceptance of the terms set by Sethness-Greenleaf's invoices, which were not materially altering. Both parties are acknowledged as 'merchants' under the UCC, and GRC's acceptance of the invoices without objection limits its ability to contest the terms later.

Secondly, GRC argues that extended payment terms were agreed upon based on an affidavit from Meyers, which suggested that credit would be extended as long as sales grew. However, Meyers later retracted this assertion during deposition, admitting that no discussion had occurred regarding payment terms. The court emphasized that contractual obligations are determined by objective signals rather than private expectations. GRC’s fallback argument regarding a discerned obligation from the transaction pattern is noted, but the court remains focused on the absence of concrete evidence of an agreed-upon credit extension.

Frank Novak, Sons, Inc. v. Sommer, Maca Industries, Inc. and related case law establish that the course of dealing between parties does not provide assistance to GRC, as the terms of their agreement are defined by exchanged documents, particularly invoices. GRC received over 200 invoices, which it did not contest, leading to the conclusion that acceptance of these invoices finalized the contract terms. GRC's initial response to a payment demand indicated disputes over amounts owed but did not suggest the existence of a long-term credit agreement until litigation progressed. A vendor's leniency, even over extended periods, does not imply an indefinite forbearance on payment; once the vendor decides to enforce payment, the buyer must comply. While vendors may waive specific defaults, any such waiver requires the intentional relinquishment of a known right, and nothing in Sethness-Greenleaf's actions indicates it waived its right to payment. GRC received proper notice regarding overdue obligations and an opportunity to cure the default, which it did not negotiate for in advance, leaving it without grounds to contest the timing of payment demands. The court affirmed the ruling.