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When it Comes to Nonconforming Goods, is the Customer Always Right?

ABSTRACT: Applying Missouri Law, the Eighth Circuit confirms that when a company guarantees customer satisfaction, only to leave the customer unsatisfied, it risks not only its business reputation, but also its legal right to collect payment.

There are two important lessons to be learned from Williams v. Medalist Golf, a recent case from the Eighth Circuit Court of Appeals, applying Missouri law. First, when a company guarantees customer satisfaction, only to leave the customer unsatisfied, it risks not only its business reputation, but also its legal right to collect payment. Second, when giving testimony about the meaning of a contract, it is almost always best to let the written document speak for itself.

Plaintiff Cane Creek Sod submitted a bid to provide almost a million square feet of grass for the construction of a new golf course at Big Cedar Lodge in Branson, Missouri. Cane Creek promised to provide premium Meyer Zoysia grass, and it offered a lower price than any other bidder. Defendant Medalist Golf, Inc., accepted the bid and provided a “Grass Supplier Agreement” for Cane Creek to sign.

The Grass Supplier Agreement provided that the seller “guarantees the quality and specification of the materials provided.” Supplier Cane Creek’s owner testified that he understood this to mean he “was guaranteeing that they were going to get Meyer Zoysia and that it would be the quality that satisfied the customer [or Cane Creek] would fix it.” The contract set a fixed price per square foot and provided an estimate of the quantity that would be need. But it also cautioned that this was “a target and not a guaranteed amount” and affirmed the parties’ understanding that the project “may use more or less than estimated quantities.”

Over the following months, Cane Creek devoted considerable time and resources to growing dozens of acres of Meyer Zoysia. Shortly before the sod was to be harvested, the golf course’s developer asked Medalist Golf to visit the sod farm to inspect the quality of the grass. After inspecting and photographing the sod, the developer decided the quality of the grass was unacceptable for the course and instructed Medalist Golf to reject it. Medalist did so, and then purchased the required grass from another bidder. Cane Creek was able to find alternative buyers for some, but not all, of what it had grown for Medalist.

The supplier sued Medalist for breach of contract, arguing that Medalist had been contractually obligated to purchase all of the grass needed for this golf course exclusively from Cane Creek. Medalist moved for summary judgment, arguing that: (1) no enforceable contract existed, and (2) even if a contract did exist, Medalist was relieved of any obligations, because Cane Creek’s sod failed to conform to the contract. The trial court granted Medalist’s motion, and Cane Creek appealed. The Eighth Circuit affirmed the summary judgment in Medalist’s favor.

The Eighth Circuit rejected Medalist’s first argument—that no enforceable contract ever existed between Medalist and Cane Creek. The “Grass Supplier Agreement” was an enforceable “requirements contract.” A requirements contract is one in which “one party promises to supply all the specific goods or services which the other party may need during a certain period at an agreed price, and the other party promises that he will obtain his required goods or services from the first party exclusively.” 

The court held that imprecise estimates of the quantity to be purchased were sufficient to support such a contract, and it saw ample evidence that the parties intended for Medalist to buy all of the grass needed for this golf course exclusively from Cane Creek, at an agreed-upon price. Thus, the court concluded, there was a valid agreement upon which Cane Creek could base its breach of contract claim.

But the breach of contract claim still failed as a matter of law, because the court agreed with Medalist that the sod failed to conform to the contract. The Uniform Commercial Code as adopted in Missouri allows a buyer to reject tendered goods without payment, if they “fail in any respect to conform to the contract.” Mo. Rev. Stat. § 400.2-601. Therefore, if the sod was not of the quality that was promised, Medalist had the right to reject it and no obligation to pay for it.

The case ultimately turned on the contract’s provision that Cane Creek would “guarantee the quality and specification of the materials provided.” This language, Medalist argued, required more than just sod that was acceptable to an expert or another golf course; it required that the sod be to the customer’s satisfaction.

Notably, though, the contractual language itself only required Cane Creek to “guarantee the quality and standards” of its product. It did not specify how the sod’s “quality and standards” were to be judged. Although it conceded that Medalist did not act in bad faith, Cane Creek tried to present other evidence that the grass lived up to the “quality and standards” required by the contract, including: (1) expert testimony that the sod was high quality, (2) the results of a test finding the sod to be free of “noxious weed contaminates,” and (3) the fact that some of the same sod was subsequently sold to and used by another golf course. Cane Creek argued that this evidence at least created a genuine factual dispute as to whether Medalist wrongfully rejected the sod. 

But Cane Creeks’ position was seriously undermined at its owner’s deposition, where he testified that he understood the “guarantee” to mean that he “was guaranteeing that they were going to get Meyer Zoysia and that it would be the quality that satisfied the customer, [or Cane Creek] would fix it.” This testimony arguably broadened Cane Creek’s duties under the contract. It made the customer’s judgment as to the sod’s quality—as subjective as that may be—the ultimate and final measuring stick for compliance with the contract. Unfortunately for Cane Creek, this rendered irrelevant all of its expert opinions, test results, and other evidence about the high quality of the sod. If Medalist was unsatisfied, the sod was nonconforming and could be rejected. Full stop.  (Had there been evidence that Medalist rejected the goods purely out of bad faith, the court would have been obliged to consider it; but concededly, this was not the case.)  

Customer satisfaction is always the goal, of course. But it is also an inherently subjective and often unpredictable concept. A customer may be dissatisfied simply because he or she is persnickety, capricious, or just misinformed. As tempting as it is to “guarantee” that a customer will be satisfied, businesses must understand the legal implications of doing so. Courts will enforce quality guarantees, and they will usually leave it to the parties to decide how quality should be measured.  A guarantee of customer satisfaction may make for a good sales pitch, but it is a poor legal standard.