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Webb Business Promotions9/14/2000
This is an action for breach of contract between appellant, American Electronics & Entertainment Corp. (AE&E; and respondent, Webb Business Promotions, Inc. (Webb). Webb sued AE&E;for breach of contract. AE&E;asserted the affirmative defense of accord and satisfaction under Minn. Stat. § 336.3-311 (1998). Following a court trial, the district court found that there was no accord and satisfaction, concluding that there was an absence of good faith in the tender and no mutual agreement. The court of appeals affirmed, holding that mutual agreement is not required for an accord and satisfaction. We reverse the court of appeals and remand the matter to the district court.
We are presented in this case with two questions: First, did the district court err in imputing AE&E;s bad faith in the underlying sales contract to AE&E;s offer of an accord and satisfaction? Second, did the court of appeals err in holding that because mutual agreement is not explicitly enumerated in Minn. Stat. §á336.3-311, such agreement is not necessary to create an enforceable accord and satisfaction?
On May 16, 1995, AE&E;entered into a contract with Target Corporation (Target). The agreement called for Target to purchase 300,000 units of three-pack MGM blank videotapes from AE&E; and AE&E;was to provide 300,000 units of promotional merchandise (calendars, pencils and the like) as a "free gift with purchase" with each pack of videotapes. Subsequently, on May 24, 1995, AE&E;executed a written contract with Webb in which Webb agreed to provide the 300,000 units of promotional merchandise to AE&E;at a contract price of $684,000. In order to fulfill its part of the agreement between Webb and AE&E; Webb borrowed approximately $400,000 from First National Bank of Farmington, which in turn acquired a right of assignment of all funds due to Webb from AE&E; The contract between AE&E;and Webb provided that AE&E;would be responsible for any and all defects with respect to the MGM blank videotapes, that Webb would be expected to absorb $30,000 in advertising, packing, and shipping costs, and that delivery of the promotional merchandise was due on or before July 15, 1995.
On May 24, 1995, AE&E;sent Webb purchase order #604 for the 300,000 units of promotional merchandise. Purchase order #604 specifically stated that it was "conti gent upon Target['s] purchase order" with AE&E; Target's agreement with AE&E;permitted Target to cancel its purchase order if the product was not up to Target's quality standards or at Target's sole convenience any time prior to shipping. AE&E;never informed Webb of the conditions under which Target could cancel its purchase order with AE&E;
On May 4, 1995, more than two weeks before Webb entered into its contract with AE&E; Target requested that AE&E;submit a sample of the MGM videotapes for quality testing. AE&E;complied with the request. On May 31, 1995, approximately two weeks after Target issued its purchase order to AE&E; the quality testing service recommended that Target "stay away" from the MGM brand of videocassette "until they improve their quality." Target immediately notified AE&E;that the tapes failed the quality test. On June 9, 1995, AE&E;requested and Target agreed to re-test the videotapes at AE&E;s expense. On June 23, 1995, the quality tester sent Target a second report, stating that the tapes were "satisfactory," but still had problems with consistency.
A few days prior to the July 15, 1995, delivery date for the promotional merchandise to AE&E;from Webb, Target notified AE&E;that it was canceling the transaction. In response, AE
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