## Facts

- Bacou negotiated to acquire Howard S. Leight & Associates, Inc. (HLI), a maker of foam earplugs, from HLI’s owner, Howard Leight.
- During negotiations, Leight and other HLI executives formed a new company (later Continental Polymers, Inc.) to manufacture polyurethane prepolymer used in HLI’s products.
- To close a valuation gap, Bacou proposed multiple deal components, including a five-year arrangement to buy all of its polyurethane prepolymer “requirements” from Continental.
- The parties memorialized the requirements arrangement in a January 12, 1998 letter stating (i) Bacou would buy all requirements for five years, (ii) quality would match what HLI had been using, and (iii) price would be based on what was available from other suppliers.
- The January 12 letter was not incorporated into the acquisition closing documents, but the parties later attempted to implement the supply relationship.
- Bacou issued purchase orders, but the parties did not resolve disagreements about price, quality, and quantity, and Continental ultimately did not deliver under the orders.
- Bacou sued for a declaratory judgment that it had no obligations under the January 12 letter.
- Continental counterclaimed for breach of contract, breach of the covenant of good faith and fair dealing, and fraudulent misrepresentation (alleging Bacou promised the requirements deal to induce a lower sale price without intending to perform).
- The district court granted summary judgment to Bacou on the contract and good-faith counterclaims as an unenforceable “agreement to agree,” and, after a bench trial, found for Bacou on the fraud claim after excluding certain testimony as hearsay.

## Issues

1. Whether the January 12 letter was an enforceable requirements contract, despite leaving some terms to later implementation, or an unenforceable “agreement to agree.”
2. Whether the district court erred by excluding testimony offered to show Bacou lacked intent to perform and used the requirements promise to induce the acquisition on favorable terms.

## Decision

- The First Circuit reversed the summary judgment for Bacou on Continental’s contract-based counterclaims and remanded.
- The court held that the January 12 letter could be enforceable because price and quality were tied to objective standards (market availability and prior-use quality).
- The court reversed and remanded on the fraudulent misrepresentation claim because excluded testimony was admissible as a party-opponent admission and its exclusion was prejudicial.

## Legal Principles

- A requirements contract may be enforceable where quantity is defined by the buyer’s good-faith requirements, even if exact quantities are not specified at formation.
- Open terms do not necessarily defeat contract formation when key terms can be determined with reasonable certainty by objective standards such as market price, course of dealing, and trade usage.
- In a requirements arrangement, the buyer’s discretion is constrained by good faith and standards barring unreasonably disproportionate demands relative to prior requirements or estimates.
- Statements attributable to a party through its agents or employees, offered against that party, may qualify as non-hearsay admissions under Fed. R. Evid. 801(d)(2).
- Erroneous exclusion of central evidence bearing on intent can require reversal where the error affects substantial rights and is not harmless.

## Conclusion

The First Circuit held that a five-year requirements letter referencing market-based pricing and established quality benchmarks could constitute an enforceable contract, and it ordered further proceedings because the exclusion of admissible party-opponent statements undermined the adjudication of the fraudulent misrepresentation claim.


Bacou Dalloz USA, Inc. v. Continental Polymers, Inc., 344 F.3d 22 (1st Cir. 2003)