## Facts

- Family Snacks of North Carolina, Inc. manufactured snack foods; Prepared Products Company, Inc. marketed private-label snack foods.
- The parties executed a written supply agreement dated February 17, 1998, requiring Prepco to purchase $10 million of specified products during the first contract year beginning July 1, 1998.
- The products were to be made at a North Carolina facility that Prepco had sold to Family Snacks in February 1998; the facility price reflected an understanding that Prepco would recoup a reduced purchase price through the low-cost manufacturing arrangement reflected in the supply agreement.
- The agreement set a cost-plus pricing method: manufacturing cost determined by an attached formula plus a 15% margin, including a fixed overhead component of $0.29 per pound.
- Prepco’s CEO, Thomas W. Lehmer, executed a personal guaranty of the full and timely payment and performance of Prepco’s obligations under the supply agreement.
- During the first year, Prepco purchased no product from Family Snacks.
- Family Snacks sued for breach and sought $1.5 million under the agreement’s liquidated-damages provision tied to the minimum-purchase commitment.
- Prepco contended its purchase duty never arose because Family Snacks allegedly had to provide product-specific price quotes before Prepco was required to order.
- The district court granted summary judgment to Family Snacks against Prepco and Lehmer; Prepco and Lehmer appealed.

## Issues

1. Whether the supply agreement made Family Snacks’ provision of advance, product-specific pricing a condition precedent to Prepco’s $10 million minimum-purchase obligation.
2. Whether the $1.5 million liquidated-damages provision was an unenforceable penalty or an enforceable pre-estimate of loss.
3. Whether Lehmer was liable under his personal guaranty for Prepco’s obligations, including liquidated damages for breach.

## Decision

- The Eighth Circuit affirmed summary judgment for Family Snacks.
- The court held Prepco breached the agreement by failing to purchase the required minimum amount; the contract’s pricing formula made price sufficiently ascertainable and did not condition Prepco’s duty on separate price quotations.
- The court upheld the $1.5 million liquidated-damages provision as enforceable rather than punitive.
- The court held Lehmer personally liable under his guaranty because it covered all of Prepco’s payment and performance obligations under the contract.

## Legal Principles

- A minimum-purchase commitment is enforceable when the contract contains a sufficiently definite pricing method and does not expressly condition the buyer’s duty to order on additional pricing steps.
- A cost-plus formula can supply adequate price certainty for enforcement, even without a schedule of itemized prices, where the contract specifies inputs and margin.
- Liquidated damages are enforceable when, at contracting, actual damages would be difficult to measure and the stated amount is a reasonable forecast of anticipated loss rather than a penalty.
- A broad guaranty covering “all” contractual obligations binds the guarantor to the principal’s liability, including contractually specified liquidated damages, absent a valid limiting defense.

## Conclusion

The Eighth Circuit enforced the parties’ integrated commercial arrangement by holding that Prepco’s failure to purchase any product breached an unconditioned $10 million minimum-purchase obligation, that the $1.5 million liquidated-damages clause was a valid estimate of hard-to-quantify losses, and that Prepco’s CEO was personally liable under an expansive guaranty.


Family Snacks of N.C., Inc. v. Prepared Prods. Co., 295 F.3d 864 (8th Cir. 2002)