## Facts

- Eugene V. Klein sought to buy a used Gulfstream G‑II corporate jet through broker Universal Jet Sales, Inc. (UJS).
- PepsiCo owned a G‑II and negotiated with UJS, which planned to buy the aircraft and resell it to Klein; Klein functioned as the intended beneficiary of the UJS–PepsiCo sale.
- After inspections, Klein gave UJS a deposit and instructed UJS to make an offer; UJS sent PepsiCo a telex offering $4.4 million, stating the deal was subject to a satisfactory factory inspection and a definitive contract.
- PepsiCo counteroffered; by telex exchange, PepsiCo offered $4.6 million and UJS accepted by telex, referencing a down payment and moving forward toward closing.
- A factory inspection identified defects; PepsiCo agreed to repair them at its expense.
- Shortly before the scheduled closing, PepsiCo withdrew the aircraft from the market and refused to deliver it.
- Klein and UJS sued for breach and sought specific performance requiring delivery of the aircraft.

## Issues

1. Whether the telex exchange and subsequent conduct formed a binding contract for sale of the aircraft despite references to a satisfactory inspection and a later “definitive contract.”
2. If a contract existed, whether specific performance was an appropriate remedy under U.C.C. § 2‑716.

## Decision

- The court affirmed the finding that PepsiCo and UJS formed a binding contract for sale of the G‑II at $4.6 million.
- The court held that the factory-inspection language operated as a condition to performance, and that PepsiCo’s agreement to perform the required repairs satisfied the inspection condition.
- The court held that the reference to a later “definitive contract” did not negate present intent to be bound, given the acceptance telex and the parties’ post-acceptance conduct.
- The court reversed the decree of specific performance and remanded for determination of money damages, concluding the district court abused its discretion in ordering delivery of the aircraft.

## Legal Principles

- Parties may form a binding sales contract through informal communications even if they contemplate executing a more formal writing later, so long as they intend to be bound in the interim.
- A condition such as “subject to satisfactory inspection” may be treated as a condition precedent to performance rather than a bar to contract formation, depending on intent and subsequent conduct.
- Under U.C.C. § 2‑716, specific performance is generally limited to goods that are unique or when other circumstances make legal damages inadequate.
- High-value commercial goods are not treated as “unique” when comparable substitutes exist in the market and the buyer can be compensated by market-based damages.
- Price increases and the existence of an ascertainable market price ordinarily support money damages rather than specific performance.

## Conclusion

The Fourth Circuit enforced the parties’ telex-based agreement as a contract but rejected specific performance because comparable aircraft were available and expectation damages provided an adequate remedy, remanding for a damages determination.


Klein v. PepsiCo, Inc., 845 F.2d 76 (4th Cir. 1988)