## Facts

- Situation Management Systems, Inc. (SMS) developed and sold training materials and provided related seminars and workshops.
- Malouf, Inc., doing business as LMA, Inc. (LMA), operated a similar training-services business and largely used SMS materials purchased from SMS.
- The parties maintained a long-term commercial relationship, including three prior written agency contracts whose terms were substantially similar, with varying durations.
- The last written agency contract (executed in 1989) had an initial term and a limited renewal option tied to sales goals; LMA consistently met its goals.
- When a prior contract expired, the parties at times continued doing business without an operative written agreement.
- LMA considered purchasing another SMS agent business (the Kasten Company) and sought assurance from SMS that LMA would have a five-year agency commitment before assuming the financial risk.
- Evidence at trial supported that SMS executives orally assured LMA of a five-year commitment, and LMA purchased Kasten in reliance on those assurances.
- SMS later sent LMA a proposed written contract containing significant changes unfavorable to LMA; negotiations failed, the existing arrangement ended, and LMA’s sales were severely affected.
- SMS sued for unpaid sums for training materials; SMS’s affirmative claim was settled, leaving LMA’s counterclaims, including breach of contract based on the alleged oral five-year agreement.
- A jury found for LMA on its breach-of-contract counterclaim and awarded $3.8 million in lost-profit damages; the trial court denied SMS’s post-verdict motions.

## Issues

1. Whether the evidence permitted a reasonable jury to find an enforceable oral five-year agency contract, despite the absence of a final written agreement and alleged unresolved terms.
2. Whether the $3.8 million lost-profits award was supported by the evidence and based on permissible measures of contract damages rather than speculation or gross revenues.

## Decision

- The Supreme Judicial Court affirmed the judgment for LMA.
- The court held that, viewed in the light most favorable to LMA, the evidence was sufficient for a reasonable jury to find that the parties entered an enforceable oral agreement for a five-year agency commitment.
- The court held that the parties’ prior course of dealing and substantially similar prior contracts supported treating the oral commitment as incorporating the same or similar essential terms.
- The court rejected the argument that an intent to later execute a written contract necessarily negated a binding agreement where the jury could find the parties intended to be bound on essential terms.
- The court affirmed the $3.8 million lost-profits award, concluding it was supported by evidence and not manifestly excessive, and it upheld the denial of a new trial or remittitur.

## Legal Principles

- A binding contract may be formed even if the parties anticipate later memorializing it in writing, so long as they agree on essential terms and intend to be bound.
- In a long-term commercial relationship, a consistent course of dealing and prior agreements with substantially similar terms can supply terms and reduce indefiniteness in an alleged oral agreement.
- Expectation damages for breach of contract may include lost profits when proven with reasonable certainty and when the loss was foreseeable at the time of contracting.
- Lost-profits awards must reflect net profits (not mere gross receipts) and will be upheld when the record supports a rational computation based on business history and performance evidence.
- On review of the denial of judgment notwithstanding the verdict, the evidence is assessed in the light most favorable to the verdict winner, and the question is whether a reasonable jury could reach the result.

## Conclusion

The court upheld a jury finding that an oral five-year agency commitment was enforceable in light of the parties’ established course of dealing and reliance evidence, and it affirmed a substantial lost-profits award where the record supported a reasonably certain calculation of net profits and the trial court acted within its discretion in denying post-verdict relief.


Situation Mgmt. Sys., Inc. v. Malouf, Inc., 430 Mass. 875, 724 N.E.2d 699 (Mass. 2000)