Contract Dispute Involving Specially Manufactured Goods

December 30, 2010 | Erin Herbold

In 2006, a plastic products manufacturer purchased the business assets of a competitor. As part of the transaction, the buyer inherited the seller’s business relationship and contracts with a bottling company. During the next few years, the manufacturer continued to make products specifically engineered for the bottling company. At some point, the bottler became dissatisfied with the manufacturer for not keeping extra inventory on hand. 

Nonetheless, the bottler ordered additional plastic caps from the manufacturer in 2007. The manufacturer filled the order and produced additional inventory. However, the manufacturer never picked up or paid for the order or the additional inventory. The business relationship further deteriorated in the next few months. The manufacturer filed suit against the bottler for breach of contract. 

The trial court determined that a contract indeed existed between the parties and that the product was special made for the bottler and not suitable for sale to others in the manufacturer’s ordinary course of business. Since, the manufacturer could not recoup its investment, it was not required to find another buyer and the court entered judgment in favor of the manufacturer. 

The Iowa Court of Appeals agreed that the parties had entered into a valid and legally enforceable contract. The goods were specially made for the bottler and additional inventory was generated in response to the bottler’s demands. This was an exclusive product that could not be sold to other customers. Further, before the bottler repudiated the contract, the manufacturer had taken substantial steps towards manufacturing the goods. The bottler was aware of this and the appellate court found their claims to be meritless. Total Source Molders, Inc. v. Great American Bottle Works, Inc., No. 0-736/09-1920, 2010 Iowa App. LEXIS 1547 (Iowa Ct. App. Dec. 8, 2010).