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Panasonic v. State of Maine
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MAINE SUPREME JUDICIAL COURT				Reporter of Decisions
Decision: 1997 ME 43
Docket: KEN-96-118
Argued October 9, 1996
Decided March 13, 1997

Panel:  WATHEN, C.J., and GLASSMAN,  RUDMAN, and LIPEZ, JJ.


PANASONIC COMMUNICATIONS & SYSTEMS CO. v. STATE OF MAINE, DEPARTMENT OF ADMINISTRATION, BUREAU OF PURCHASES

LIPEZ, J.

	[¶1]  Panasonic Communications & Systems Co. ("Panasonic") appeals
from the judgment entered in the Superior Court (Kennebec County,
Atwood, J.), pursuant to M.R. Civ. P. 56(c), denying its motion for a summary
judgment and granting a summary judgment for the State of Maine's
Department of Administration, Bureau of Purchases ("the State").  
Panasonic contends that the trial court erred in ruling that a letter
agreement between OASYS, Inc. ("OASYS"), Panasonic, and the State was
not a valid contract, and in finding that Panasonic was not a third-party
beneficiary of the contract between OASYS and the State for the supplying of
photocopy services.  Panasonic also contends that the court erred in
granting a summary judgment to the State on Panasonic's promissory
estoppel claim because it was not properly before the court on the motion
for a summary judgment or, in the alternative, because there remains a
factual dispute over whether Panasonic detrimentally relied on the State's
promise to send payments to an escrow account for its benefit.  We disagree
with Panasonic's contentions and affirm the summary judgment. 
Background
	[¶2]  In January 1990, the State executed a purchase order contract
with OASYS to lease photocopy equipment, supplies, and services in return
for monthly payments based on the amount of photocopies made.  Although
Panasonic was not a party to this agreement, OASYS purchased the
necessary copiers from Panasonic in February 1990 on credit and agreed to
make monthly payments to Panasonic from the funds OASYS received from
the State.  That agreement required OASYS to establish an escrow account
in which Panasonic would have a security interest and to make
"arrangements with the State of Maine to deposit all such copier payments
only in such account."  As the Escrow and Pledge Agreement dated March
23, 1990, between OASYS, Panasonic, and Key Bank recites:  "By letter
dated February 7, 1990 . . . , Panasonic agreed to sell to OASYS, and OASYS
agreed to buy, certain plain paper copiers in connection with the lease or
rental of such copiers to the State of Maine . . . ."{1}  
	[¶3]  OASYS also borrowed $100,000 from Key Bank to finance its
venture,  and both Panasonic and Key Bank retained security interests in the
funds OASYS received from the State. The Escrow and Pledge Agreement
between OASYS, Panasonic, and Key Bank states in pertinent part:

As additional security for the payment of the Monthly Billing Amount
and for any obligations owed to Panasonic as a result of the assumption
by Panasonic of any service obligations of OASYS to the State of Maine,
OASYS has agreed to grant to Panasonic a security interest in all
accounts and contract rights arising from the Purchase Order
[contract between OASYS and the State].  OASYS has further agreed to
cooperate  in establishing . . . a separate escrow pledge account, . . . for
the purpose of accepting all payments for copiers from the State of
Maine pursuant to the Purchase Order . . . , and has agreed to grant
Panasonic a security interest in the Escrow Funds.

The State was not a party to this Escrow and Pledge Agreement. 
	[¶4]  On May 3, 1990, three days after OASYS was to have delivered
the photocopying machines to the State, OASYS President Kevin Cloutier
called Bureau of Purchases Director Richard B. Thompson, Jr. to arrange the
escrow payments with the State.  According to Thompson, Cloutier told him
that he needed written assurance that the State would make the monthly
payments to the escrow account to protect the interests of Panasonic before
OASYS could secure the necessary financing and access to the Panasonic
machines.   Panasonic asserts that its plea for this assurance was due to the
fact that by early May
 
the agreement between the State and OASYS was on the brink of
unraveling.  OASYS's suppliers, including Panasonic, were concerned
about OASYS's ability to pay and, consequently, whether they would be
paid.  Panasonic was willing to rescue the agreement between OASYS
and the State--and supply copiers to OASYS for the benefit of the
State--as long as the State promised that Panasonic would be paid.

These assertions about an unanticipated crisis contradict the terms of the
March Escrow and Pledge Agreement indicating that payment by the State
into an escrow account was a condition of Panasonic's performance almost
from the beginning of its contractual relationship with OASYS.  
	[¶5]  On May 3, subsequent to Cloutier's call to Thompson, the State
signed a letter agreement dated March 23, 1990, which provides that the
monthly payments would be made payable to OASYS but sent to the escrow
account rather than to OASYS directly.  The letter agreement stated:

As inducement to both Panasonic and Key Bank for assistance in this
project, OASYS has granted to [them] a security interest in the funds
due under the above-referenced purchase order . . . .  In connection
with this, an escrow account has been established at Key Bank. 

Although the letter agreement specified that the State could "request
Panasonic to assume the servicing obligations" should OASYS fail to perform
the contract for the photocopy services, Thompson expressly deleted that
paragraph before signing the letter.  
	[¶6]  To facilitate the payments to the escrow account, OASYS was to
affix a label to each invoice indicating that payment was to be made to the
escrow account.  OASYS failed to place such labels on the April and May
1991 invoices, and the State therefore issued those two checks directly to
OASYS in the total amount of $170,595.89.  According to Thompson, the
State official responsible for issuing the checks was contacted by an OASYS
staffer, "who asked to pick up each of the two checks in question
personally."   Succeeding payments were made to the escrow account until
OASYS declared bankruptcy under Chapter 7 of the U.S. Bankruptcy Code
and became unable to perform the balance of the contract.  
	[¶7]  In 1992 Panasonic sued OASYS to collect funds in excess of $1.5
million.  In the bankruptcy proceeding Panasonic obtained funds that had
been held in the escrow account as well as an assignment from Key Bank of
its interest in the escrow account.  The two payments sent directly to
OASYS, however, were never deposited into the escrow account. 
Panasonic's unsatisfied claim against OASYS still exceeds $1 million.  In
November 1994, Panasonic filed this breach of contract action, alleging that
the State's failure to make the April and May 1991 payments to the escrow
account was a breach of the letter agreement which damaged it in the
amount of $170,595.89.  
	[¶8]  Panasonic moved for a summary judgment.  The State also moved
for a summary judgment and raised the defense of lack of consideration.  In
its reply brief Panasonic notified the court of its intent to move for leave to
amend its complaint with a claim for promissory estoppel, which motion it
filed along with an amended complaint in September 1995.  Panasonic
supported its request that the trial court consider the promissory estoppel
claim with its assurance that there would be no undue delay.  Instead of
opposing Panasonic's motion to amend, the State argued against the
application of estoppel on the merits at the summary judgment motion
hearing.  
	[¶9]  In its order the court simultaneously granted Panasonic leave to
amend its complaint, denied Panasonic's motion for a summary judgment
and granted a summary judgment for the State, ruling on both the breach of
contract and promissory estoppel claims.  See M.R. Civ. P. 56(c).  The court
held that the letter signed by OASYS, Panasonic, and the State was not a
valid contract because the State's promise to make payments to an escrow
account lacked consideration from either OASYS or Panasonic; that the
allegedly modified contract between OASYS and the State similarly was
invalid and therefore created no obligation to a third-party beneficiary; that
the court could consider a claim for promissory estoppel first raised in a
memorandum in opposition to a motion for a summary judgment; and that
because Panasonic failed to establish that the State's promise to pay the
escrow account induced its detrimental reliance, the State could not be
estopped from denying any obligation to Panasonic.  We agree with these
holdings. 
Standard of Review
	[¶10]  In reviewing an appeal from a grant of a summary judgment, we
view the evidence in the light most favorable to the party against whom
judgment was entered and review the trial court's decision for errors of law. 
Gonzales v. Commissioner, Dep't of Public Safety, 665 A.2d 681, 682 (Me.
1995).  When there is no genuine issue of material fact and the moving party
is entitled to a judgment as a matter of law, we affirm.  Id. at 682-83.  The
trial court does not decide any disputed factual questions.  It determines
only whether the record before it generates a genuine issue of material fact. 
Casco N. Bank, N.A. v. Edwards, 640 A.2d 213, 215 (Me. 1994).   
The Contract Claims
	[¶11]  The letter agreement signed by Panasonic, OASYS, and the
State did not create a contractual relationship between Panasonic and the
State because neither OASYS nor Panasonic provided the necessary
consideration.  Whitten v. Greeley-Shaw, 520 A.2d 1307, 1309 (Me. 1987).  
OASYS had a legal obligation to supply the State with photocopy services as
of January 1990, and it provided no new consideration in exchange for
securing the State's agreement to make payments to the escrow account. 
See, e.g., Wescott v. Mitchell, 95 Me. 377, 383, 50 A. 21 (1901) (mere
agreement by one party to perform an existing contractual obligation is not a
valid consideration for a new promise by the other party).  
	[¶12]  Before a party's performance may constitute consideration,
there must be a bargained-for promise in exchange for which consideration
is given.  Whitten, 520 A.2d at 1310 (allegations of lack of consideration
draw attention to the bargaining process and the requirement that a party's
performance or promise to do something cannot constitute consideration if
it was not sought after by the other party and motivated by the latter's
request).  Here, the State never bargained for Panasonic's performance. 
Rather, OASYS bargained for that performance as indicated by references in
the record to the February 1990 letter agreement between it and Panasonic,
conditioned upon OASYS making arrangements with the State for payment,
and the fact that Panasonic was not a party to the original contract between
OASYS and the State.  To the extent that there was a promise by the State
regarding the escrow payments, it ran from the State to OASYS, which
benefitted because those payment arrangements enabled OASYS to keep the
business transaction afloat.  The State never promised anything to Panasonic
directly, nor did it require or direct OASYS to make or keep Panasonic as its
supplier.  Indeed, when given the opportunity in the letter agreement to
deal directly with Panasonic, the State explicitly declined that opportunity. 
Where there is no bargain--as there was none between the State and
Panasonic--there can be no consideration.  Whitten, 520 A.2d at 1310
(citing Zamore v. Whitten, 395 A.2d 435, 444 (Me. 1978), overruled on
other grounds by Bahre v. Pearl, 595 A.2d 1027 (Me. 1991)); see also
Restatement (Second) of Contracts ("Restatement") § 71 cmt. e (1981)  ("It
matters not from whom the consideration moves or to whom it goes.  If it is
bargained for and given in exchange for the promise, the promise is not
gratuitous." (emphasis added)).    
	[¶13]  Panasonic also cannot recover as a third-party beneficiary of a
modified contract between the State and OASYS because, as noted, there
was no consideration flowing from OASYS to support the modification. 
Although a third party's performance can supply consideration in particular
circumstances, see Maine Mortgage Co. v. Tongue, 448 A.2d 899, 902 (Me.
1992) (any contract may be modified as long as the new agreement itself
complies with the requirements of a valid contract), Panasonic's
performance does not supply that consideration because it was never
bargained for by the State.  Whitten, 520 A.2d at 1310 (consideration must
be sought after by the promisor and motivated by his request).  Where there
is no consideration, there can be no contract, and therefore no third-party
recovery on that contract.{2} 
	[¶14]  Panasonic's contract claims also fail, in part, due to the coercive
nature of OASYS's approach to the State in May 1990.  If the State wanted
delivery of the photocopiers three days after they were already due, it had to
promise to make payments to the escrow account.  State Director of
Purchases Thompson recalls being contacted at the eleventh hour by OASYS
President Cloutier, who

indicated that he had a letter setting forth the necessary assurances
which he wanted me to sign immediately, and that if I did not do so,
he would be unable to provide delivery of the machines, [and] the State
would be without any copying machines.  He then sent a courier with
the letter to my office.  I indicated that I would sign the letter with
the exception of a paragraph agreeing that the State of Maine would
assign the contract to Panasonic in the event that OASYS was unable to
perform it.  I therefore struck that paragraph from the letter, added
one amendment of my own, and signed it. 

This threat of non-performance by OASYS provides a classic example of what
the law seeks to deter by refusing to allow performance of an existing
obligation to satisfy the requirement of consideration for an additional
promise by a promisor.  See Restatement § 73 ("Performance of a legal duty
owed to a promisor which is neither doubtful nor the subject of honest
dispute is not consideration; . . .") & cmt. c ("[T]he lack of social utility in
such bargains provides what modern justification there is for the rule that
performance of a contractual duty is not consideration for a new promise."). 
  
Promissory Estoppel
	[¶15]  Panasonic asserts that the court's ruling on its promissory
estoppel claim was premature because the issue was not properly before the
court on the motion for a summary judgment; that the parties were never
given the opportunity to develop a factual record on the issue; and that the
court had not yet acted on its motion for leave to amend the complaint to
allege promissory estoppel when the court heard argument on the motion
for a summary judgment on its other claims.  Thus, Panasonic continues, it
briefed and prepared its summary judgment motion and argument based on
the breach of contract claim alone and never had a chance to present
supplemental affidavits, additional exhibits or other evidence demonstrating
that there was a genuine issue of material fact as to its detrimental reliance
on the State's promise to make payments to the escrow account.
	[¶16]  These arguments are unpersuasive.  In its summary judgment
reply memorandum, Panasonic asked the court to consider the promissory
estoppel claim at the summary judgment stage.  In its motion for leave to
amend, filed just two days prior to the summary judgment motion hearing,
Panasonic assured the court that "[p]laintiff does not anticipate any further
discovery as a result of the new claim, which does not implicate any
significant new factual areas beyond what is already raised in the complaint." 
The court acted properly by acceding to Panasonic's own request, allowing
both parties to address the claim at the September 13 hearing, and deciding
the issue on the cross-motions for a summary judgment. 
	[¶17]  Maine has adopted the Restatement formulation of the doctrine
of promissory estoppel:

A promise which the promisor should reasonably expect to induce
action or forbearance on the part of the promisor or a third person
and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.  The
remedy granted for breach may be limited as justice requires.

Restatement § 90(1); Chapman v. Bomann, 381 A.2d 1123, 1127 (Me.
1978); see also Struck v. Hackett, 668 A.2d 411, 420 (Me. 1995), cert.
denied, --U.S.--, 116 S. Ct. 1568 (1996)).  The promise must be otherwise
unenforceable.  MacNaughton v. Cossin, 493 A.2d 1040, 1043 (Me. 1985). 	
	[¶18]  Panasonic claims that its February 1990 letter agreement with
OASYS was conditioned upon OASYS's arrangement with the State for
payment to an escrow account, and that when the State agreed to sign the
May 1990 letter agreement to make payments to the escrow account, it was
aware that Panasonic would not perform--that is, that Panasonic would not
deliver the copiers so that OASYS could fulfill its contractual obligations to
the State--without that assurance.  Thus, according to Panasonic, the State's
promise to make payments to the escrow account induced its detrimental
reliance.  We disagree.  
	[¶19]  OASYS induced Panasonic's performance.  Panasonic itself
concedes that the February 1990 letter agreement for OASYS's purchase of
the photocopiers was conditioned upon OASYS's establishment of an escrow
account and OASYS's "arrangements with the State of Maine to deposit all
such copier payments only in such account."  When the State signed the May
1990 agreement to make such payments to the escrow account, it was
merely cooperating with an arrangement that OASYS had bargained for with
Panasonic.  As the original January 1990 Purchase Order contract shows, the
State never proposed or bargained for such an arrangement with OASYS
(much less with Panasonic),   The May 1990 letter agreement, written in
the first-person by OASYS staff on OASYS stationery, states:
 
As inducement to . . . Panasonic . . . for assistance in this project,
OASYS has granted to Panasonic . . . a security interest in funds due
under the above-referenced [contract between OASYS and the State]. .
. .  In connection with this an escrow account has been established at
Key Bank.  Accordingly, monthly payments under the [contract
between OASYS and the State] will be made payable to OASYS, Inc. and
delivered to [Key Bank].

(Emphases added.)  
	[¶20]  Moreover, as already noted, OASYS's approach to the State in
May 1990 was coercive.  Thompson was essentially forced to sign the
agreement to ensure delivery of the copiers three days after they were to
have been delivered pursuant to the deal's original terms.  Although the
State could have foreseen that the assurances represented in the letter
agreement would result in Panasonic's performance of its contract with
OASYS, it is unjust to characterize its concession to OASYS's ultimatum as an
inducement to Panasonic, especially for the purposes of applying an
equitable doctrine.  See Restatement § 90 (promissory estoppel does not
apply unless "injustice can be avoided only" by enforcement of the promise);
see also Restatement § 73 cmt. a ("[A promise] obtained by an express or
implied threat to withhold performance of a legal duty . . . does not have the
presumptive social utility normally found in a bargain.").
	Accordingly, the entry is:
		Judgment affirmed.

Attorneys for plaintiff: Andrew M. Horton, Esq. (orally) Seth W. Brewster, Esq. Verrill & Dana P O Box 586 Portland, ME 04112-0586 Attorneys for defendant: Andrew Ketterer, Attorney General H. Cabanne Howard, Asst. Atty General (orally) 6 State House Station Augusta, ME 04333-0006
FOOTNOTES******************************** {1} A copy of the February 1990 letter agreement between Panasonic and OASYS is cited as Exhibit A of the Escrow and Pledge Agreement, but it is not in the record. {2} Whether Panasonic could be considered an intended beneficiary of any contract between OASYS and the State is also questionable. See F.O. Bailey Co., Inc. v. Ledgewood, Inc., 603 A.2d 466, 468 (Me. 1992) (only intended, not incidental, third-party beneficiaries can sue on the contract). As we have explained, we must be careful to distinguish between the consequences to a third party of a contract breach and the intent of a promisee to give a third party who might be affected by that contract breach a right to enforce performance under the contract. If consequences become the focus of the analysis, the distinction between an incidental beneficiary and an intended beneficiary becomes obscured. Instead, the focus must be the nature of the contract itself . . . . Devine v. Roche Biomed. Labs., 659 A.2d 868, 870 (Me. 1995).