Cengage Advantage Books: Foundations of the Legal Environment of Business 3rd Edition by Marianne Jennings

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Sununu v. Philippine Airlines, Inc. 792 F. Supp. 2d 39 (D.C. 2011)
A Turbulent Negotiation Contract with the Airline and a Contract That Never Took Off
Facts
Because of financial setbacks, Philippine Airlines (PAL) wanted to renegotiate its aircraft leases, including those it had with World Airlines (WA). WA refused to negotiate with PAL. PAL retained John Sununu, the former Governor of New Hampshire and the former Chief of Staff to President George H. W. Bush and Sununu's partner, Victor Frank, to try their hands at a renegotiation. Sununu and Frank (plaintiffs) sent a contract proposal to PAL, which included a proposed "success fee" of $600,000 if they persuaded WA to accept a modification of the lease contract. PAL gave Sununu and Frank a verbal go-ahead but did not sign the proposed contract. PAL then sent a contract with terms that were different from what Sununu and Frank had proposed. The PAL terms included a success fee of 4 percent of savings on the aircraft leases if Sununu and Frank were able to reach a settlement that met two very detailed settlement offers PAL had put into its contract proposal. Because they were so busy with contract renegotiations, Sununu and Frank did not review the PAL agreement and simply signed the contract.
Sununu and Frank were able to successfully renegotiate the lease contract with WA, saving PAL $12.8 million on the lease payments. PAL refused to pay Sununu and Frank their success fee of $520,000 because the actual settlement they had negotiated with WA did not meet the very specific contract terms that WA had put into the unsigned written agreement. Sununu and Frank filed suit against PAL in May 1998, alleging breach of contract, unjust enrichment, and fraud. The litigation went into a nine-year holding pattern while PAL endured financial reorganization proceedings in the Philippines. After re-emerging from bankruptcy, PAL moved to dismiss the complaint.
Judicial Opinion
LAMBERTH, Chief Judge
Sununu and Frank first argue that their contract with PAL was invalid because it was rescinded. They claim that they rescinded the contract when they "offered a different deal, to which PAL never responded" after they learned about the severity of the lease termination dispute from WA.
There are several problems with this argument. First, Sununu and Frank present no evidence that their discussions with PAL constituted an offer to rescind the contract and not merely to modify it. Under traditional contract law principles, an unanswered proposal to modify a contract operates as unaccepted offer-leaving the underlying contract unchanged-not as a rescission of the agreement. For example, if an employee asks his boss for a raise and the boss doesn't answer, the employee continues to work at his existing wage. No one would suggest that his employment contract is terminated.
The facts alleged by the plaintiffs make rescission even less plausible here. Sununu and Frank claim they proposed amending the contract with PAL to make it more favorable to PAL by replacing the four-percent success fee with a fixed figure. To return to the example above, this is the equivalent of the employee asking his boss for a pay cut. Even if Sununu and Frank are correct that PAL did not respond to their allegedly generous offer, it makes little sense to conclude that they would opt to rescind a contract they believed disproportionately benefited them. Moreover, Sununu's deposition directly contradicts the allegation that the contract was rescinded. When asked if he had tried to rescind his contract with PAL, he answered, "No, I don't do that to clients."
Even if the Court sets aside the argument above and assumes that Sununu and Frank did intend to rescind, D.C. contract law provides that rescission must be total, not partial. Here, however, Sununu and Frank seek to have their contract and rescind it too. They invoiced and accepted payment of the $50,000 fee provided in the contract, yet they claim to have rescinded the other part of the contract and now seek unjust enrichment on that provision. The law will not allow them to have it both ways.
If a party "affirms the contract through continued performance, that party is precluded from seeking rescission." Sununu and Frank affirmed the contract by seeking to perform it, invoicing on it, and collecting on it.
The crux of Sununu and Frank's theory is that PAL fraudulently concocted contract terms that it knew Sununu and Frank could not meet, thus sending them on the consulting equivalent of Mission Impossible and allowing the Manila airline "to obtain Sununu and Frank's valuable services, without having to pay [the] Success Fee."
To grant PAL's motion is not to condone its conduct. The airline can rightly be accused of stinginess for enforcing the formalistic terms of the contract in spite of the plaintiffs' earnest efforts on its behalf. PAL's shifting explanations for why it would not pay Sununu and Frank do not reflect well on the airline's approach to business dealings. But because the airline ultimately had no obligation to pay, the facts surrounding this issue are not material to resolving the case. PAL may have violated Sununu and Frank's trust, but it did not violate the law.
For their part, Sununu and Frank seem to have done their best to serve their client, but they made a reckless bet by trusting PAL. They were accustomed to handshake deals in which personal relationships count for more than legal documents, so they made little effort to put their understandings with PAL on paper. When they ran into a client who didn't play by the same rules, they paid the price. The lesson is one that should be taught in law and business schools across America: When in doubt, write it out.
Case Questions
1. What is the significance of the rescission argument?
2. Is there a contract? Explain why or why not.
3. Evaluate PAL's ethics in this situation.