Chapter 15

Contract Performance and Breach

Read the following case below and relate the case to the key points discussed in this chapter.

Macy's v. Martha Stewart and J.C. Penney: What Is a Stand-Alone Store?

Martha Stewart is a famous figure in the United States, known nationally for her expertise in home design. Through her company, Martha Stewart Living Omnimedia (MSLO), she has sold Martha Stewart-branded products in various stores over the years. In 2006, MSLO contracted with Macy's to sell Martha Stewart-branded products in its stores. The agreement was exclusive, meaning that certain product categories would be sold only in Macy's stores. Because Martha Stewart was considering opening her own stand-alone stores, the parties carved out an exception for "MSLO Stores," which allowed her to sell the same categories there. But at the time of the contract, no such stores existed.

In 2011, MSLO and JCPenney announced a deal to sell Martha Stewart-branded products in Penney's stores. The products comprised the same categories in the Macy's contract. The catch was that MSLO products would be sold in a Martha Stewart store inside Penney'sin other words, a "store-within-a-store." When Macy's objected, MSLO and Penney's argued that their arrangement fell within the contract exception for MSLO stores. Millions of dollars of product sales hinged on the interpretation of this exception. Macy's sued MSLO for breach of contract.

Before the court ruled on the proper interpretation of the contract, JCPenney agreed to stop selling the disputed product categories under Martha Stewart's brand. The move appeared to be a concession that the store-within-a-store idea was not reasonably interpreted as a stand-alone store. Eventually, MSLO settled with Macy's in 2014, and JCPenney and Macy's set out to finalize their own settlement.

This case demonstrates the importance of using clear language in contracts. It also highlights the danger in counting on a court to support a technical interpretation down the road, after the parties have made investments.