May Dept. Stores Co. v. International Leasing Corp., Inc., 1630

• Citation: 1 F.3d 138
• Decision Date: 03 August 1993
• Docket Number: No. 93-7106,No. 1630,D,1630,93-7106
• Parties: MAY DEPARTMENT STORES COMPANY, doing business as Venture Stores, Plaintiff-Appellant, v. INTERNATIONAL LEASING CORP., INC., and Arnold Frumin, Defendants-Third-Party-Plaintiffs-Appellees, Willing Group, Inc., and Louis Goldstein, Third-Party-Defendants. ocket
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 138

1 F.3d 138

MAY DEPARTMENT STORES COMPANY, doing business as Venture Stores, Plaintiff-Appellant, v. INTERNATIONAL LEASING CORP., INC., and Arnold Frumin Defendants-Third-Party-Plaintiffs-Appellees Willing Group, Inc., and Louis Goldstein, Third-Party-Defendants.

No. 1630, Docket No. 93-7106.

United States Court of Appeals Second Circuit.

Argued June 17, 1993.

Decided Aug. 3, 1993.

Warren S. Landau, Smithtown, NY (David M. Ardam, Spada, Ardam, & Ershowsky, P.C., Smithtown, NY, of counsel), for plaintiff-appellant.

William J. Coury, Brooklyn, NY (Samuel L. Hagan, Hagan, Poch & Coury, of counsel), for defendants-third-party-plaintiffs-appellees.

Before: KEARSE, MINER and ALTIMARI, Circuit Judges.

MINER, Circuit Judge:

Plaintiff-appellant May Department Stores Company ("May") brought this diversity action in June of 1988, in the United States District Court for the Southern District of New York (Haight, J.), against defendant-third-party-plaintiff-appellee International Leasing Corp., Inc. ("ILC") for breach of contract and against defendant-third-party-plaintiff-appellee Arnold Frumin for fraud. The gravamen of May's complaint was that ILC delivered less than the quantity of "Fruit of the Loom" men's underwear specified in a sales contract it entered into with May and that Frumin (ILC's vice president) had misrepresented to May that ILC could provide the quantity of underwear required by May in order to induce May to enter into the sales contract.

After discovery had been completed, both parties moved for summary judgment. In their motion for summary judgment, the defendants raised for the first time the affirmative defense of accord and satisfaction. In a Memorandum Opinion and Order dated December 28, 1992, the district court dismissed May's complaint and directed the entry of summary judgment for the defendants. The district court found that a settlement agreement sent by ILC to May was an accord and that May's unconditional negotiation of a check accompanying the settlement agreement was a satisfaction of the accord that served to extinguish any liability on the original sales contract. For the reasons set forth below, we hold that ILC failed to satisfy the elements of an accord and satisfaction and remand the case to the district court to determine what effect, if any, the settlement agreement had on the defendants' liability under the original sales contract.

BACKGROUND

In April of 1987, ILC entered into a sales contract to provide May with Fruit of the Loom men's underwear. Acting in accordance with the custom and usage of the underwear trade, May ordered the underwear in packages of three ("three-packs"): 6624 dozen three-packs of men's briefs; 3312 dozen three-packs of men's crew neck T-shirts; and 3312 dozen three-packs of men's V-neck T-shirts. The total contract price was $462,620.16. ILC, through an intermediary, purchased the underwear from third-party-defendants The Willing Group, Inc. and Louis Goldstein (collectively, "Willing"), which had acquired the underwear from Thomas Hoar, Inc., a distributor for Fruit of the Loom.

The underwear was delivered in two shipments during the first week of May 1987. Apparently, May's purchase order was misconstrued by someone in the distribution chain as a request for individual pieces of underwear rather than for three-packs of underwear. Consequently, May received only one-third of the quantity of underwear it ordered.

The parties disagree as to when May notified ILC of its dissatisfaction with ILC's performance and as to what assurances, if any, Frumin gave to May. May claimed that it immediately telephoned ILC to complain about the shortage and that Frumin assured May that the missing underwear would be shipped. Frumin denies making any assurances, and ILC claims that on May 19, May gave ILC notice that May had inspected the underwear shipment and found it to be satisfactory. On May 22, May authorized its bank to pay ILC the purchase price in full, pursuant to a letter of credit. ILC further claims that May did not orally notify ILC of the shortage until May 26 and did not provide written notification until July 2, 1987.

In an attempt to resolve the dispute without conceding liability, ILC drafted a settlement proposal and sent it (unsigned) to May in early August of 1987. Upon receiving ILC's settlement proposal, May made several revisions, signed it and returned it to ILC on August 5. On August 14, ILC prepared a new settlement proposal (the "Settlement Agreement") that adopted all but one of May's proposed revisions, signed it and returned it to May, together with a check for $135,000.

The Settlement Agreement and check were accompanied by a cover letter, which stated: "Enclosed please find my check for $135,000 dollars [sic] as well as the signed agreement concerning Fruit of the Loom." The Settlement Agreement contained the following preface: "Without in any way addressing the issue of anyone's liability or fault but rather for the sole purpose of arriving at a mutually satisfactory resolution of our outstanding difference...." The Settlement Agreement provided that ILC immediately tender a check in the amount of $135,000 to May; that ILC tender a check to May in the amount of $35,000 within sixty days, on the condition that ILC first could obtain $35,000 from Willing; that the outstanding balance would be repaid through ILC's sale of discounted merchandise to May in future business transactions between the two parties; that, if after two years the outstanding balance remained unpaid, ILC would issue a check to May for twenty-five percent of the unpaid balance; and that May was not obligated to buy any discounted merchandise from ILC but was only required to consider, in good faith, offers made by ILC.

After receiving the Settlement Agreement and the $135,000 check, May unconditionally negotiated the check but never signed the Settlement Agreement. ILC never recovered any money from Willing and therefore never issued a second check to May for $35,000 as provided in the agreement. There is no evidence that the two parties have transacted any business since May negotiated the check, although ILC submitted evidence that it made offers to sell certain products to May at a discount.

In its complaint, May alleges that ILC breached the contract of sale by failing to deliver the quantity of underwear specified in the contract and that Frumin committed fraud by knowingly misrepresenting ILC's ability to provide the quantity of underwear requested in order to induce May to enter into the contract. In its answer, ILC raised three affirmative defenses: (1)...