Double-E Sportswear Corp. v. Girard Trust Bank, 73-1176.

Citation488 F.2d 292
Decision Date19 November 1973
Docket NumberNo. 73-1176.,73-1176.
PartiesDOUBLE-E SPORTSWEAR CORP., Appellant, v. GIRARD TRUST BANK and X Corporation.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Peter C. Paul, Rawle & Henderson, Philadelphia, Pa., for appellant.

Michael O'S. Floyd, Drinker, Biddle & Reath, Philadelphia, Pa., for appellee.

Before FORMAN, ALDISERT and GARTH, Circuit Judges.

OPINION OF THE COURT

ALDISERT, Circuit Judge.

This appeal, a diversity action, calls for an interpretation of the Uniform Commercial Code under Pennsylvania law and requires a decision as to the propriety of the entry of summary judgment in favor of the defendant bank. It presents questions of waiver of the Statute of Frauds, Section 2-209(4); of oral modification of a written agreement, Section 2-209(1); and of reasonable notice that strict performance would be required of a term previously waived, Section 2-209(5).

On March 24, 1971, Girard Bank and appellant entered into a written contract in which the bank agreed to sell and appellant agreed to buy a quantity of knitted shirts and sweaters for the price of $11.75 a dozen. The agreement required appellant to deposit $5,000.00 on account of the purchase price, which deposit was made; and gave the bank an option to terminate the agreement on or before April 1, 1971 by sending appellant written notice.1

On March 31, 1971, the bank's attorney, Bruce D. Schuter, telephoned George Langberg, appellant's attorney, informing him that the bank had received an offer of $14.00 per dozen and inquiring whether appellant would meet the offer. After consulting appellant, Langberg telephoned Schuter advising him that appellant would meet the offer, and according to Langberg's affidavit "inquired of what . . . defendant would require to make the agreement binding and unconditional . . . Mr. Schuter . . . informed me that defendant, for its own protection and to insure its obtaining the highest price for the goods, desired sealed bids from plaintiff and the firm who had made the offer of $14.00 per dozen."

The attorneys then agreed to a sealed bid arrangement. In his affidavit Langberg stated that Mr. Schuter agreed to a waiver to the right of cancellation and that he Langberg advised Schuter that "our understanding should be reduced to writing by a letter agreement which plaintiff was ready to execute that day."

Schuter directed Langberg to call Spahr, a bank officer, who in a subsequent telephone conversation, agreed with Langberg as follows: (1) there would be sealed bids; and (2) "if the sealed bid of another was higher than that of the plaintiff, then the defendant was deemed to have exercised option to cancel the agreement dated March 24, 1971." Although Langberg offered to have the plaintiff "attend" the bank's offices on that day (March 31, 1971) with the sealed bid and the letter agreement, Spahr advised "that plaintiff was not required to attend in Philadelphia that day and that if plaintiff's representative would appear at his office on April 1, 1971 with the sealed bid and the letter agreement . . . he would accept the bid and sign the letter agreement on behalf of the defendant."

Langberg then prepared the letter agreement, read its contents to Spahr, received Spahr's approval over the telephone, was reassured by Spahr that it was not necessary to attend in Philadelphia on March 31, 1971, that it was satisfactory to deliver the sealed bid and new agreement in the forenoon of April 1, 1971: "Mr. Spahr assured me that the understanding as reflected in the letter agreement . . . read to him would be signed when the sealed bid . . . was delivered; he further informed me that there would be no cancellation if plaintiff was the highest bidder or if no sealed bid was received by him from the other offeror." Later that day the bank's attorney, Schuter, telephoned Langberg. Langberg then read the letter agreement to Schuter who, in turn, advised Langberg that it was acceptable in all respects.

On the morning of April 1, 1971, plaintiff's representative appeared at Spahr's office to deliver the sealed bid and the letter agreement. Spahr refused to accept them. The refused bid was for the amount of $15.50 per dozen. On the same morning, Schuter telephoned Langberg informing him that the bank had, on the previous evening, sold the goods to a third party, Burnette, for $14.00 per dozen. Schuter related that the bank believed it had entered into a binding arrangement with Burnette when Spahr had taken a check from Burnette and had signed a receipt on the back of a business card.

Whereupon the bank orally purported to terminate the March 24, 1971 agreement, returned the $5,000.00 hand money, and sent plaintiff a letter of the same date expressing in writing what had been communicated orally.2 The plaintiff sued. The bank moved for summary judgment, contending that the bank made a timely termination of the March 24, 1971 written contract. The plaintiff has appealed from the grant of defendant's motion. We reverse.

I.

We are in complete agreement with the following portions of the district court's opinion:3

The Court\'s jurisdiction in this case is based solely on diversity of citizenship, and so we must look to applicable state law. For purposes of this memorandum, the applicable Pennsylvania law will be referred to.
This case involved a contract for the sale of goods within the meaning of the Uniform Commercial Code — Sales. 12A P.S. § 2-105, 2-106.

12A P.S. § 2-201 provides as follows:

"Formal Requirements; Statute of Frauds
(1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing."

It is undisputed that the defendant never signed any Agreement embodying the modification alleged by plaintiff.

Plaintiff contends that there is a genuine issue of fact in this case, namely, whether or not the Bank waived its right to terminate the sales contract. It is asserted that the Statute of Frauds defense is inapplicable to this case because of 12A P.S. § 2-209. That section provides as follows:

"Modification, Rescission and Waiver
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
(3) The requirements of the Statute of Frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver."

. . .

1 Anderson, Uniform Commercial Code 2d Ed., interprets § 2-209(4), (5) as follows:

"§ 2-209:8 Defective modification or rescission as a waiver.
A modification or rescission may be inoperative because it fails to meet the formal requirements imposed by the Statute of Frauds (if the contract, as modified, comes within the Statute of Frauds) or by a clause of the original contract. But even if this is so, the agreement may nevertheless be effective as a waiver, without regard to whether there has been reliance thereon."

Anderson further states:

"The question of reliance on a waiver becomes important only when it is sought to retract the waiver." (F.N. 9, § 2-209)
"§ 2-209:9 — Retraction of waiver.
The Code gives the party who has made a waiver the right to withdraw the waiver by reasonably notifying the other party that adherence to the terms of the contract will be insisted upon. Certain limitations upon the right of retraction exist:
(1) Waiver. By definition only a waiver may be retracted. There cannot be a retraction of an agreement between the parties as that would amount to a unilateral repudiation of the agreement between the parties.
(2) Notice. There can be no retraction unless reasonable notice is given to the other party that strict adherence to the waived term will be required.
(3) Estoppel. There can be no withdrawal when the circumstances are such as to estop the party from withdrawing."

An attempt at modification which does not satisfy the Statute of Frauds can operate as a waiver.

. . .

Section 2-209(5) permits the retraction of a waiver by reasonable notice to the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position by plaintiff in reliance on the waiver.

12A P.S. § 1-201(25) provides as follows:

"A person has `notice\' of a fact when
(a) he has actual knowledge of it; or
(b) he has received a notice or notification of it; or
(c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists."

12A P.S. § 1-201(26) provides as follows:

"A person `notifies\' . . . another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other party actually comes to know of it."
II.

The false premise from which the bank proceeds is that plaintiff is...

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