O.N. Jonas Co., Inc. v. Badische Corp.

• Decision Date: 09 June 1983
• Docket Number: No. 81-7500,81-7500
• Citation: 706 F.2d 1161
• Parties: 36 UCC Rep.Serv. 377 O.N. JONAS COMPANY, INC., Plaintiff-Appellant, v. BADISCHE CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1161

706 F.2d 1161

36 UCC Rep.Serv. 377

O.N. JONAS COMPANY, INC., Plaintiff-Appellant, v. BADISCHE CORPORATION, Defendant-Appellee.

No. 81-7500.

United States Court of Appeals,

Eleventh Circuit.

June 9, 1983.

Dudley B. Magruder, Jr., Karl M. Kothe, Rome, Ga., for plaintiff-appellant.

Sommers & Altenbach, A.O. Bracey, III, Ronald E. Barab, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before KRAVITCH, HATCHETT and CLARK, Circuit Judges.

PER CURIAM:

O.N. Jonas Company, Inc. ("Jonas") appeals the decision of the district court directing a verdict in favor of appellee Badische Corporation ("Badische"), after Jonas presented its case on liability. Appellant Jonas is a carpet manufacturer in Dalton, Georgia. Appellee Badische manufactures carpet yarn which is specifically tested and certified to meet performance specifications and carries nationally recognized trademarks. Jonas sought damages for breach of a requirements contract. The key issue at trial was whether such a contract existed between Jonas and Badische. In directing a verdict, the district court ruled that the documentary evidence in the case did not authorize the court to find that the oral contract was taken out of the statute of frauds. The court said:

I have no problem with what the contract might have been. For the purpose of what is before the Court, I can accept and I do accept every word of testimony that has been offered, Mrs. Jonas, and all the other individuals. What I'm still looking for is what is there in these documents that shows the quantity that was involved. That is--I can accept that there was an oral contract between the two corporations made by their principals for Badische to supply all the needs of O.N. Jonas Company, Inc., but where is there in the memorandum anything that shows that that was the contract as to quantity?

Record, Vol. 4 at 232-33 (emphasis added).

Although not employed by Jonas at the time of trial, Bobby H. Morrison had worked for Jonas from September 1977 to April 1979. Morrison testified that prior to his employment with Jonas, he had dealt with Badische and was impressed with the company and its products. In late 1977 or early 1978, Rich Hodsdon, sales representative for Badische, called on Morrison to suggest that Jonas use Badische yarn. Morrison discussed the possibility of Jonas buying yarn from Badische with Mrs. Peggy Jonas, President of Jonas. Conversations then transpired between Mrs. Jonas and representatives of Badische, culminating in a visit by Mrs. Jonas and Morrison to the "Create" Department of the Badische home office and plant. This meeting resulted in an agreement that Badische would sell yarn to Jonas, who would be licensed to use Badische's name in its sales promotion and to use Badische's products pursuant to the Textile Fibers Products Identification Act.

On July 21, 1978, the parties executed a trademarks license agreement for carpet products for a period of one year. This agreement, which was automatically renewable from year to year unless terminated by either party upon ninety days notice, stated that Jonas could use Badische's trademarks and labels, provided Jonas complied with certain manufacturing standards. Concurrent with this agreement, Jonas purchased a substantial quantity of yarn on July 24, 1978. An August 25, 1978 letter from Diffenderffer of Badische to Mrs. Jonas discloses that the parties contemplated subsequent sales from Badische to Jonas. ¹

In late 1978 or early 1979, Badische reimbursed Jonas $4,000 toward Jonas's cost of "$9,536.46 for printing costs of Dow Badische logo, yarn-product information, certifications and warranties on the quantities of Cutty Sark, Essex and Whaler [carpets]." Plaintiff's Exhibit 11. Jonas's December 18, 1978 letter requesting the reimbursement concludes: "Jonas is looking forward to a very successful selling year in 1979 with our Dow Badische contract program." Plaintiff's Exhibit 11. Badische's 1979 catalog of "Performance Certified Carpet Lines" made from Badische fabrics also evidences the anticipated continuing relationship between Jonas and Badische. Plaintiff's Exhibit 23. This 50-page catalog describes the available carpets made from Badische's certified yarns and specifies the manufacturers of each carpet. Jonas is included in the list of those manufacturers and the catalog describes the Whaler and the Essex carpets as being manufactured by Jonas.

In late 1978 Jonas, having received additional orders of the carpet made from Badische yarn, placed an additional order with Badische. A disagreement ensued about the method by which Jonas was to pay Badische. In February 1979, Badische learned that Murray Sobel had purchased the majority of the Jonas stock from the deceased Mr. Jonas's estate. Sobel had previously been an owner of the Williams-East Company, which owed an outstanding judgment to Badische. Discussions regarding Jonas's method of payment for the recent order deteriorated. Mrs. Jonas testified that she was informed by Badische that orders would be filled if Sobel or Williams-East satisfied the outstanding judgment. Jonas furnished Badische with a Walter Heller & Company guaranty, an integral part of the agreement between the companies, but the guaranty was rejected by Badische, allegedly because it did not conform with Badische's guaranty requirements. According to the evidence presented by Jonas, the only reasons given by Badische for not selling the yarn were Sobel's failure to satisfy the Williams-East judgment and an alleged technical deficiency in the Heller guaranty form, an issue not reached in the trial because of the directed verdict.

Jonas sued Badische for its failure to sell the trademarked yarn according to their agreement. Badische's defenses included: (1) there was no contract between Jonas and Badische, and (2) if an agreement existed, it was invalid for failure to comply with the statute of frauds. The district court held, in directing a verdict for Badische, that the evidence failed to show that the oral contract was supported by a memorandum with a sufficient quantity term to preclude invalidation under the statute of frauds. The sole issue on appeal to this court is whether Georgia law authorizes the enforcement of this contract, absent a more specific quantity term.

The Uniform Commercial Code's Statute of Frauds, upon which the district court relied, requires that there be 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. Off.Code Ga.Ann. sec. 11-2-201 (1982). Jonas and Badische acknowledge that the Georgia Court of Appeals has interpreted this statute to set forth "three definite and invariable requirements" for a writing to be sufficient: (1) it must evidence a contract for the sale of goods, (2) it must be "signed" by the party against whom enforcement is sought, and (3) it must specify a quantity. Jinright v. Russell, 123 Ga.App. 706, 182 S.E.2d 328 (1971).

At trial Jonas relied on a memorandum written by Tewksbury of Badische to comply with the statute of frauds. The memorandum summarized the history of negotiations and transactions between Jonas and Badische and included the statement A potential program utilizing our yarn was discussed in 1977 and we indicated that we would supply the yarn if we were provided a Heller guaranty on our form.

Record, Vol. 4 at 304. We must now consider whether "the yarn" for the carpet program developed by Jonas and Badische sufficiently states a quantity term. In assessing the sufficiency of the memorandum, we are mindful that:

A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

Off.Code Ga.Ann. sec. 11-2-306 (1982). The official comments in the Uniform Commercial Code emphasize that this section mandates "the reading of commercial background and intent" into the language of any agreement. U.C.C. sec. 2-306 official comment 1 (1978). This provision precludes a finding that a contract for requirements is too indefinite, "since the quantity is determined by the actual good faith requirements of the particular party." U.C.C. sec. 2-306 official comment 2 (1978). ² Professor J.J. White concludes that under this provision:

A party who seeks to invalidate a requirements contract therefore bears a heavy burden. Certainly the mere existence of an open quantity term does not support invalidation, since indefiniteness is inherent in requirement...