Gestetner Corp. v. Case Equipment Co., 86-1312

• Citation: 815 F.2d 806
• Decision Date: 31 March 1987
• Docket Number: No. 86-1312,86-1312
• Parties: 3 UCC Rep.Serv.2d 1328 GESTETNER CORPORATION, Plaintiff, Appellant, v. CASE EQUIPMENT COMPANY, Defendant, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 806

815 F.2d 806

3 UCC Rep.Serv.2d 1328

GESTETNER CORPORATION, Plaintiff, Appellant, v. CASE EQUIPMENT COMPANY, Defendant, Appellee.

No. 86-1312.

United States Court of Appeals,

First Circuit.

Argued Dec. 4, 1986.

Decided March 31, 1987.

S. David Harrison with whom McLaughlin & Stern, Ballen and Ballen, New York City, Andrew J. Bernstein and Bernstein, Shur, Sawyer & Nelson, Portland, Me., were on brief, for plaintiff, appellant.

Julian L. Sweet with whom Paul F. Macri, Valerie Stanfill and Berman, Simmons & Goldberg, P.A., Lewiston, Me., were on brief, for defendant, appellee.

Before BOWNES, BREYER and TORRUELLA, Circuit Judges.

BOWNES, Circuit Judge.

This is an appeal by plaintiff-appellant Gestetner Corporation (Gestetner) from a jury award and judgment on Count I of the counterclaim of defendant-appellee Case Equipment Company (Case). We affirm the judgment below.

The issue is whether the statute of frauds precludes finding that there was a contract for the sale of goods between the parties.

I.

Gestetner is the United States distributor of a line of office equipment, including stencil duplicators, commonly referred to as mimeograph machines. It uses a dual distribution system, consisting of company-owned retail stores and independent dealers, to sell its products.

In January, 1984, Anthony J. Casella, president of Case, began experimenting with stencil duplicators to develop a process using sublimation dyes as ink to produce full color heat transfers for application to garments, metal and acrylics. The use of sublimation dyes as ink overcame the color-fading problem common in other heat transfers. Casella found that Gestetner's stencil duplicators, with some modification, were suitable for use with the special sublimation ink he had developed. Casella called his process "Subli Color" printing.

In the spring of 1984, Casella contacted Gestetner about modifying and then selling its stencil duplicators as part of his color transfer process. Gestetner began to sell stencil duplicators, parts and supplies to Case. No written contract was entered into between the parties. At first, things went well. Case was a good customer of Gestetner. But starting in the fall of 1984, the relationship between the parties began to sour. Case refused to bring its past due account current. It claimed that it had received defective products which it could not sell. Gestetner refused to ship further products until the past due balance was paid. On May 29, 1985, Gestetner brought suit for goods sold and delivered and not paid for. Case counterclaimed in four counts: I, breach of contract; II, wrongful appropriation of the color transfer process; III, breach of warranty; and IV, fraudulently obtaining the color transfer process.

After the close of the evidence, Case agreed to the dismissal of Counts II and IV. Gestetner moved for a directed verdict on Count I on the ground that there was no evidence of a writing sufficient to satisfy the statute of frauds. The motion was denied. The jury returned a verdict for Gestetner in the amount of $63,779.80 and verdicts for Case on Count I of its counterclaim in the amount of $225,600, and on Count III in the amount of $24,155.93. Case has not appealed. Gestetner has appealed only the district court's refusal to direct a verdict for it on Count I of the counterclaim. ¹

II.

Gestetner's position is simple and straightforward: Because there was no evidence of a writing signed by it acknowledging the quantity of goods to be sold by it to Case, the statute of frauds bars the breach of contract claim.

Stripped to its essentials, Case's breach of contract claim is set forth in the counterclaim as follows:

10. In or about March, 1984, Case disclosed the details of the Subli Color process to Gestetner in confidence.

11. In consideration of this disclosure, Gestetner contracted with Case to establish Case as the sole distributor of Gestetner equipment packaged and adapted to Subli Color printing.

14. Gestetner has breached its contract with Case by the following acts, among others:

a) Gestetner has failed and refused to provide equipment to Case in a timely fashion[.]

The first question is whether Case successfully overcame the lack of a written contract and properly proved that Gestetner contracted "to establish Case as the sole distributor of Gestetner equipment packaged and adapted to Subli Color printing."

Section 2-201 of Maine's Uniform Commercial Code controls. The pertinent parts of that section are as follows:

Sec. 2-201. 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 subsection beyond the quantity of goods shown in such writing.

(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.

(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

....

(b) if the party against whom enforcement is sought admits in his pleading testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted

....

Me.Rev.Stat.Ann. tit. 11, Sec. 2-201.

The district court found that under (3)(b) of the Code, Gestetner by its president, Hector Wiltshire, admitted in testimony that a contract for sale had been made between Gestetner and Case and that the issue of whether or not there was such a contract and the terms of it would be submitted to the jury.

Comment 7 of the Code explains (3)(b):

7. If the making of a contract is admitted in court, either in a written pleading, by stipulation or by oral statement before the court, no additional writing is necessary for protection against fraud. Under this section it is no longer possible to admit the contract in court and still treat the Statute as a defense. However, the contract is not thus conclusively established. The admission so made by a party is itself evidential against him of the truth of the facts so admitted and of nothing more; as against the other party, it is not evidential at all.

We turn, therefore, to a review of the evidence on this issue. Since this is an appeal from a denial of a motion for a directed verdict, we must view the evidence and the reasonable inferences to be drawn therefrom in the manner most favorable to the party opposing the motion. Insurance Company of North America v. Musa, 785 F.2d 370, 372 (1st Cir.1986); Borras v. Sea-Land Service, Inc., 586 F.2d 881, 885 (1st Cir.1978).

It is undisputed that after Casella determined that Gestetner's stencil duplicators could be successfully adapted to his Subli Color printing process, he met with Richard Riggs, Gestetner's regional sales manager. Casella inquired whether Gestetner would establish Case as an independent dealer and give it the sole right to market modified Gestetner stencil duplicators as part of his color printing process. Riggs told Casella that he lacked authority to establish such a dealership. He relayed Casella's proposal to Richard Litton, national sales manager for Gestetner, who reported it to Hector Wiltshire, president of Gestetner. Thereafter, Gestetner began selling stencil duplicators to Case. No written contract was executed.

On September 11, 1984, patent counsel for Case wrote to Litton notifying Gestetner that Case reserved its domestic and foreign patent rights in the Subli Color process. The letter further stated that Case looked forward "to its continuing role as exclusive dealer for Gestetner." Litton forwarded the letter to Wiltshire who directed that no response be made to it.

Wiltshire made the following admissions during the course of his testimony. He testified that he knew that Case intended to mechanically modify Gestetner stencil duplicators, rebox them and market them under another trade name. He stated that the relationship Gestetner had with Case was unique. He further testified that Case had been an independent dealer of Gestetner for a year and three months.

We agree with the district court that this testimony met the admission requirement of section 2-201(3)(b) of the Code.

Although the district court did not so expressly find, Gestetner's pleadings were also sufficient to trigger (3)(b). Paragraph 3 of its complaint states: "3. At Defendant's request and in compliance with an agreement with Defendant, Plaintiff sold and delivered to Defendant various goods and equipment as set forth and described in the invoices attached hereto collectively as Exhibit A." (Emphasis added.) The words "in compliance with an agreement" can only connote a contract for the sale of goods.

We also find, contrary to the district court, that the letter of September 11, 1984, from Case's patent lawyer to Gestetner met the requirements of section 2-201(2) of the Code. Comment 3 of the Code explains the effect to be given an unobjected to writing confirming a contract:

3. Between merchants, failure to answer a written confirmation of a contract within ten days of receipt is tantamount to a writing under subsection (2) and is sufficient against both parties under subsection (1). The only effect, however, is to take away from the party who fails to answer the defense of the Statute of...