Ainger v. Michigan General Corp., s. 939
| Citation | 632 F.2d 1025 |
| Decision Date | 06 October 1980 |
| Docket Number | Nos. 939,1060,D,s. 939 |
| Parties | Arthur M. AINGER, George B. Davis, David Zentner, Walter Weindenbaum, Edward Silvey and Samuel J. Campbell, Plaintiffs-Appellants and Cross-Appellees, v. MICHIGAN GENERAL CORPORATION, Defendant-Appellee and Cross-Appellant. ockets 79-7675, 79-7711. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Ralph L. Ellis, New York City (Shea & Gould, New York City, Steven R. Sutton, New York City, on brief), for plaintiffs-appellants and cross-appellees.
John L. Amabile, New York City (Burns Jackson Miller Summit & Jacoby, Dumont Clarke IV, New York City, on brief), for defendant-appellee and cross-appellant.
Before LUMBARD, VAN GRAAFEILAND and KEARSE, Circuit Judges.
This action was brought by the sellers of a paperback book publishing company to recover $350,373, the unused balance of a portion of the purchase price retained by the purchaser as a reserve for unpaid taxes. Plaintiffs' right to this amount was undisputed. The purchaser, Michigan General Corporation, counterclaimed, however, alleging the breach of a warranty in the sales agreement and fraud associated with the breach. The case was tried before Judge Cannella without a jury in the United States District Court for the Southern District of New York. He awarded plaintiffs $424,445, the total amount of their claim plus interest, and allowed defendant a set-off of $69,023 as damages on its counterclaim, the net judgment against defendant being in the amount of $355,422. We affirm.
Because Judge Cannella's opinion, which is reported at 476 F.Supp. 1209, comprehensively reviews the facts, they will not be detailed here. The parties' differences center on a contract between plaintiffs' wholly-owned corporation and Donald Pendleton, the author of an extremely successful series of books, whose main character is known as "The Executioner". Prior to its purchase of plaintiffs' company, defendant knew that plaintiffs' written contract with Pendleton contained no terms vesting plaintiffs with ownership of The Executioner series or with any right or claim relating to its central character. Defendant did not know, however, that Pendleton intended to assert ownership of the series and had so advised plaintiffs. Defendant contends that plaintiffs' failure to inform it of this fact violated a provision in the sales agreement that "(s)eller is not involved in any litigation and has not been notified of any claims which could give rise to litigation ...."
Plaintiffs argue that defendant has no cause of action against them for either breach of warranty or misrepresentation. They say that under New York law an essential element of each of these causes of action is reliance by the purchaser on the seller's misstatement and that defendant's familiarity with the terms of the Pendleton contract precludes it from asserting reliance in this case. Defendant challenges plaintiffs' interpretation of New York law, asserting that recovery may be had in contract for a breach of warranty without a showing of reliance. The district court's finding that there was reliance, see 476 F.Supp. at 1231, makes it unnecessary for us to join this debate. 1
Plaintiffs also contend that Pendleton's claim of ownership was in fact without basis and that accordingly there was no fraudulent scienter in their professed ignorance of a claim "which could give rise to litigation." However, plaintiffs did more than merely deny notice of Pendleton's claim. Among other things, they misinformed defendant in writing that Pendleton "accepts the fact that all of the books in 'The Executioner' series are the property of the publisher, and not the author."
The district court did not err in holding that defendant was entitled to recover on its counterclaim for both fraud and breach of contract.
However, defendant's knowledge of the unfavorable terms in the Pendleton contract precluded it from recovering all the damages it sought. The district judge awarded defendant the legal...
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