Freeman v. Continental Gin Company

• Decision Date: 20 October 1967
• Docket Number: No. 23691.,23691.
• Parties: John H. FREEMAN, Jr., d/b/a Freeman Electric Gin Company, Appellant, v. CONTINENTAL GIN COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

381 F.2d 459 (1967)

John H. FREEMAN, Jr., d/b/a Freeman Electric Gin Company, Appellant, v. CONTINENTAL GIN COMPANY, Appellee.

No. 23691.

United States Court of Appeals Fifth Circuit.

July 13, 1967.

Rehearing Denied October 20, 1967.

COPYRIGHT MATERIAL OMITTED

Norman Craig Brewer, Jr., Greenwood, Miss., John C. Satterfield, Yazoo City, Miss., J. Dudley Buford, Jackson, Miss., Brewer, Deaton & Evans, Greenwood, Miss., Satterfield, Shell, Williams & Buford, Yazoo City, Miss., for appellant.

I. T. Cohen, Atlanta, Ga., Charles Clark, Jackson, Miss., Cohen, Kohler, Barnwell & Chambers, Atlanta, Ga., Cox, Dunn & Clark, Jackson, Miss., of counsel, for appellee.

Before COLEMAN and DYER, Circuit Judges, and ESTES, District Judge.

Rehearing Denied October 20, 1967. See 384 F.2d 365.

ESTES, District Judge:

On July 4, 1962, John H. Freeman, Jr. signed a printed form contract, witnessed by representatives of the Continental Gin Co., by which Freeman agreed to purchase from Continental a substantial amount of machinery and equipment with which to replace an existing cotton gin. The contract was filled out before it was signed, except that it did not then list in detail the items to be purchased by Freeman nor the items he was trading in on the purchase. At the time the contract was signed, it called for the purchase of "Partial 3-119 Saw Ginning Outfit consisting of the following —." An itemized list of the machinery and equipment required had been furnished Freeman previously, and it was examined by him and by the representatives of Continental at the time the contract was signed. Thereafter the contract was sent to Continental, the list of property to be purchased and to be traded in were inserted, and the contract was formally accepted by Continental on July 26, 1962, with certain modifications contained in Continental's letter of that date to Freeman by which Freeman's copy of the contract was returned. The contract as approved and accepted by Continental was received and accepted by Freeman on July 30. The machinery and equipment called for by the contract were delivered to Freeman in the next two months. Freeman has never paid for this equipment.

On April 10, 1964, Continental sued Freeman in the court below. Count I of the complaint was a claim for the purchase price, together with interest and, as provided by the contract, a reasonable attorneys' fee. Count II was a claim on an open account for miscellaneous parts and repair items sold to Freeman after the contract just described.

Freeman's deposition gives a very different picture of this transaction. According to Freeman, he had had several conversations with Vandergriff, the president of Continental Vandergriff told him that he understood Freeman was thinking about putting in a new gin and that he, Vandergriff, had some new ideas that had not been tried out before and that he would like to try out on an experimental basis. Vandergriff told Freeman that if he would let these ideas be tried in his new gin, Continental would make it work or come and do what was necessary, and if they could not do that, they would take it back. Vandergriff also told Freeman that the new gin would be in operation in time for the 1962 ginning season and that a representative of Continental would follow the job closely. On the basis of these assurances, Freeman signed the July 4 contract. Shortly thereafter, an employee of Continental arrived and dismantled Freeman's former gin and prepared to build the new one. This person proved to be incompetent, and Continental later took him off the job and replaced him with another employee. The equipment for the new gin was slow in arriving, and much of it was defective in one way or another. Continental did not provide proper engineering plans for the new gin, as it had promised to do. Because of this, the new gin did not work at all until the 1962 ginning season was virtually over; and though it is still in use by Freeman, it has never worked properly.

By answer and counterclaim, Freeman asserted that Continental had breached the agreement between them by failing to construct the facility in the time and manner it had agreed. Freeman denied that he was liable to Continental, and claimed substantial damages he had allegedly suffered because of the breaches by Continental. Each party moved for summary judgment on the basis of Freeman's deposition.^* The trial court denied Freeman's motion. It granted Continental's motion as to Count I, reserving for a later hearing the amount of the attorneys' fee to which Continental was entitled. It also granted Continental's motion as to Count II to the extent that Freeman had not disputed certain items, reserving for later hearing items claimed in the open account about which there was dispute. The basis for these rulings by the court was set forth by it in a thorough opinion. 237 F.Supp. 240. Nine months later Freeman moved to reopen the summary judgment and to amend his answer and counterclaim to allege fraud on the part of Continental. This motion was denied by the district court, with opinion. 39 F.R.D. 351. Thereafter a hearing was held, the matters which had been previously reserved were resolved by the court, and the court entered a final judgment that on Count I Continental take $89,008.09, plus interest of $18,708.68 and an attorneys' fee of $10,000, and that on Count II Continental take $7,278.68, plus interest of $1,382.95. From this judgment Freeman appeals.

The appeal raises two questions for our consideration: (1) did the district court err as a matter of law in granting sumary judgment to Continental? (2) did the district court abuse its discretion in refusing to give Freeman leave to amend? In this diversity case, "Federal courts are to apply Mississippi state substantive law and federal procedural law." Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965).

I. Grant of Summary Judgment

On the facts it may at first blush seem odd that the district court, on motion for summary judgment, has ordered Freeman to pay Continental the contract price for equipment that did not work as Continental had promised it would. This, however, assumes the truth of what Freeman testified to in his deposition. Although the trial court, on Continental's motion for summary judgment, was required to accept Freeman's deposition as true, it could give weight to it only to the extent that it set forth "such facts as would be admissible in evidence." Fed.R. Civ.Proc. 56(e). This involves consideration of the misnamed "parol evidence rule." It may be true, as distinguished scholars have urged, that this rule "scarcely deserves to be called a rule of evidence of any kind, and is a rule that is as truly applicable to written evidence as to parol evidence." 3 Corbin, Contracts § 573, p. 358 (1960 rev.). See also Thayer, Evidence 409 (1898); 9 Wigmore, Evidence § 2400 (3d ed. 1940). The view of the Mississippi Supreme Court, controlling here, is that "there is no better settled rule of evidence than that which declares that parol testimony is inadmissible to contradict, or substantially change, the legal import of a written agreement." Valley Mills, Division of the Merchants Company, Inc. v. Southeastern Hatcheries of Mississippi, Inc., 245 Miss. 71, 145 So.2d 698, 702 (1962). If Freeman's testimony could properly be considered by the court, then it would be clear that the judgment below must be reversed. But if Freeman's version of the events surrounding the contract would be inadmissible in evidence as a matter of law, then the grant of summary judgment was right.

Whether or not the "parol evidence rule" is properly regarded as a rule of evidence, it is settled that for purposes of the Rules of Decision Act, 28 U.S.C. § 1652, a federal court in a diversity case must apply the rule as the state court would. Sperry Rand Corp. v. Industrial Supply Corp., 337 F.2d 363, 371 (5 Cir., 1964); 2B Barron & Holtzoff, Federal Practice and Procedure § 962, p. 220 (Wright ed. 1961). Freeman's deposition is parol testimony. If it substantially changes the legal import of the written agreement between the parties, it is inadmissible, and was properly disregarded by the district court, unless it falls within some exception to the "parol evidence rule" recognized in Mississippi.

Mississippi recognizes the common exceptions to the "parol evidence rule." Three of these are discussed in the Valley Mills case, quoted above. Extrinsic evidence will be admitted to show the intent of the parties if the written instrument is ambiguous or indefinite. 145 So.2d at 702. Extrinsic evidence may be given of a distinct, valid, contemporaneous agreement between the parties that was not reduced to writing if this evidence is not in conflict with the provisions of the written agreement. 145 So.2d at 702. If the written agreement expressly refers to discussions between the parties, those discussions are admissible. 145 So.2d at 703. The last of these exceptions has no application in this case. Although it is clear that the written agreement here did follow discussions between the parties, there is no reference to those discussions in the writing itself. Whether the writing is ambiguous, and whether the oral testimony shows a contemporaneous collateral agreement, are questions that require closer examination of the contract documents.

The written instruments clearly and unambiguously create a contract for the sale of specified personal property f. o. b. Continental's factory. The first paragraph of the form contract says:

"Please ship to the undersigned purchaser or purchasers (hereinafter referred to as `the purchaser\') between July 20 and Aug. 1, 1962, or as soon thereafter as possible, the machinery or articles herein described, under and upon warranty provided on back hereof. It is understood that the purchaser approves specifications herein contained and agrees to purchase, and upon your acceptance you agree to sell,

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