Graphic Sales, Inc. v. Sperry Univac Div., Sperry Corp.
| Citation | 824 F.2d 576 |
| Decision Date | 21 July 1987 |
| Docket Number | No. 85-3134,85-3134 |
| Parties | GRAPHIC SALES, INC., Plaintiff-Appellant, v. SPERRY UNIVAC DIVISION, SPERRY CORPORATION, Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
William J. Harte, William J. Harte, Ltd., Chicago, Ill., for plaintiff-appellant.
Ralph A. Mantynband, Arvey, Hodes, Costello, & Burman, Chicago, Ill., for defendant-appellee.
Before POSNER, RIPPLE, Circuit Judges, and CAMPBELL, Senior District Judge. *
In this diversity action, Graphic Sales, Inc. (Graphic) sought recission of lease agreements and damages against the Sperry Univac Division of the Sperry Corporation (Sperry). Graphic alleged fraud in the inducement, common law fraud and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act in connection with lease agreements involving computer equipment. Sperry filed a counterclaim for amounts due under the lease agreements. Following a bench trial, the district court entered judgment for Sperry in the amount of $112,549.02 along with the costs of the action. For the reasons set forth below, we affirm the judgment of the district court.
Graphic is an Illinois corporation that uses computerized phototypesetting equipment to provide graphic arts services for its customers. Sperry, a Delaware corporation, provides, by sale or lease, computer systems and support to its customers. On February 1, 1980, after having contacted numerous computer vendors during the previous year, George E. Price, Graphic's President, contacted Robert W. Johnson, a Sperry sales representative, to inquire about replacing its Basic IV computer system. Mr. Price decided that, for Graphic to remain competitive in the phototypesetting business, it needed a new computer that could be linked directly to its typesetting equipment and that could provide word processing capabilities. Mr. Price was an experienced operator of computers prior to meeting with Mr. Johnson.
During the February 1 meeting, Mr. Johnson toured Graphic's facilities to observe Graphic's typesetting operation and equipment. Mr. Johnson received an overview of Graphic's computer requirements and then left a copy of the current Sperry annual report and several brochures. At their next meeting on February 4, 1980, Mr. Johnson gave Mr. Price several brochures describing Sperry equipment that he believed would perform the functions that Graphic needed. The documents included descriptions of the 90/25 and the 90/30 data processing systems as well as a description of a newspaper composition program, "Newscomp," used for production of composed material in the printing and publishing industry. Mr. Price later gave Mr. Johnson a list of hardware specifications required to allow the computer equipment to interface with Graphic's typesetting equipment. At their next meeting, Mr. Price and Mr. Johnson discussed the price of a 90/25 computer system.
On February 12, 1980, Mr. Johnson provided Mr. Price with the names of manufacturers that made black boxes that would enable the 90/25 computer system to interface with the typesetting equipment. Mr. Price also received a copy of the proposed contracts for leasing the 90/25 system, terminals and program products for which there was a license charge. Before executing the contracts, Mr. Price submitted them to Graphic's attorney for his review and approval. On February 14, 1980, Mr. Price signed leases on behalf of Graphic for the 90/25 computer system and for application software programs, such as BEM monitor, EDT and BASIC, each with a separate monthly license charge for its use.
On February 26, 1980, Graphic leased a 90/30 computer system instead of the 90/25 system. Mr. Price decided to lease the 90/30 computer system rather than the 90/25 computer system because the 90/30 system contained an increased amount of disc memory, communication lines and disc drives. The 90/25 system could be converted into a 90/30 system with the installation of additional hardware. Both systems utilize the OS/3 operating system. The computer equipment arrived at Graphic in May 1980.
On June 20, 1980, Mr. Price wrote a complaint letter to Mr. Vennard, a Chicago branch manager for Sperry. The letter reviewed the meetings between Mr. Price and Mr. Johnson and discussed the problems Graphic had experienced with Sperry's performance. The letter specifically stated that several pieces of hardware were not functioning and that Graphic could not pay for any additional pieces of hardware or software to enable the 90/30 system to operate according to the contract specifications. Because he received no response to his first letter, Mr. Price sent a second letter on July 2 to Mr. Johnson. In this letter, Mr. Price stressed that Graphic could not afford additional equipment and attached a list of problems with Sperry's performance that remained unresolved.
On August 19, 1980, Mr. Price directed an employee to accept for Graphic a written acknowledgement that the equipment installed by Sperry was ready for use. Defendant's Ex. 29. However, in October, Graphic alleged nonperformance of the contracts and consequently stopped paying rent to Sperry for the use of the leased equipment. On December 15, 1980, Mr. Price signed a "detailed implementation plan" enumerating the tasks that both Graphic and Sperry needed to accomplish in order for the computer system to function according to specifications. Several of these tasks were not scheduled to be completed until the end of January 1981 or mid-February 1981; however, in January 1981, Graphic ordered Sperry off its premises. Graphic returned the computer equipment to Sperry on May 28, 1981.
The dispute in this case centers on misrepresentations Sperry allegedly made to Graphic regarding the availability of application software. Both parties agree that the lease of computer equipment involved a "bundled" product, but they disagree as to the meaning of the term "bundling." Graphic contends that Sperry's brochures indicated that application programs, such as Newscomp, were included with the 90/25 system hardware and the OS/3 operating system at no additional charge and were thus part of the bundled product. 1 Graphic specifically maintains that the unavailability of both the Newscomp application software and its replacement, Graphic Text Management System, "GTMS," caused it to sustain damages because, without those programs, it did not have the capacity to meet its customers' needs. Sperry claims that, in accordance with the custom and usage in the computer industry, the only software included in the bundle is the operating system and that application software is leased separately.
In its findings of fact, the district court described the meetings between Mr. Price and Mr. Johnson essentially as set forth above. The court determined that it is customary in the computer industry for there to be a separate charge for application software and that the term "bundling" as used by the parties, in accordance with industry usage, meant that the computer system included only the operating system at no additional cost. The court further stated that Sperry explained to Mr. Price that application software was not included in Graphic's contract for lease of the 90/25 computer system. Moreover, the court found that Newscomp had not been discussed with Mr. Price prior to the date that the lease had been signed and that Mr. Price requested a copy of the Newscomp tape from Sperry in July 1980. Sperry responded that he could use the tape, but that Sperry would not provide technical support. The court noted that the complaint letters Mr. Price sent to Sperry contained no complaints about application software.
Addressing Sperry's performance under the lease agreements, the court found that there was a point in time when the 90/30 system successfully interfaced with Graphic's typesetting equipment. Further, the court found "that Sperry was at all times ready, willing and able to perform and to make preparations to perform on its part the obligations under the contract." Graphic Sales, Inc. v. Sperry Univac Div., Sperry Corp., No. 81 C 3185, mem. op. at 16 (N.D.Ill. Nov. 14, 1985) []. In the court's view, Graphic prevented Sperry from performing its responsibilities when it demanded that Sperry remove the computer equipment from Graphic's premises. The court then found that Graphic owed Sperry $112,549.02 under the terms of the lease agreements.
In its conclusions of law, the district court first noted that article 2 of the Uniform Commercial Code (UCC), Ill.Ann.Stat. ch. 26, art. 2, applies to leases of computer equipment, and held Graphic liable to Sperry under both the UCC and the common law for breach of contract. The court also stated that "[i]t is obvious from the four corners of the agreements that application software was not included." Mem. op. at 18.
The court further held that Sperry did not fraudulently induce Graphic to lease Sperry's computer. The court stated that an action for fraud must be predicated on statements of existing facts and that any representations made after the leases were signed could not provide grounds for recission of the contracts because they did not form the basis for the agreements. The court further concluded that Graphic failed to establish that Sperry had violated the Illinois Consumer Fraud and Deceptive Business Practices Act because the evidence "failed to establish that Sperry intentionally misrepresented or omitted any pertinent details in its pre-contract negotiations with Graphic." Mem. op. at 19. The court held, in the alternative, that, as a matter of law, Graphic's claim was not actionable under the Act because the lease agreements were commercial transactions and Sperry's allegedly fraudulent misrepresentations did not affect consumers generally.
Graphic contends that ...
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