Lambert Corp. v. Evans

• Decision Date: 20 April 1978
• Docket Number: No. 76-2287,M-B,76-2287
• Citation: 575 F.2d 132
• Parties: 24 UCC Rep.Serv. 263 LAMBERT CORPORATION, Plaintiff-Appellee, v. Robert B. EVANS and Walter E. Haines, d/b/aCompany, a partnership, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 132

575 F.2d 132

24 UCC Rep.Serv. 263

LAMBERT CORPORATION, Plaintiff-Appellee, v. Robert B. EVANS and Walter E. Haines, d/b/a M-B Company, a partnership, Defendants-Appellants.

No. 76-2287.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 25, 1977.

Decided April 20, 1978.

Thomas L. Smallwood, Milwaukee, Wis., for defendants-appellants.

John R. Dawson, Milwaukee, Wis., for plaintiff-appellee.

Before CASTLE, Senior Circuit Judge, COWEN, Senior Judge, ^* and PELL, Circuit Judge.

PELL, Circuit Judge.

After a bench trial in this diversity action, plaintiff-appellee Lambert Corporation was awarded judgment against defendants-appellants Evans and Haines, jointly and severally, in the amount of $43,012.41 plus costs and disbursements. The district court's judgment was based on a contract which it found had been entered by Lambert Corporation and the M-B Company, a business which appellants owned as partners. Lester Blumberg, whose title in the partnership was Vice President and General Manager, was the principal actor in the pertinent events for M-B. William Lambert acted for Lambert Corporation. Each had appropriate authority.

The contract in question involved the sale of Lambert Corporation's product line of industrial floor sweepers to M-B Company. Appellants defend on the basis that no enforceable agreement was ever made. The facts, which are not substantially disputed, and which, as found by the district court, we do not view as clearly erroneous, are as follows:

Lambert Corporation manufactured and distributed lawn sweepers, powered lawn vacuums, and garden tools for consumer use. The line of walk-behind floor sweepers involved in this case had been developed by Lambert as an outgrowth of its experience with its regular line of consumer products, and incorporated a patented dust control system. The line was designed for industrial use, and was sold through different channels to different customers than the rest of Lambert's products, which apparently resulted in marketing problems. Lambert never enjoyed any real success in marketing the line. In fact, by 1969, total sales of the products in the line had declined to the level of several hundred dollars. Accordingly, Lambert Corporation began in the late 1960's to attempt to sell the product line. Despite substantial efforts, nothing had come of these efforts as of May 1970.

At the suggestion of a business broker, William Lambert telephoned Evans in May 1970. Evans expressed interest in pursuing the matter further, and Lambert wrote him on May 25, 1970, offering for sale the product line "package," consisting of

(a)ll drawings; bills of material; supplier listings; U.S. and foreign patents; all tools, dies, jigs, and fixtures; and inventory (approximately $24,000 in cost) for a total of $85,000.

Haines, by letter of June 9, responded to Lambert, continuing to express definite interest, and requesting some additional information, at least part of which was provided in Lambert's letter to Haines of August 4.

On October 30, 1970, Blumberg visited the Lambert Corporation's offices and plant in Ohio, spending the entire business day there with William Lambert. There is no doubt that the purpose of the visit was to learn more about the proffered product line, that the two men spent the day pursuing that goal, and that no agreement was reached. Beyond this, the details of what was seen and discussed are not entirely clear, for Lambert and Blumberg gave differing testimony on the point. Because one of the arguments the appellants make here is that they never had learned enough about exactly what it was that Lambert Corporation was selling to have reached the point of agreeing to buy it, we take special note of the district court's finding that Blumberg's subsequent written report of his visit to Haines (dated November 11, 1970) indicated substantial knowledge on this score. Blumberg's letter to Haines also expressed the view that the Lambert products would fit "very nicely" into M-B's floor sweeper line, but judged their value to M-B to be no more than $20,000 plus inventory.

On December 7, 1970, William Lambert wrote a short letter to Blumberg inquiring about the status of M-B's evaluation of the proposal and offering to provide additional information. On December 17, Blumberg wrote a significant letter to Lambert:

Almost two months have gone by since we stopped to see you. We still remember the pleasant visit.

After some time, the discussions with our principals, Mr. Evans and Mr. Haines, were finally concluded and it leaves the final decision still somewhat up in the air because we are making a counter-proposal which you may or may not be interested in.

We do not feel that the package of the Sweeper and Engineering would be worth anymore than $20,000 to us and we would acquire the inventory on a pay as used basis. This has been worked out in the past several experiences we have had on this set-up whereby the inventory was consigned to us. We paid it as we invoiced the machines either once a month or quarterly as desired by the seller. The inventory then, was expected to be paid out in two years. Any remaining inventory was left up to the decision of the former owner as to its disposition at that time.

We realize this proposal is quite away from your suggested amount but if you are at all interested, we would be pleased to hear from you.

After checking unsuccessfully with another company to which he had proposed sale of the line, Lambert telephoned Blumberg on December 29. The district court found that in this crucial telephone call the parties reached an agreement.

Once again, Blumberg's and Lambert's accounts of what transpired do not entirely coincide. Lambert testified that he told Blumberg he was calling to accept M-B's proposal, at the price of $20,000 plus the cost of the inventory. Although agreeing to the "pay as used procedure," Lambert requested M-B to take title to the inventory immediately to avoid for Lambert Corporation legal consequences of doing business in Wisconsin, and Blumberg agreed to this. Lambert stated that he and Blumberg agreed that a formal document would be drawn up by M-B's attorneys and submitted to Lambert Corporation, but he also testified that he had no doubt that he and Blumberg had made an agreement, by which he felt bound at that time. In fact, he and Blumberg spent some time during the call congratulating each other on having reached agreement.

Blumberg's testimony was much less clear. He frequently stated that he could not recall the details of the conversation. Responses to some questions were equivocal. The tenor of his testimony was that Lambert may well have said that the M-B counterproposal was acceptable, and he and Lambert may have congratulated each other, but his remembrance of the telephone call was that nothing binding had been accomplished, nor would it be, until a formal contract was signed by the parties. The district court expressly found Lambert's version of this telephone conversation to be "considerably" more credible than Blumberg's.

Appellants make three arguments on appeal. The first, that the contract, if any was made, does not satisfy the statute of frauds, does not merit extended discussion. There can be no real doubt that both of the parties were "merchants," as that term is defined in the Uniform Commercial Code, § 2-104(1) (and see Comment 2 thereto), Wis.Stats.1975 § 402.104(1). That being so, the Code's general statute of frauds, § 2-201(1), Wis.Stats.1975 § 402.201(1), need not be satisfied if the conditions of § 2-201(2), Wis.Stats.1975 § 402.201(2), are met:

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 sub. (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.

In this case, William Lambert dispatched to Blumberg a letter on the very day they spoke on the telephone, confirming his acceptance of the December 17 letter proposal, noting the special provisions he and Blumberg had agreed to with reference to the inventory. Notwithstanding receipt of this letter, no one at M-B ever objected to its contents. We think the district court's conclusion that the statute of frauds was thus satisfied is eminently correct.

The second argument is that no enforceable agreement was reached, because both parties understood that a formal document would be drawn up to embody the agreement. As a matter of law, this theory is tenable enough. Even if parties agree, point by point, on all the terms of a contract, if they understand that the execution of a formal document shall be a prerequisite to their being bound there is no contract until the document is executed. On the other hand, if it is agreed that a formal document will be prepared to memorialize a bargain the parties have already made, the bargain is enforceable even though the document has not been executed.

The parties herein agree that this is the law, as did the district court. See Peninsular Carpets, Inc. v. Bradley Homes, Inc., 58 Wis.2d 405, 206 N.W.2d 408, 412 (1973); Joseph v. Doraty, 144 N.E.2d 111, 113 (Ohio App.1957); ¹ V'Soske v. Barwick, 404 F.2d 495, 499 (2d Cir. 1968), cert. denied, 394 U.S. 921, 89 S.Ct. 1197, 22 L.Ed.2d 454 (1969); 1 Restatement of Contracts § 26 (1932); 1 S. Williston, Contracts § 28 at 69 (3d ed. 1957); 1 Corbin on Contracts § 30, at 104-12 (1963).

We reject the defendants' argument, then, not because it is wrong on the law but because it is wrong on the facts. The district court to which the case was fully tried found that

although both Mr. Lambert and Mr. Blumberg expected that their respective attorneys would prepare and review a formalized document reducing their agreement to writing, neither individual understood, as of the date of...