Sperry Rand Corporation v. Industrial Supply Corporation

• Citation: 337 F.2d 363
• Decision Date: 05 October 1964
• Docket Number: No. 20643.,20643.
• Parties: SPERRY RAND CORPORATION, Appellant, v. INDUSTRIAL SUPPLY CORPORATION, Appellee. INDUSTRIAL SUPPLY CORPORATION, Appellant, v. SPERRY RAND CORPORATION, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

337 F.2d 363 (1964)

SPERRY RAND CORPORATION, Appellant, v. INDUSTRIAL SUPPLY CORPORATION, Appellee.

INDUSTRIAL SUPPLY CORPORATION, Appellant, v. SPERRY RAND CORPORATION, Appellee.

No. 20643.

United States Court of Appeals Fifth Circuit.

October 5, 1964.

COPYRIGHT MATERIAL OMITTED

Edward McCarthy, Jr., Jacksonville, Fla., Edward McCarthy, Jacksonville, Fla., McCarthy, Adams & Foote, Jacksonville, Fla., of counsel, for appellant.

Edward I. Cutler, Tampa, Fla., Carlton, Fields, Ward, Emmanuel, Smith & Cutler, Tampa, Fla., for appellee.

Before MAGRUDER,^* JONES and GEWIN, Circuit Judges.

JONES, Circuit Judge.

The appellant, Sperry Rand Corporation, is a Delaware corporation with its principal place of business in the State of New York. The appellee, Industrial Supply Corporation, is a Florida corporation with its principal place of business in Florida. The amount in controversy exceeds $10,000. The initial forum was the United States District Court for the Middle District of Florida. The basis of federal jurisdiction is diversity of citizenship. Industrial Supply brought an action for the rescission of its purchase from Sperry Rand, by written agreement, of a record-keeping system and equipment. Breach of an express or implied warranty, or both, was asserted, and a fraud claim was founded on the averment that false representations were willfully, recklessly or negligently made by Sperry Rand. The district court rejected the claim that there had been a breach of an express warranty and found against Industrial Supply on the fraud issue. The court found, however, that there had been a breach of an implied warranty, decreed rescission and entered judgment for Industrial Supply, conditioned upon the return of the equipment, for the purchase price, transportation costs, insurance and interest. Sperry Rand has appealed. Industrial Supply has taken a cross-appeal, contending that its judgment should have included an award for its claims for other items of damage.

Industrial Supply is engaged in the business of selling and distributing steel, pipe, equipment, tools, hardware, and other items to industrial, agricultural and other users, doing a large volume of business throughout a large territory, and having its principal place of business at Tampa, Florida. Sperry Rand, through its Remington Rand Univac Division, is in the business of manufacturing, selling and installing business systems and equipment, including automatic electronic data processing equipment. Industrial Supply, desiring to improve its system of paper work and produce its records faster and more efficiently, invited several makers of electronic processing equipment to make surveys and recommendations. Two responses were made, one of them by Sperry Rand. Conferences were held between representatives of Sperry Rand and Industrial Supply. Sperry Rand made a study of the business procedures of Industrial Supply over a period of about three months. In January 1959, Sperry Rand submitted "A Report Prepared Expressly for Industrial Supply Corp. . . . following a work process survey of your administrative operations, routines, and procedures." The title page of the report, which is sometimes referred to as "the brochure," recited that "It is understood that the recommendations herein are intended only for consideration by your organization and that the detailed operating advantages are obtainable through the integrated utilization of Remington Rand products and services." The brochure listed about seventy procedures, so called, that the RRU (Remington Rand Univac) recommended equipment was intended to execute. Seventeen flow charts were included to show the processes by which the RRU equipment would carry out the procedures. Ten separate items of equipment, having prices ranging from $1,994 for an Alphabetical Punch to $75,000 for a Univac Electronic Computer, were included.

The brochure contained "Recommendations", including the following:

"1. We recommend the use of RRU equipment as the one best suited to a tailor made job for your organization.

"2. We have demonstrated the fact that through the use of RRU punched card procedures and exclusive equipment features, we can produce your records and reports more economically, faster and accurate than your present operation.

"3. We suggest the use of several RRU exclusive machines, namely the Card-O-Matic, the UNIVAC 60 computer, the fast speed Electronic Sorter, the Collating Reproducer, the 100 Sector Alphabetical Printing Tabulator, and other devices incorporated in the equipment for use on your procedures."

The brochure was transmitted to Industrial Supply by a letter signed by two "Univac Representatives" of Sperry Rand. The letter is in the following terms:

"We have completed our study of the phases of your organization that you desire to mechanize, and are submitting our proposal applying fully automatic Remington Rand Univac equipment to your procedures in Order Writing, Invoicing, Inventory, Accounts Receivable, Salesman Commissions, Accounts Payable, Back Ordering, and Purchasing Department activity.

"Our study disclosed that the use of tabulating equipment suggested in this proposal will produce your records and reports with greater speed, uniformity, accuracy, and economy. Using the principle, developed for the Card-O-Matic Punch, of coding, pricing and punching in one operation, without further verification, and the fast extending, comparing, and punching operations of the Univac 60, you will no doubt be able to absorb increased activity on the suggested equipment for a greater volume of business without an appreciable increase in cost.

"We have demonstrated to you our complete interest in formulating, planning, and assisting in installing a system on tabulating equipment tailored to your needs, and your organization\'s work. Our proposal covers the subject matter thoroughly, but is only the beginning of applying our experience and know how to your routines and procedures. "We wish to thank you and the personnel in your organization, for the help and assistance they gave us to make this proposal possible. We will be indeed proud to accept your signature on the enclosed contract for equipment, and welcome your organization to the large number of satisfied Remington Rand Customers."

In the pocket of the back cover of the brochure were two forms of agreement between Sperry Rand and Industrial Supply, one being for the use and service of the equipment, which will be referred to as a lease or rental agreement, the other being a contract for the sale of the equipment. The lease agreement, dated April 3, 1959, calling for a rental of $1,980 per month, was executed. The equipment was delivered to Industrial Supply at Tampa, Florida, in July and August, 1959. It was decided by Industrial Supply, on advice of its accountant it appears, that the equipment should be purchased rather than leased. No rental had been paid. During December 1959, the parties entered into the agreement for the sale of the equipment. The final payment of the sales price was made in February, 1960.

The sales agreement contained a warranty clause obligating Sperry Rand to make adjustments during thirty days after installation and to replace defective parts within ninety days from the date of installation. The final paragraph of the agreement provided that the entire agreement was contained in it, and no representation, except when made in writing by a duly authorized officer of RRU, should be deemed to be a part of the agreement. To the extent these clauses are material they will be hereinafter quoted.

Quite some time was spent in preparing to convert the record-keeping procedures of Industrial Supply from methods previously used to the RRU system. Several additional months were spent by Industrial Supply in using or attempting to use the equipment, during which time it expressed to Sperry Rand its dissatisfaction with the equipment and its functioning. Its discontent was indicated by correspondence and in conference with Sperry Rand representatives. In the early part of 1961 Industrial Supply repudiated the transaction and sought the return of the purchase price and redelivery of the equipment. Sperry Rand attributed the failure of the equipment to give satisfaction to the unwillingness of Industrial Supply's personnel to make it operate efficiently and a desire on the part of Industrial Supply's management, for economic reasons, to get out of the deal. This suit followed. The complaint alleges that Sperry Rand made express and implied warranties that the system and equipment were fit and specially tailored for the use intended and required by Industrial Supply. A breach of the warranty was asserted. Rescission was sought and damages were claimed. Sperry Rand asserted that its representatives, who were said by Industrial Supply to have made representations, were only expressing opinions, that Industrial Supply did not rely upon the statements made to it but made its decision to purchase on the basis of its own investigations. Sperry Rand asserted that the equipment fully performed all that had been promised for it.

The district court found that the statements were representations on behalf of Sperry Rand and not merely the opinions of salesmen, and that the equipment was not reasonably fit for the purpose and use for which it was intended and had been recommended. The court held that the applicable law for the interpretation of the contract was the law of New York, where the contract was made. The court concluded that under the New York law the transaction between the parties gave rise to an implied warranty that the equipment was reasonably fit for the purpose required by the purchaser. Under the law of New York, so held the district court, the integration clause does not exclude or preclude the existence of implied warranties. There was, according to the district court's findings and conclusions, a breach of an implied...