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Associated Hardware Supply Co. v. Big Wheel Distributing Co.

decided as amended february 3 1966.: December 27, 1965.


Staley and Freedman, Circuit Judges, and Cohen, District Judge.

Author: Staley

STALEY, Circuit Judge.

This appeal raises several complex questions involving the Uniform Commercial Code as adopted in Pennsylvania, 12A Purdon's Pa.Stat.Ann. § 1-101 et seq., and the Federal Rules of Civil Procedure, 28 U.S.C. Due to the peculiar substantive issues presented and because the appeals are from both the entry of summary judgment and an order denying a motion to amend the pleadings and for "reconsideration" of the court's order granting summary judgment, the facts must be recited at some length.

During the latter part of 1961, Irvin Molever began to entertain the idea of opening a discount house retail business in Wheeling, West Virginia. At that time he came in contact with Ernest Berez, a long-time friend and Vice-President of the Associated Hardware Supply Company, a Pennsylvania corporation and wholesaler of hardware, household goods and other merchandise. Molever incorporated his business in West Virginia under the name of The Big Wheel Distributing Company, and as its representative attempted to negotiate a contract with Associated. Several meetings between the representatives of both corporations were held in the early months of 1962. The primary topic of discussion at these meetings was the method of pricing to be used. Big Wheel insisted that the prices be computed on a cost plus ten percent basis for shipments from Associated's warehouse and cost plus five percent for direct factory shipments. Associated maintained that it could not price goods on this basis because its IBM billing system was geared to discount pricing. Big Wheel alleges that at this time it was told by Associated that the dealer-catalogue less 11% method was equal to the cost plus method it desired. These discussions culminated in an exchange of letters between the parties; the letter from Associated on February 9, 1962,*fn1 confirmed an offer made at one of these meetings; the reply from Big Wheel on February 24*fn2 impliedly agreed to some of the confirmation but explicitly rejected the method of pricing contained therein. However, either sometime prior to or shortly after sending its letter of February 24, Big Wheel placed an order with Associated for a large quantity of goods which was included in the store's inventory when it opened on March 5. The price paid for the original shipment and for every shipment received thereafter for the next two years was computed on a dealer catalogue less eleven percent basis.

Sales made during this period were not without complaint. As early as August, 1962, Big Wheel began to doubt that the prices it was paying were the equivalent of cost plus 10% on warehouse shipments and cost plus 5% on direct factory shipments. By the following March, at least one of Big Wheel's officers was certain that the prices charged by Associated were considerably higher than cost plus ten percent. These objections were communicated to Associated, which allegedly assured Big Wheel that the prices paid would average out to cost plus 10%.

In spite of its objections to the pricing method, Big Wheel continued to order, receive and pay for merchandise on a dealer catalogue less eleven percent basis until March of 1964. From March through June of 1964, Big Wheel placed orders and received the goods but refused to pay for the merchandise received. In July, Associated commenced this action by filing a complaint in foreign attachment in the Court of Common Pleas of Allegheny County, Pennsylvania, claiming that it was due $40,185.62 under its contract of sale, which it maintained was embodied in its letter of February 9. See footnote 1, supra.

Big Wheel's petition for removal under 28 U.S.C. § 1441 was granted, and it filed an answer and counterclaims. In its answer Big Wheel alleged: (1) that it was not liable on any contract because the goods were improperly priced and because Exhibit A of the complaint (February 9 letter) had never been signed by any representative of the defendant;*fn3 (2) that the price basis to which the defendant had agreed was fraudulently induced by plaintiff's material misrepresentation that dealer catalogue less 11% was equal to cost plus 10% on warehouse shipments and cost plus 5% on factory shipments. In its counterclaims Big Wheel alleged that it was entitled to recover for breach of contract in several particulars and for the fraudulent inducement of all previously executed sales between the parties.

Prior to the completion of discovery, Associated moved for summary judgment on the complaint and for dismissal of the counterclaims. After a hearing, the district court on January 7, 1965, entered summary judgment for Associated in the amount of $40,185.62 and dismissed the counterclaims. On January 18, Big Wheel moved for leave to file an amended answer and counterclaims and for reconsideration of the court's earlier order for entry of judgment. The district court's order denying this motion and its summary judgment have both been appealed.

The first matter to be resolved is whether a contract existed and, if so, on what terms. The parties agree that the proper substantive law governing these determinations is embodied in the Sales Article of the Uniform Commercial Code (1957 ed.) as adopted in Pennsylvania, 12A Purdon's Pa.Stat.Ann. § 2-101 et seq. (hereinafter referred to as "UCC").

Two questions involving the interpretation and application of the Code were raised in the district court and argued here. The first of these concerns the Sales Article's statute of frauds, UCC § 2-201. It has been argued that the goods sold between March and June, 1964, were personalty, the price of which exceeded $500.00, and must be represented by a writing. This issue is readily resolved by either of two subsections of UCC § 2-201. First, it is not disputed that the goods have been received and accepted by the defendant. This being so, the transaction is clearly without the statute of frauds, UCC § 2-201(3) (c). Even if this were not so, it is also admitted that Big Wheel received invoices for the sales in question which contained the letterhead of Associated, the quantity and price terms. Because it is clear that the parties are "merchants" within the meaning of the Code, UCC § 2-104(1), and since no written objections to the invoices were sent within ten days of their receipt, the statute of frauds is satisfied. UCC § 2-201(2).*fn4

The second and perhaps more difficult question is whether the March-June, 1964, sales or any of the sales between the parties are represented by corresponding confirmatory memoranda or other writing "intended by the parties as a final expression of their agreement." UCC § 2-202. Although this problem is more directly related to the defenses and counterclaims of Big Wheel insofar as whether evidence of prior oral agreements is admissible, the parol evidence rule is a substantive rule of contracts,*fn5 and consequently, will be discussed here.

Appellant contends, and we agree, that the intent of the parties that a writing be a final expression of their agreement is normally a question for the jury. However, we also believe that where a question of law is presented, it may be properly disposed of on summary judgment. The question presented here is not whether the parties intended either the invoices or the letter of February 9 as a final expression of their agreement,*fn6 but rather, if, in fact, the parol evidence rule is applicable.

Prior to the adoption of the Code in Pennsylvania, the limitations of the parol evidence rule had been clearly enunciated. The landmark case of Gianni v. R. Russell & Co., 281 Pa. 320, 126 A. 791 (1924), established the scope of the rule. Perhaps the present state of the law was most succinctly expressed in Universal Film Exchanges, Inc. v. Viking Theatre Corp., 400 Pa. 27, 35, 161 A.2d 610, 616 (1960), affirming per curiam on the opinion of the trial court:

"Ever since the leading case of Gianni v. R. Russell & Co., Inc. * * * it has been well settled ...

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