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BEMER AVIATION, INC. v. HUGHES HELICOPTER

October 21, 1985

BEMER AVIATION, INC.
v.
HUGHES HELICOPTER, INC.



The opinion of the court was delivered by: KATZ

 KATZ, J.

 I. Background

 In its suit against Hughes, Bemer demanded rescission of its contract to purchase a Hughes helicopter as well as damages resulting from a design defect in the helicopter.

 On October 16, 1981, plaintiff Bemer Aviation, Inc., purchased a Hughes Model 269C helicopter from defendant Hughes. Hughes' Sales Manager, Dennis Mance, represented to Bruce Bemer, President of Bemer Aviation, both before and at the time of the sale, that the helicopter was a "new demonstrator." Bemer was interested only in a new helicopter. He agreed to buy this particular helicopter only after Mance assured him that the aircraft had been operated solely by Hughes employees. Hughes' invoice described the helicopter as a "demo."

 In December, 1981, Bemer received a routine announcement from Hughes concerning a subscription to technical publications. On the bottom of the document, however, was a note describing the helicopter as a "repossession that we had been operating as a demonstrator." Bemer was concerned, thought the notation was a mistake, and after his busy season, began to investigate the prior use of his helicopter. His inquiries to Hughes met with promises to look into the matter.

 In March of 1982, Mr. Mance finally admitted that someone had owned the helicopter before Hughes sold it to Bemer. When no further information was forthcoming, Bemer flew to Atlanta to inspect the repair orders of a company which had performed some maintenance on his aircraft. Through this examination, Bemer learned the identity of the helicopter's first owner. He also learned that the original owner had returned the helicopter to Hughes because of its many mechanical problems. Despite this information, Bemer continued to make payments on the helicopter until May, 1982. On July 2, 1982, his counsel wrote a letter to Hughes which demanded rescission.

 A different set of facts gave rise to Bemer's products liability claims. On February 22, 1982, the helicopter Bemer bought from Hughes was forced to land in a parking lot of a shopping center in New York when smoke filled the cockpit and power was lost. Nobody was hurt, but repairs to the helicopter amounted to about $11,500. Bemer asserted that a design defect in the lower pulley bearing of the Model 269C helicopter caused the accident.

 Hughes cross-claimed against Horsham Valley Airways, contending that Horsham's negligent repair of the helicopter during previous maintenance caused the accident. *fn1"

 Overwhelming evidence supported the plaintiff's version, and the jury sided with Bemer.

 The evidence showed that Hughes selected a bearing for its lower pulley that was too small and was not of aircraft-quality. Because the bearing could not handle its load, it burned the grease needed to lubricate and cool it and seized in flight.

 The jury determined that the plaintiff was entitled to rescind the contract due to its justifiable reliance on Hughes' material, fraudulent misrepresentations. The jury also awarded Bemer $70,547.23 as consequential damages on plaintiff's claim for rescission.

 In addition, the jury found that Hughes manufactured a defective helicopter and that the defect proximately caused damages to Bemer. The jury awarded no additional compensatory damages to the plaintiff on its products liability claim, obviously heeding the Court's instruction not to award duplicative damages for the rescission and products liability claims.

 As punitive damages for Hughes' misconduct in dealing with the defect in the helicopter, the jury awarded plaintiff $1 million. As punitive damages for Hughes' misconduct in fraudulently selling a used helicopter as a new one, the jury awarded $100,000. Finally, the jury ruled against Hughes on its crossclaim against Horsham Valley Airways.

 II. Rescission

 A. Choice of Law

 Defendant Hughes claims that Bemer was not entitled to rescind the contract for a variety of reasons. In its motion before trial Hughes argued that the law of Pennsylvania should govern because plaintiffs asked for rescission based on fraudulent misrepresentation. Hughes noted that Pennsylvania was where Hughes' sales representative was located and where some of the negotiations for the sale of the helicopter took place. The Court disagreed, determining that California law should apply on the rescission claim and charged the jury accordingly.

 Rescission is a remedy designed to put the parties in the position they were in before the contract was executed. As such, it invalidates the contract from the beginning. Gilmore v. Northeast Dodge Co., Inc., 420 A.2d 504, 278 Pa. Super. 209 (Pa. Super. Ct. 1980). The law governing the contract, therefore, determines under what circumstances a contract may be invalidated ab initio. In the purchase agreement for the helicopter, the choice of law clause provided that the purchase agreement shall be governed by the law of the State of California:

 
". . . this agreement shall be deemed to have been made in, and shall be construed and governed by the laws of the State of California."

 Such clauses are generally controlling. Boase v. Lee Rubber & Tire Corp., 437 F.2d 527 (3d Cir. 1976).

 In its post-trial motions, Hughes no longer challenges the application of California law to the rescission claim. Rather, Hughes now characterizes Bemer's rescission claim as an action for common law fraud. Hughes' discussion of Bemer's conduct in the context of common law fraud misses the mark. The question is under what circumstances could Bemer undo, or rescind, its contract with Hughes. To answer this question, the Court must look to the law governing the contract, the law of California.

 B. Promptness of Notice To Rescind

 Hughes argues that the law required Bemer to give prompt notice of his desire to rescind the contract. It contends that Bemer knew of the helicopter's history in December, 1981, but did not notify Hughes of its desire to rescind until July 2, 1982. I reject this argument. First, California law requires prompt notice of rescission only when delay has been "substantially prejudicial to the other party." *fn1" Defendant Hughes has not demonstrated that it was substantially prejudiced by any delay in the notice of rescission.

 Bemer had his first inkling that the helicopter had had a prior owner in December, 1981, when he received a document from Hughes which included a notation that the helicopter was a "repossession." At first, the plaintiff "thought it was just a mistake." N.T. April 10, 1985, at 75. He continued to make payments to Hughes while independently investigating the origins of the helicopter. Officials from Hughes told Bemer that they would check into the matter and proceeded to put him off for several weeks. Finally, in March, 1982, a Hughes employee told Bemer that the helicopter had been owned for a short time by someone else who returned it because he "didn't like it." Id. at 78. In April, 1982, Bemer flew to a company in Atlanta which had repaired the helicopter. Only at this time did Bemer learn that the helicopter's prior owner had had repeated problems with the aircraft.

 In Howell v. Courtesy Chevrolet, Inc., 16 Cal. App.3d 391, 94 Cal. Rptr. 33 (Cal. App. Ct. 1971), the court stated:

 
"A vendee who has been defrauded by his vendor is entitled to a reasonable time to investigate the falsity of the representations and the time so consumed cannot be charged as unreasonable delay."

 16 Cal. App.3d. at 405-06, 94 Cal. Rptr. at 41 (quoting Williams v. Marshall, 37 Cal.2d 445, 455, 235 P.2d 372, 378 (Cal. 1951)). *fn2"

 Bemer is not charged with unreasonable delay for the time between December, 1981 and, at least, March of the following year. Moreover, it was during this period, on February 22, 1982, that the helicopter had to make the forced landing which formed the predicate for the products liability aspect of this case. Hughes has pointed to no evidence to show that Bemer's failure to provide notice of rescission substantially prejudiced Hughes in any way. *fn3" The question of substantial prejudice was submitted to the jury, which resolved it in Bemer's favor. After reviewing the evidence, I independently conclude that the jury's determination was correct and that rescission was appropriate.

 C. Fraudulent Misrepresentation

 The jury was also correct in its determination that Hughes' conduct amounted to fraudulent misrepresentation entitling plaintiff to rescind the contract. In order to rescind on the grounds of fraudulent ...


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