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
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
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;
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).
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
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,
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:
See also International Milling Co. v. Hachmeister, Inc., 380 Pa. 407, 110 A.2d 186 (1955). The Code parol evidence rule, UCC § 2-202, contains no prefatory clause such as "in the absence of fraud, accident or mistake." Associated maintains that the absence of such a clause precludes the application of the exceptions found in the well settled law of Pennsylvania. Absent some overriding rule of interpretation, the position taken by appellee might well be correct since the parties have cited and our independent research has disclosed no case, either in Pennsylvania or in any other Code jurisdiction which has decided this issue. Willier & Hart, Uniform Commercial Code Reporter-Digest (1965). However, the Code itself contains a rule which compels a contrary result. UCC § 1-103 states that "[u]nless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to * * * fraud [and] misrepresentation * * * shall supplement its provisions." See In the Matter of Kravitz, 278 F.2d 820, 822 (3 Cir. 1960). Thus, it is clear that the Pennsylvania exceptions would apply and testimony of prior oral agreements would be admissible.
Since the parol evidence rule, under the circumstances here, does not apply, and, as we later demonstrate, the counterclaim was improperly dismissed, we think the entry of summary judgment on the principal claim was untimely. Under the guidelines established by Rule 56(d), the district court can properly determine which issues involve disputed facts and those which do not. After issuing an appropriate order, it may proceed to trial on the issues involving factual disputes. See 6 Moore's Federal
The enumerated facts above and the absence of any other disputed facts, when considered in light of the weight the Code attaches to a course of dealing, UCC § 2-208(1), and its liberal policy regarding formation of contracts of sale, UCC § 2-204(1), support the conclusion that a contract existed on the terms alleged in the complaint. Needless to say, this conclusion also disposes of the allegation by the defendant that no contract existed.
Although we agree that there were no genuine issues of material fact as to the contract, we are just as certain that the district court committed error in granting summary judgment on the issue of fraud, as raised in both the answer and counterclaim, and on the remaining counterclaims. At the outset, it should be pointed out that fraud, as alleged here, is not truly a defense which will defeat the theory of recovery on which the plaintiff has sued, but rather, is in the nature of a counterclaim or setoff. This is so because the fraud alleged here is fraud in the inducement. It does not render the transaction void, but only voidable. Traditionally, a person so defrauded has recourse against the fraudulent party through either of two courses of action. He may rescind the transaction — tendering back what he has received and suing for what he has parted with — or he may affirm the transaction and maintain an action in deceit. McCormick, Damages § 121. "An action in trespass for deceit to recover damages for material misrepresentations inducing the making of a contract is founded on fraud or moral wrong, and is not based on the contract." 16 P.L.E. Fraud § 21 at 410. The Code, although also making damages available in an action for rescission, UCC § 2-721, does not otherwise change the traditional theory of election of remedies. In this case rescission is out of the question since the defendant
The error of the district court may be pinpointed from its refusal to consider the allegations of fraud "as anything more than normal commercial `puffing' which could not have misled an astute trader such as defendant's negotiator, Mr. Molever." This statement is irreconcilable with the accepted principle that
This is the accepted rule in this circuit. Sarnoff v. Ciaglia, 165 F.2d 167 (C.A.3, 1947); see also United States v. Gill, 156 F.Supp. 955 (W.D.Pa., 1957). This principle is particularly apt where intent is a substantive element of the cause of action because intent is generally to be inferred from the facts and conduct of the parties.
With all deference to the district court, the result reached would not appear to be so palpably incorrect had it reasoned that reliance on the representations (even if proved) was lacking as a matter of law. Had the allegations and the record supporting them been confined solely to the question of fraud prior to the initial sale, the discovery as early as August, 1962, that dealer catalogue less 11% was not equal to cost plus 10%, may have negated the element of reliance as a matter of law. See Restatement Second, Torts §§ 541, 541A, 542 (Tent.Draft No. 10, 1964). However, the other representations that appear on the record and the suspension of discovery prevent this court from making any such adjudication. These matters and doubtless other complex issues of fact (which may appear on the completion of discovery) and credibility will undoubtedly require resolution by the trier of fact. Similar fact issues are presented by the remaining counterclaims.
Thus far we have dealt only with the appeal from the entry of summary judgment. The denial of the motion to amend and for reconsideration of the order granting summary judgment
The orders of the district court will be vacated and the cause remanded for disposition not inconsistent with this opinion.
"Dear Mr. Molever:
"We wish to confirm the special offer that we have made to you for the purpose of supplying your new promotional department store, `The Big Wheel', in Wheeling. W. Va.
"Specifically, we have agreed to do the following:
"We will make available to you on a maximum 48 hour shipment schedule all merchandise from our Pittsburgh warehouse at the same low price that appears in our dealer catalogue. In addition, you will receive 11% beyond these prices as cash discount. Further, we shall make available to you the merchandising services of our organization as they are presently available to all regular dealer accounts. There will be no additional rebates on purchases beyond these discounts. This offer is subject to your purchasing an average of approximately $5,000 per week in carton lot quantities to be delivered at one time from our Pittsburgh warehouse. All merchandise is sold FOB Pittsburgh.
"Factory shipments which we make at your direction, are available to you on the basis of our normal dealer cost plus the additional 11% cash discount.
"Should we be willing to sell an additional operation of this type, this same offer and schedule of prices would be available to them providing they meet all other requirements.
"In return you have agreed to do the following:
"The initial order of merchandise which we ship at your direction is to be paid less the preferential 11% discount as noted above upon receipt of the mechandise. You have agreed that all invoices from the first through the twenty-fourth of the month will be paid by the 5th of the following month. Invoices from the twenty-fifth through the thirty-first of the month are to be considered as having been shipped as of the next month.
"Since we have asked for no financial information on this new corporation, you have agreed to be personally responsible for all credit regardless of amounts that we extend to this corporation
"We further ask that you do not make public the arithmetic of this special offer.
"We would appreciate your acknowledging these conditions, and returning a copy for our files.
"In reply to your letter of February 19 [sic], I cannot possibly sign this and return it.
"In the first place, I have talked to some of my other suppliers and, quite frankly, I am still at a loss to understand why you can't set up your bookkeeping and administrative procedures similarly to theirs.
"I have discussed this matter thoroughly with Fred, and he is very much concerned that with the inexperienced help we have in your departments much confusion and loss of time will be the results if you bill us at catalogue prices, less an 11% credit memo. You can certainly appreciate his problems. Therefore, if your invoices would come in, similar to Stem Distributing Co., simply at cost, plus 10% it would certainly simplify our pricing procedure at floor level and expedite our getting the merchandise on the floor priced for sale.
"Ernie, I can appreciate your problem of the retails already set up on your I.B.M. cards for your dealer accounts — however, it is incomprehensible to me as a C.P.A. to believe that merely hand-billing our invoices would result in the necessity of hiring another girl — especially when you must consider the time consumed in preparing the 11% credit memos on the method you have suggested.
"Fred is still so concerned about the confusion which will result in our pricing the goods on the floor that I should like to repeat my statement of the other day; that is, go ahead and bill us on a simple cost plus basis, and if you find it necessary to hire a full-time girl we will either absorb a pro rated share of her salary, or make some alteration of invoicing to case your situation.
"I might add that Fred is also concerned in view of the Robinson-Pactman [sic] Act that we would not be able to sign your letter without consulting legal counsel.
"Since I promised to personally guarantee credit until our current financial statement is finished if you will please send a corrected request I will execute it and return.