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Babdo Sales Inc. v. Miller-Wohl Co.

decided: April 2, 1971.


Lumbard, Chief Judge, and Smith and Feinberg, Circuit Judges. Lumbard, Chief Judge (dissenting).

Author: Smith

J. JOSEPH SMITH, Circuit Judge:

This is an appeal from the United States District Court for the Southern District of New York, Dudley B. Bonsal, Judge, from an order granting summary judgment in favor of plaintiff, Babdo Sales, Inc., in a declaratory judgment action brought to determine whether the plaintiff was entitled to the continued use and occupancy of certain departments of the defendant's stores under contracts entered into by the two parties. The principal questions raised below are whether there was ever a binding leasing contract entered into by the parties and, if so, whether it is nevertheless unenforceable by virtue of the statute of frauds. The question on appeal is whether there was a genuine issue of material fact which made the grant of summary judgment improper. The jurisdiction of the district court was based on diversity of citizenship, and the parties are in agreement that New York law is controlling. We find that a genuine issue as to a material fact exists and reverse and remand for trial.

Babdo Sales, Inc. is a corporation engaged in retail sale of stationery, records, novelties, and other merchandise which obtains licenses or leases from department stores to conduct business on their premises in return for a percentage of its gross sales. For some years the appellee had concededly valid written agreements with appellant and occupied space in a number of appellant's stores throught the country. In 1968 the parties entered into negotiations as to a lease in appellant's new store soon to be opened in Springfield, Ohio. Agreement was reached as to the terms of this new lease, and at the same time the parties agreed to a renewal of the previously existing leases in eleven other stores until February 28, 1975 in consideration of an increase in rentals based on the terms of the Springfield negotiations.

On February 12, 1969, Victor Fortgang, a vice-president of appellant and the chief negotiator of the licensing agreements, sent an unsigned internal memorandum to the company's assistant comptroller informing him as to the terms of the new agreements which would become effective on March 1, 1969.*fn1 Sometime thereafter in March or April the appellant sent to the appellee ten separate formal agreements and requested that they be signed and returned. These were dated February 28, 1969. On April 7, 1969 the appellant's assistant comptroller sent appellee a letter entitled "Final Accounting under Existing Leases" setting forth the balance due to appellee under the terms of the previously existing leases which had been terminated as of March 1, 1969.*fn2

In the meantime new management had taken over control of the appellant and decided that in the future the appellant would operate its own departments rather than license others, and the executives of appellant were instructed as to this policy in a memorandum dated May 5, 1969. The appellant never executed the ten letter agreements which had been signed by appellee and returned. Instead the appellant informed the appellee that it regarded the renewals as ineffective and that the existing licensing agreements would not be renewed upon their expiration. The appellee contends that binding agreements had been entered into and seeks a declaratory judgment to this effect.

Once two parties have reached agreement on the material terms of a contract, it may or may not become binding at that point depending solely on the intention of the parties. Professor Corbin has noted:

One of the most common illustrations of preliminary negotiation that is totally inoperative is one where the parties consider the details of a proposed agreement, perhaps settling them one by one, with the understanding during this process that the agreement is to be embodied in a formal written document and that neither party is to be bound until he executes this document. Often it is a difficult question of fact whether the parties have this understanding; and there are very many decisions holding both ways. These decisions should not be regarded as conflicting, even though it may be hard to reconcile some of them on the facts that are reported to us in the appellate reports. It is a question of fact that the courts are deciding, not a question of law; and the facts of each case are numerous and not identical with those of any other case. In very many cases the question may properly be left to a jury. 1 Corbin ยง 30.

See, Brassteel Mfg. Co. v. Mitsubishi International Corp., 21 Misc.2d 343, 192 N.Y.S.2d 200 (1959); Becker v. Peter A. Frasse & Co., Inc., 255 N.Y. 10, 173 N.E. 905 (1930).

In the present case the evidence strongly suggests that both parties considered the new leases binding and in force as of March 1, 1969. Thus the Fortgang memorandum of February 12, 1969 states: "We have today negotiated a new license agreement * * * the above agreement will be effective as of March 1, 1969." Likewise the April 7, 1969 letter of the appellant's assistant comptroller to appellee begins: "In accordance with our agreement, we are terminating your existing leases in the Welles Stores as of February 28, 1969 in order to initiate the new leases as of March 1, 1969."

However, as Professor Corbin suggests, the question of intent in this situation is uniquely one of fact. Summary judgment is, of course, not to be used as a substitute for the trial of disputed issues of fact. As the Fifth Circuit has noted:

Summary judgment procedure is not a catch penny contrivance to take unwary litigants into its toils and deprive them of a trial, it is a liberal measure, liberally designed for arriving at the truth. Its purpose is not to cut litigants off from their right of trial by jury if they really have evidence which they will offer on a trial, it is to carefully test this out, in advance of trial by inquiring and determining whether such evidence exists. Whitaker v. Coleman, 115 F.2d 305, 307 (5 Cir. 1940). [See, Empire Electronics v. United States, 311 F.2d 175 (2d Cir. 1962)].

The appellant insists that the previous dealings of the parties clearly indicate their intention not to be bound in the absence of formal written and signed agreements. Miller-Wohl should have the opportunity to factually substantiate such claims in spite of the fact that the evidence thus far adduced strongly suggests the contrary. The use of summary judgment in this situation was, therefore, improper.

Assuming that a binding oral agreement is found to exist, the next question, and the one dealt with extensively in the district court's opinion, is whether the agreement is nevertheless void under the statute of frauds. Section ...

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