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TRIANGLE UNDERWRITERS, INC. v. HONEYWELL

September 18, 1978

TRIANGLE UNDERWRITERS, INC., Plaintiff,
v.
HONEYWELL, INC. and Honeywell Information Systems, Inc., Defendants



The opinion of the court was delivered by: NICKERSON

MEMORANDUM AND ORDER

In this case plaintiff has moved for, among other things, an order striking defendants' third affirmative defense of the statute of limitations, and defendants have cross-moved for summary judgment dismissing all nine counts of the second amended complaint (referred to hereafter as the "complaint"). The motions have been submitted to the court on the basis of the pleadings, various written documents which passed between the parties, excerpts from certain depositions, and the answers to certain interrogatories. From these materials it appears that there is no genuine issue as to the following facts.

Defendant Honeywell, Inc. ("Honeywell"), a Minnesota corporation, develops and sells computer systems. In January 1970, Honeywell's New York office approached plaintiff Triangle Underwriters, Inc. ("Triangle"), a New York corporation, to sell or lease to it Honeywell's H-110 computer system to replace the IBM 360-20 computer then used by Triangle for data processing. The H-110 system is a package consisting of "hardware", or the computer, printer, collator and other equipment, and programming or "software" created for use in connection with the hardware. Honeywell supplies both standard programming aids of general application to its computers and "Custom Application Software" specifically designed for the customer's individual needs.

 On March 19, 1970 Honeywell submitted to Triangle a written "Letter and Formal Proposal" (the "Proposal") for the installation of the H-110 system. Triangle alleges that Honeywell warranted that the system was to be "turn-key", with the software pre-prepared and the system ready for immediate functioning. The Proposal sets forth an "implementation plan" reciting the steps to be taken to make the system fully operational within 105 days of approval of the Proposal. Honeywell employees were to install the system and train Triangle employees in its use, whereupon Triangle would take over complete supervision. The Proposal contained no provision requiring Honeywell to update or amend the software after the Triangle employees assumed supervision. A printed lease form for the rental of the hardware was attached to the Proposal. The parties executed the lease on April 3, 1970, and Honeywell began preparation of the "Custom Application Software."

 In December 1970 Honeywell advised Triangle that the system was fully operational. Triangle then elected to purchase rather than lease the hardware, and on December 5, 1970 entered into an "Agreement for the Sale of Data Processing Equipment" (the "Agreement") with defendant Honeywell Information Systems, Inc. ("H.I.S."), a separately incorporated division of Honeywell. The system was installed in January 1971, at which time Triangle discontinued the IBM System.

 Triangle contends that from the beginning the system failed to function effectively. At that time, according to Triangle, it discovered that various programs did not function as Honeywell had represented they would, that there were "numerous errors" in the programs, and that Honeywell had not "run a proper parallel system during the change-over period."

 After the installation in January 1971 the Honeywell personnel attempted to correct the deficiencies in the programs, which under the Agreement should have been functioning properly at the time of installation. Modifications were made by Honeywell in various of the programs, and Honeywell personnel worked on them at the Triangle premises until some time in 1972 when they left.

 Triangle brought this diversity action against Honeywell and H.I.S. on August 14, 1975 for damages for loss of business as a going concern, loss of profits, and expenses and special damages. Triangle's complaint contains nine counts alleging, in various forms, negligent or fraudulent inducement to enter into the contract, breach of a contemporaneous oral agreement to prepare custom application software, breach of express and implied warranties, negligence and fraud. The essence of Triangle's claim is that Honeywell failed in January 1971 to supply a fully operational software system to fulfill Triangle's data processing needs and failed thereafter to correct the deficiencies.

 Since jurisdiction is based on diversity of citizenship, the forum's substantive state laws, including the choice of law rules, apply. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Statutes of limitations are "substantive". Guaranty Trust Co. v. York, 326 U.S. 99, 65 S. Ct. 1464, 89 L. Ed. 2079 (1945). To determine the applicable statutory periods the court must therefore decide which state's law a New York court would look to with respect to each count.

 New York ordinarily chooses the law of the state where the center of gravity of the transaction is located. Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 (1954). Plainly then any tort claims are governed by New York law. Since the alleged agreements were negotiated, executed and performed in New York by Honeywell's New York employees, application of the center of gravity test suggests that New York law would also be applicable to the contract claims.

 Section 10.4 of the written agreement, however, provides that the Agreement shall be governed by Massachusetts law. N.Y. Uniform Commercial Code § 1-105(1) permits the parties to a sale agreement to agree as to choice of law provided that the transaction bears a "reasonable relation" to the state chosen.

 Triangle argues that the transaction has no connection with Massachusetts whatsoever and that the provision in the Agreement choosing Massachusetts law should be ignored. Massachusetts is Honeywell's principal place of business and the place where plaintiff was required to make payment. In light of the number of substantially identical agreements it enters with customers in various states, Honeywell has an interest in having those agreements governed by one body of law. The courts in this state have allowed contractual choice of law provisions to stand despite minimal contacts with the chosen state. See Fleischmann Distilling Corp. v. Distillers Co. Ltd., 395 F. Supp. 221 (S.D.N.Y.1975); County Asphalt, Inc. v. Lewis Welding & Engineering Corp., 323 F. Supp. 1300 (S.D.N.Y.1970).

 In any event, with respect to Triangle's contract claims the choice between New York and Massachusetts makes no practical difference, since the court holds that those claims are governed by the limitation for breach of contract contained in the Uniform Commercial Code ("U.C.C.") adopted in both Massachusetts and New York. See Cyclops Corporation v. Home Insurance Company, 389 F. Supp. 476, 480 (W.D.Pa.1975). Hence the court need not decide whether the choice of law provision in the written Agreement applies as well to the alleged contemporaneous oral agreement to prepare software.

 Honeywell urges that the counts are all barred by § 2-725(1) of the U.C.C. which provides, in pertinent part, "An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued." N.Y.U.C.C. § 2-725(1); Mass.G.L.A. ch. 106 § 2-725(1). This section applies to "transactions in goods", See ...


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