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Jefferson-Travis Inc. v. Giant Eagle Markets Inc.

decided: April 8, 1968.


Hastie, Freedman and Seitz, Circuit Judges.

Author: Hastie


HASTIE, Chief Judge.

This appeal has been taken from a judgment on a jury verdict awarding a plaintiff, Jefferson-Travis, Inc., damages against Giant Eagle Markets, Inc. for breach of an oral contract. Federal jurisdiction is based solely upon diversity of citizenship and it is properly conceded that Pennsylvania law provides the rules and principles in accordance with which the issues in controversy should be decided.

The plaintiff is a wholesale distributor of appliances, including phonographs and radio and television sets. The defendant is an operator of supermarkets in western Pennsylvania. A third corporation, Discounts, Inc., is a retail seller of radio and television sets, phonographs and other appliances in western Pennsylvania.

The complaint alleges a contractual arrangement between Giant Eagle Markets and Discounts, Inc. under which the former "agreed to supply floor space in its stores so that Discounts, Inc., could sell appliances, such as television sets and phonographs, to Giant Eagle customers * * *." It is further alleged that Zolton Kaufman, the president of Discounts, Inc., sought to purchase appliances from the plaintiff on credit for sale in Giant Eagle stores under the arrangement between Discounts and Giant Eagle. The complaint continues that "acting in reliance on the verbal assurances of [certain Giant Eagle officers that they] * * * would make Giant Eagle responsible for all appliances sold in its stores, * * * the order of Discounts, Inc. was processed and * * * plaintiff began shipping appliances to Giant Eagle Markets, Inc. by way of Discounts, Inc. These appliances were sold in Giant Eagle stores pursuant to the exclusive sales agreement" between Discounts and Giant Eagle.

Among other defenses, Giant Eagle pleaded the statute of frauds, asserting that recovery is sought on its alleged verbal "special promise to answer for the debt of another, namely, Discounts, Inc." The defendant also pleaded the requirement of Section 2-201 of the Uniform Commercial Code, 12A P.S. ยง 2-201, that "a contract for the sale of goods" be evidenced by writing.

Because of differences between the provisions in the statute of frauds concerning promises to answer for the debt of another and the provisions concerning contracts of sale, it became relevant to determine at a pretrial conference upon what theory the plaintiff intended to proceed. Accordingly, at the pretrial conference, plaintiff's counsel, asked to clarify his client's position, said: "we will try to prove they made the promise, number one, to be bound, to back up this Discounts, Inc., which was a separate -- theoretically a separate entity, that they would stand behind them. Then prove that the benefits of this promise flowed directly or primarily to the defendants." The court then ruled that "we will treat it as being an oral promise to be responsible and to guaranty the debt of another", and added that the plaintiff would be permitted to contend and show if it could that the guarantee was "transmuted * * * into a direct obligation, if there is benefit shown." In addition, the court admonished that "if the plaintiff tries to prove anything beyond that, why, it will be considered as surprise." With the issue concerning the statute of frauds thus defined, the case went to trial.

The case was tried to a jury. There was evidence that from time to time before the transaction in suit the plaintiff had sold and delivered appliances to Discounts pursuant to the latter's purchase orders. However, Discounts fell in arrears on its obligations to pay for merchandise, thus creating a situation in which the plaintiff no longer was willing to place sole reliance upon Discounts' credit. Therefore, when Discounts proposed to purchase additional appliances for resale under its arrangement with and in the stores of Giant Eagle, the plaintiff according to its testimony, sought assurances of payment from Giant Eagle. A witness who had been the plaintiff's credit manager in Pittsburgh testified that an officer of Giant Eagle orally assured him: "You won't have to worry about the items sold in the Giant Eagle stores. We will pay for them." The witness stated further that this assurance was repeated in a telephone conversation. This was the only evidence of the promise upon which this suit was brought. The Giant Eagle employees who had talked with the plaintiff's witness categorically denied making any such promise.

There was testimony that, relying upon the alleged oral promise, the plaintiff honored Discounts' purchase orders and shipped appliances to Discounts. Some of these appliances were exhibited in Giant Eagle stores and sales were made there to Giant Eagle customers by Discounts' salesmen under the above arrangement between Giant Eagle and Discounts. That arrangement featured a a scheme under which a small percentage of the purchase price a customer paid to Giant Eagle for groceries would be credited, if the customer so requested, to his obligation to pay Discounts for any appliance he had purchased through a Discounts salesman in a Giant Eagle store.

About a month after this selling scheme became operative, Giant Eagle learned that the plaintiff was billing Discounts in the name of "Discounts, Inc., a division of Giant Eagle Markets." Giant Eagle promptly disavowed any such relationship as well as any liability for goods sold to Discounts. The recovery allowed in this case was for appliances sold and delivered by the plaintiff before that notification.

At the conclusion of the plaintiff's case and again after all of the evidence had been introduced, Giant Eagle moved for a directed verdict. After judgment, Giant Eagle moved for judgment in accordance with its earlier motions or for a new trial. These motions were denied.

In charging the jury, the court said nothing about the theory and contention that the agreement in suit was an oral guarantee. Instead, it presented the matter as simply a question whether the plaintiff and Giant Eagle had entered into an agreement for the plaintiff to sell and Giant Eagle to buy appliances. Thus, the court told the jury: "The only basis upon which this plaintiff can hold this defendant liable is for an alleged promise to pay for goods and merchandise that were sold at the Giant Eagle premises, in the Giant Eagle stores. You will notice that the course of dealing was to go through the Discounts' organization as an intermediary or selling agent." Again, the court charged that the verdict should be for the defendant if "there was no promise at all to pay," but for the plaintiff if there was "a promise to pay for goods that were sold * * * on the premises of Giant Eagle."

In objecting to the charge, counsel for the defendant said: "I object to the omission of the charge to any reference that the plaintiff is proceeding on an oral guarantee on the promise of Discounts. Despite the pre-trial ruling, despite the complaint, despite the evidence, your Honor has treated this as nothing more than a direct promise and has said ...

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