Snyder v. Herbert Greenbaum & Associates, Inc.

Couch, J., delivered the opinion of the Court. This is an appeal from a judgment entered in the Circuit Court for Baltimore County (Land, J.), sitting without a jury, in favor of appellee, Herbert Greenbaum and ¹⁴⁶ Associates, Inc., and against Alvin Snyder, Morris Sugarman, Herbert Thaler, and Harold A. Crone, individually and trading as Twin Lakes Partnership. Appellants raise three contentions in this appeal: (I) The trial court erred in its findings that the appellants were not entitled to rescind the contract because appellee had misrepresented a material fact, which appellants relied on in forming the contract; (II) The trial court erred in not allowing into evidence certain documents as proof of a prior oral agreement that all contracts between the parties, including the one at issue in this case, could be cancelled unilaterally prior to performance; (III) The trial court erred in the assessment of damages. The facts that give rise to his dispute are simple.

Pursuant to its plan to begin construction in 1973 of 228 garden apartments, Twin Lakes, through its management, began negotiations with the appellee, Herbert Greenbaum and Associates, Inc., to supply and install carpeting and the underlying carpet pad for the apartments. During the course of these negotiations Greenbaum estimated that approximately 19,000 to 20,000 yards of carpeting were required for the job. Thereafter the parties entered into a contract that Greenbaum would supply the necessary carpet for the 228 apartments, and install it, for a total consideration of $87,600.00. In the contract itself no mention was made of the amount of carpeting to be installed.

Between the April 4, 1972 date of the contract and September, 1973, Greenbaum purchased large amounts of carpet to be used on the Twin Lakes job from several carpet wholesalers. However, no carpet was ever installed because Twin Lakes, through Alvin Snyder, cancelled the contract in September, 1973. It became apparent at some point that 19,000 to 20,000 yards of carpet was an overestimation — the actual figure needed was between 17,000 and 17,500 yards. ¹⁴⁷ Appellee then brought an action against the Twin Lakes Partnership for breach of contract, and was awarded a judgment for $19,407.20. It is this judgment from which this appeal stems.

Before considering the points raised by the appellants, an important threshold question must be answered — whether Md. Code (1974), Commercial Law Article, specifically Title 2, Maryland Uniform Commercial Code — Sales, applies to the contract in this case, which is a mixed contract for the sale of carpet and the installation of the carpet. The leading Maryland case for determining whether the sales article applies to mixed sales and service contracts is Burton v. Artery Co., 279 Md. 94 , 367 A. 2d 935 (1977), which adopted the Bonebrake test [Bonebrake v. Cox, 499 F. 2d 951 (8th Cir. 1974)]. The test articulated is: “[N]ot whether they are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved (e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom).” 367 A. 2d at 943 . (Emphasis added) The facts in Burton are similar to the facts here.

In that case, the contract was for the sale and installation of trees and shrubs. The Court of Appeals, after applying the Bonebrake test, concluded that the U.C.C. applied. In the case sub judice, the contract involved the sale by appellee of a certain amount of carpet, and the installation of that carpet in the 228 apartments. However, this case differs from the Burton facts in that in Burton the seller/installer had grown the trees and shrubs that were the subject of the contract, whereas in this case the seller/installer purchased the carpet from a wholesaler.

Further, the purchase of the carpet was made after the contract was formed, and for the sole purpose of supplying it for installation. Despite this difference in the facts which tend to favor the ¹⁴⁸ service purpose of the contract, application of the Bonebrake test leads us to conclude that the primary thrust of this contract is the sale, rather than the installation, of the carpet. Therefore, the Sales Title applies to this contract. See Meyers v. Henderson Constr.

Co., 147 N.J. Super. 77 , 370 A. 2d 547 (1977). I Appellants’ first contention is that due to certain misrepresentations by Herbert Greenbaum which induced the appellants to contract with appellee, the contract was voidable by the appellants, and they therefore committed no breach when they rescinded. It is axiomatic that misrepresentations by one party made prior to the contracting between the parties, may render the contract voidable by the other party to the contract. In order for the misrepresentations to have this effect, not only must there be representations that are false, but the representations must be of facts, and the facts must be material to the contracting.

Carozza v. Peacock Land Corp., 231 Md. 112 , 188 A. 2d 917 (1963). Also, the rescinding party must have relied on those representations in deciding to contract, and if there was reliance, must have had the right to rely on the representations. Silberstein v. Life Ins. Co., 189 Md. 182 , 55 A. 2d 334 (1947); Gontrum v. City of Baltimore, 182 Md. 370 , 35 A. 2d 128 (1943).

Appellant Snyder testified that sometime prior to February 4, 1972, he met with Herbert Greenbaum, President of the appellee corporation, at which time they discussed a potential contract to carpet the 228 apartments Twin Lakes planned to build. According to Snyder, Greenbaum estimated that the job would take “somewhere between around nineteen and twenty thousand yards.” Snyder further testified that he did not know how Greenbaum had arrived at this estimate, nor did he question the preparation of this figure. Appellants, at trial and here, argue that this “estimate” was a material misrepresentation on which they relied, pointing out the 1500 to 2000 yard difference between the ¹⁴⁹ carpet that was eventually laid and the estimate made by Greenbaum. This contention is without merit.

The “estimate” made by Greenbaum was not a misrepresented “fact”, but was an “opinion”, and was and should have been treated as an “opinion” by appellant Snyder. Not being a representation of fact, no reliance could be placed on the estimate and appellants were not entitled to rescind on that ground. Gontrum v. City of Baltimore, supra; Johnson v. Md. Trust Co., 176 Md. 557 , 6 A. 2d 383 (1939); Milkton v. French, 159 Md. 126 , 150 A. 28 (1930). Accordingly, we find no error by the trial court in its ruling that appellants were not entitled to rescind the contract.

II At trial appellants offered five documents, purporting to be prior contracts between the parties, each one bearing on its face a notation that it was rescinded or cancelled. Appellants offered these contracts as proof of a prior course of dealing or oral agreement between appellants and appellee to the effect that either party could cancel or modify any contract between these parties unilaterally. Therefore, the appellants contend that they had a contractual right to rescind, and are not liable for breach of contract. The trial court refused to admit these documents, relying chiefly on the parol evidence rule.

Appellants contend that the trial court erred in refusing to admit these documents. As a result of our holding that the Sales Title applies to this contract, the parol evidence rule, as found in Md. Code (1974), Commercial Law Article § 2-202, governs this case. That section provides: “Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior ¹⁵⁰ agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) By course of dealing or usage of trade (§1-205) or by course of performance (§2-208); and (b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.” By the terms of § 2-202 itself, § 2-202 applies to the contract in this case. This contract was made after negotiations between the parties, and intended to be a final expression of their agreement with respect to the terms embodied therein.

However, the course of dealing or agreement which appellants attempted to show does not directly contradict any of the terms expressed in the writing. There is no expression concerning cancellation or rescission in the contract. The terms of the agreement, therefore, may be “explained or supplemented” as allowed by subsections (a) or (b). Subsection (a) provides for the admission of extrinsic evidence showing a “course of dealing” between the parties. “Course of dealing” is defined in § 1-205 (1) as: “[A] sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.” The import of § 1-205 (1) is that “course of dealing” is an interpretive device to give meaning to the words and terms of an agreement.

This function is underlined by Comment 2 of the Official Comment to § 2-202, which notes that: “Paragraph (a) makes admissible evidence of course of dealing ... to explain or supplement the terms of any writing stating the agreement of the parties in order that the true understanding of the parties as to the agreement may be reached.... ¹⁵¹ Unless carefully negated they have become an element of the meaning of the words used.” (Emphasis added.) See State ex rel. Yellowstone Park Co. v. District Court, 160 Mont. 262 , 502 P. 2d 23 (1972). That which appellants advance as a “course of dealing” does not serve as an interpretive device, but as an agreement that adds terms to the contract. Therefore, the evidence offered does not properly fall under the rubric of “course of dealing”, but is properly under the requirements of Subsection (b) of § 2-202, dealing with “additional terms”.

See Division of Triple-T Service v. Mobil Oil Corp., 60 Misc. 2d 720 , 304 N.Y.S.2d 191 (1969). 1 Subsection (b) allows evidence of additional terms subject to two prerequisites to admission. The first is that the writing or contract must not be found by the court to have been intended as a complete and exclusive statement of the contract terms. Second, the “additional terms” must not be inconsistent with the contract and its terms. Comment 3 of the Official Comment to § 2-202 explains the first requirement as: “If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact.” The nature of the additional term that appellants sought to prove at trial, allowing unconditional unilateral rescission, is such a term that would have been included in the final written agreement, and was correctly excluded by the trial judge.

A term allowing unilateral cancellation would certainly have been included in the contract, given the nature of appellee’s obligation. Appellee was required to take substantial preparatory steps to performance, such as ¹⁵² the purchase of the carpet. To protect this obligation, any term allowing unilateral cancellation by appellee, had there been such a term, would have included an express qualification as to the time of cancellation. Certainly the cancellation term would have been included in the writing to evidence appellee’s ability to cancel at any time.

We conclude that the contract was intended to be a complete and exclusive statement of the contract terms and, therefore, the evidence of additional terms was properly excluded. At any rate, for much the same reason, we hold that the additional terms offered by appellants are inconsistent with the contract itself. In so doing we reject the narrow view of inconsistency espoused in Hunt Foods v. Doliner, 26 A.D.2d 41 , 270 N.Y.S.2d 937 (1966), and Schiavone and Sons v. Securalloy Co., 312 F. Supp. 801 (D. Conn. 1970). Those cases hold that to be inconsistent the “additional terms” must negate or contradict express terms of the agreement.

This interpretation of “inconsistent” is itself inconsistent with a reading of the whole of § 2-202. Direct contradiction of express terms is forbidden in the initial paragraph of § 2-202. The Hunt Foods interpretation renders that passage a nullity, a result which is to be avoided. Gillespie v. R & J Constr.

Co., 275 Md. 454 , 341 A. 2d 417 (1975). Rather we believe “inconsistency” as used in § 2-202 (b) means the absence of reasonable harmony in terms of the language and respective obligations of the parties. § 1-205 (4); see Southern Concrete Services v. Mableton Contractors, 407 F. Supp. 581 (N.D. Ga. 1975). In terms of the obligations of the appellee, which required appellee to make extensive preparations in order to perform, unqualified unilateral cancellation by appellants is not reasonably harmonious. Therefore, evidence of the additional terms was properly excluded by the trial judge, and we find no error.

Ill After trial on the merits, the trial judge awarded the appellee $19,407.20. This award was based on Greenbaum’s .testimony as to what appellee would have earned as profit ¹⁵³ had the contract been performed. Although there was testimony that the carpet purchased by appellee for this contract was ultimately resold, no credit was given against the lost profit by the trial judge for the resale price. Appellants argue that the trial court erred in assessing the $19,407.20 as appellee’s damages.

First, appellants maintain that the proper formula for damages is not that found in Md. Code (1974), Commercial Law Article § 2-708 (2), which is the “lost profit” measure, but is found in § 2-708 (1), the contract/market differential formula. Second, appellants contend that even if § 2-708 (2) is the proper measure in this case, appellee is entitled to nominal damages only, due to his failure to prove the proceeds from resale of the carpet, which, appellants maintain, are to be credited against the profit under §2-708 (2). 2 While the trial court concluded that the proper measure of damages was the lost profit, relying on common law principles, we reach the same conclusion under the U.C.C. Under §2-708, subsection (1) is to be