Opinion
CIVIL ACTION NO. 01-1661
October 31, 2003
MEMORANDUM
I. FINDINGS OF FACT
1. Pro Spice, Inc. ("Pro Spice") is a New Jersey corporation with its principal place of business at P.O. Box 767, Ridgewood, New Jersey 07451. (Ex. 1 (O-12)). Since its inception, Pro Spice has been engaged in business transactions relating to spices. (Day 1, T 29:2-8).
2. James Pallone ("Pallone") is the president of Pro Spice. (Day 1, T 28:23). Pallone is experienced in conducting national and international business in the commodities business, including spices. (Day 1, T 29:2-8). Pallone has been in the spice business since 1960 and has had various roles in the industry including being a member of the American Spice Trade Association ("ASTA") and acting as Chairman of the ASTA's Arbitration Supervisory Board and Contracts Committee. (Day 1, T 29:2-8).
3. Dammann and Co., Inc. ("Dammann") and its affiliated company, Malagassy Agencies, Inc. ("Malagassy") act as agents for other companies in connection with the import and export of, among other things, vanilla beans and related products. (Day 1, T 169:8-15). Warren "Nick" Gaffney ("Gaffney") is the president of Dammann and Malagassy. (Day 1, T 169:4).
4. Henri Fraise Fils and Cie ("Praise") is a company based in Madagascar with offices in Geneva (Day 1, T 170:5-7), and is engaged in the business of importing and exporting vanilla beans. (Day 1, T 172:25; 173:1-2). Henry Fraise Fils and Cie Ocean Indian Ltd. ("Fraise OF") is an affiliate company. (Day 1, T 170:5-7). It was established as a result of political issues in Madagascar, but otherwise operates interchangeably with Fraise. (Day 1, T 240:11-24). Comity Ltd. ("Comity") is also an affiliated company and acts as the financing arm for the Henry Fraise entities. (Day 1, T 170:21-23).
5. Ralph Fraise is an owner and director of Fraise and Fraise OI and has authority to act on behalf of Comity, which is owned by Ralph's brother. (Day 1, T 241:7-9; T 241:13-16; T 281:2-25; T 283:20-22). For approximately sixty (60) years, Malagassy and Dammann have acted as an agent for Fraise. (Day 1, T 169:8-13; T 173:9-16). Fraise is one of the worldwide leaders in the vanilla bean trade. (Day 1, T 172:25; T 173:1-2).
6. Omni Trade Group, Inc. ("Omni Trade") is a corporation organized under the laws of Texas and maintains its principal place of business in Dallas, Texas, and is engaged in the business of importing and exporting goods. (Day 2, T 8:15; T 19:12-25; T 20:1-17; Ex. 36 (PS 19-22)).
7. Andyan Rahardja ("Rahardja") is the president, employee and principal of Omni Trade. (Day 2, T 8:17; T 12:13-23). Ardyan Rahardja is his brother and an employee of Omni Trade. (Day 2, T 12:13-22).
8. Shank's Extracts, Inc. ("Shank's") is a Pennsylvania-based company engaged in the business of making vanilla extract. Shank's is in the business of manufacturing flavorings and bottling them for retail. (Ex. 86, p. 10). Eighty percent (80%) of the flavors produced by Shank's are vanilla-related. (Ex. 86, p. 11). Approximately eighty-five percent (85%) of the beans purchased by Shank's come from Defendant York Import and Export, Inc. (Ex. 86, p. 12).
9. Jeffrey Lehman ("Lehman") is the owner, president, treasurer and secretary of Shank's. (Day 2, T 211:1; T 212:14). He is also an officer and director of York, as well as shareholder. (Day 2, T 212:4-5; T 213:1-2). He is the sole shareholder of Shank's. (Day 2, T 210).
10. York Import and Export, Inc. ("York") is a Pennsylvania corporation and is in the business of importing and reselling vanilla beans. It also goes by the name of "SIE Trading Co." (Day 2, T 211:21-25; T 212:1-2). Shank's is affiliated with York through common ownership and certain common officers and directors. (Day 2, T 215:6-15; T 211-213).
11. Michael Ballantine ("Ballantine") is the president of York and chief financial officer of Shank's. (Day 2, T 212:18; Ex. 116 (PS 113)). Ballantine is compensated through an "employee sharing agreement" between York and Shank's. (Day 2, T 217:15-17; Ex. 75).
12. Prior to the transaction which forms the basis for this lawsuit (the third transaction), Pro Spice through Pallone and Omni through Rahardja had two other transactions ("first transaction" and "second transaction").
13. In both the first and second transaction, there is a consistency involving purchase orders and invoices. A purchase order would be sent to Omni to sign and send back to Pro Spice, and Omni in turn would request a signed invoice be returned to it. ( See Day 1, T 131, 132, 133, 134, 135 as to first transaction; See Day 1, T 143, 144 as to second transaction.)
14. Contrary to plaintiff's proposed finding of fact No. 3 on page 12 of its brief, Rahardja did not make an admission that in the first two transactions, receipt of Pro Spice's purchase order was sufficient proof of Pro Spice's acceptance of Omni Trade's offer. In light of the deposition testimony with regard to this issue, it is disingenuous to propose such a finding. The deposition plaintiff points to in support of this finding is Ex. 87 A, p. 195 11-14. What plaintiff neglects to point out is the following lines 15-25 in which Rahardja says "without my signature, no I . . . without any signature accepted by Omni Trade, this is not valid."
15. Pallone, Pro Spice's agent, knew that the system of signing and counter signing purchase orders and invoices was the way that Rahardja (Omni's agent) did business. (Day 1, T 151).
16. With regard to the third transaction, Pallone believed that he and Rahardja had a "meeting of the minds" and he was merely confirming it by faxing his purchase order. (Day 1, T 152).
17. Pallone nevertheless, sent Rahardja a fax stating in part "we are still awaiting receipt via fax of your signed copy of our PO." (Day 1, T 152-153).
18. Rahardja in response to the above fax explained he was waiting for confirmation of a letter of credit. (Day 1, T 99). He also told Pallone that he had a gut feeling he was not getting the shipment on time or at the same cost. (Day 1, T 152-153).
19. Rahardja went on to explain that the situation was not very good and the price might be higher and delivery in February rather than January. (Day 1, T 153).
20. Subsequent communication between Pallone and either of the Rahardja brothers made it clear ultimately to Pallone that he was not going to get what he thought he had contracted for. ( See in general testimony of Pallone, Day 1 T 106-117).
21. Exhibit 19 dated December 6, 1999 and sent to Pallone stated that the offer is valid based upon availability.
22. From the time Pallone first attempted to order the beans which were the subject of the third transaction, Rahardja never confirmed their availability. ( See his trial testimony Day 2 T 68-82). In fact, he never did locate the beans he had discussed selling to Pallone. (Day 2, T 82-84).
23. Rahardja denies that he had a contract with Pallone. There is no written evidence which supports that a contract actually existed. The oral evidence suggests confusion on the issue of whether there was a meeting of the minds between Pallone and Rahardja. The written communications between them from December 1999 through January 2000 do not clear up the confusion.
24. Apparently, the third transaction begins as far as Pro Spice is concerned with its letter dated November 12, 1999. (Pl. Ex. 136; see Day 1 T 82).
25. Exhibit 13b is an offer by Pro Spice to purchase:
5,000 kilos Red Short Vanilla Beans @ $22.00 per kg.
3,000 kilos Black Short Vanilla Beans @ $24.75 per kg.
Quality: Equal to/better than product under our P.O. 9252 and subject to our inspection prior to delivery.
Availability: By 12/31/99
26. This offer was never responded to by Omni but Pro Spice did extend the very same offer to the close of business on December 3, 1999. ( See Ex. 17b).
27. An Omni fax dated December 3, 1999 (Pl. Ex. 18) appears to be a response to Ex. 17b above. It is not an acceptance of the offer. Indeed, the language at the beginning says "we only can do the following" and proceeds to state different terms. Contrary to what Pallone testified (Day 1 T 87), this was not an offer. It was a response in the nature of a conditional acceptance to the Pro Spice offer that was to expire at the close of business on December 3, 1999.
28. Telephone conferences between Pallone and Rahardja took place several times in December 1999, but none of them confirmed that the parties had reached an agreement as to the beans that were the object of the third transaction.
29. The written correspondence between the parties, either by fax or letter from December 1, 1999 through January 18, 2000 makes it clear that an agreement had not been reached between the parties. See Ex. 17 through 33 (except 28 which is a declaration).
30. The failure to reach an agreement was based upon the unavailability of the beans in question. Availability was a condition of any acceptance of Omni by an offer from Pro Spice, as was the signing of a sales contract. ( See Ex. 19).
31. It is a reasonable inference from the testimony that Pallone knew this and that was why he was anxious to have the purchase order and invoice signed. By the same token, Omni through Rahardja did not sign either one because the products which Pro Spice offered to purchase were not available.
II. CONCLUSIONS OF LAW
A party seeking to prove the existence of a contract must prove the essential elements of a contract by a preponderance of the evidence. Plaintiff has not met that burden. I cannot find that it is more likely true than not that a contract existed to purchase beans throughout what has been referred to as the third transaction.
The letters of December 3 and 6, 1999 do not constitute an offer. By their terms, it is a quotation of prices for beans based upon availability. In this case, Pallone decided after seeing the quoted prices that he would offer to purchase them at the price set forth in the December 3, 1999 letter but this offer was never accepted.
Exhibits 17, 18 and 19 are letters reflecting the attempts to formulate a third contract but at no time did Rahardja or his brother orally or in writing accept the offer made by Pallone to purchase the beans.
The principal source of disagreement between the parties is who was making an offer. But the past transactions suggest that Pallone's communicating the fact that he wanted to purchase was an offer which had to be accepted. This is not to say that it is absolutely certain from the evidence that this was the case, but plaintiff has the burden of proving that those contentions that would entitle it to relief are more likely true than not. Again, it has not done so on the record in this case.
To be sure, Pennsylvania law, which applies in this case, does not require a signed agreement in order to have a binding contract. The Uniform Commercial Code provisions adopted by Pennsylvania contain several sections applicable to this case.
Initially, 13 Pa. C.S.A. § 2204 provides:
(a) General rule. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
Moreover, the law of Pennsylvania provides:
(1) A contract is created where there is mutual assent to the terms of the contract by the parties with capacity to contract.
(2) If the parties agree upon essential terms and intend them to be binding, a contract is formed even though they intend to adopt a formal document at a later date.
(3) As a general rule, signatures are not required unless such signing is expressly required by law or by intent of the parties. See Shovel Transfer and Storage. Inc. v. Pennsylvania Liquor Control Board, 559 Pa. 56; 739 A.2d 133 (Pa. 1999).
As stated previously, plaintiff believes that defendant's letter of December 6, 1999 was an offer which he accepted orally by telephone and then confirmed by sending a purchase order.
The letter is not an offer. As those transactions took place, what defendant did was send price quotations to plaintiff. It was then up to plaintiff to make an offer after which written acceptance would be communicated by defendant by its written acceptance of the purchase order and plaintiff's written acknowledgment of the invoice.
Moreover, while Pallone testified that he had an oral agreement in the third transaction, once again, Rahardja denied this and Pallone's notes say nothing regarding the issue in question — namely, did Rahardja orally agree to sell without any written confirmation as in the past. The fact is that Pallone's follow-up conduct was aimed at forming a contract by his making an offer in writing by means of the purchase order (PI. Ex. 21). He continually pressed Rahardja to accept his offer, but that never happened.
Starting with its fax of March 1999 (Pl. Ex. 2), what Omni Trade was sending to Pro Spice was price quotes, soliciting an offer from Pro Spice.
The following language from Reilly Foam Corp. v. Rubbermaid Corp., 206 F. Supp.2d 643 (E.D. Pa. 2002) (Schiller, J.) is instructive:
In the U.C.C. context, courts have encountered difficulty determining whether a document that quotes a seller's prices constitutes an offer. Generally, price quotes are not considered an offer, but rather "mere invitations to enter into negotiations or to submit offers." Bergquist, 777 F. Supp. at 1248; cf. Dean Foods Co. v. Brancel, 187 F.3d 609, 619 (7th Cir. 1999) (price quote commonly deemed invitation to offer rather than offer even if directed at particular customer). The buyer's purchase order — which sets such terms as product choice, quantity, price, and terms of delivery — is usually the offer. See Audio Visual Assocs. v. Sharp Elec. Corp., 210 F.3d 254, 259 (4th Cir. 2000).
However, it is not always easy to determine what transformed mere quotation into an offer. Judge Ditter of this court in Bergquist Co. v. Sunroc Corp., 777 F. Supp. 1236 (E.D. Pa. 1991) said:
As is the case with a purported offer under the common law, the seller "must intend that the contract exist upon acceptance of the offer; that is, it must reasonably appear from the price quotation that assent to that quotation is all that is needed to ripen the offer into a contract." Bergquist, 777 F. Supp. at 1249.
One of the problems in this case, as fact finder, was the difficulty that I noted in Rahardja's ability to understand English and communicate effectively in it. He was born in Bogor, Indonesia, is 47 years of age and has lived in this country, on and off, for 19 years. English is his fourth language. (Day 2 T 7).
Thus, terms with a special significance in law such as offer did not seem to be comprehended by him. Although I thought he may be using this as a crutch at one point in his testimony, I am convinced upon reading the entire transcript that he simply did not follow or understand the nuances of certain words. This had to be clear to Pallone and thus explains his desire to have the seller express his intent to sell in the only way that would be a clear expression of that intent — by the practice established in the first two transactions.
Plaintiff also contends that Rahardja and Omni are liable for fraud. Proof of fraud requires clear and convincing evidence which is not present in this case. Plaintiff points to Exhibit 18 as proof of fraud, but that exhibit refers to current inventory and expected shipment, consistent with Exhibit 19 of Omni which is "based on availability." Moreover, Pallone, by his conduct, showed that he knew that the requirements of a contract were as previously stated. His insisting on written confirmation from Rahardja led me to believe that he knew well that there was not mutual meeting of the minds until the pattern which had developed in the first two transactions was followed.
III. CREDIBILITY
As the finder of fact, I ultimately have to make decisions regarding the believability of witnesses. The principal witnesses, Pallone and Rahardja, were both so biased and had such a stake in the ultimate outcome that I found it difficult to accept their testimony which went to the ultimate issue of when or if a contract was formed. Thus, as fact finder, I found myself relying mainly on the written exhibits. Pallone's explanation of why he thought he had a meeting of the minds (N.T. 1-152) does not make sense in light of the pattern of the first transactions. I also expressed some doubt about Rahardja's supposed inability to understand the questioning at trial, but the fact is that throughout the trial and the depositions, he showed a consistent lack of understanding of and ability to correctly use the English language. One could not easily arrive at an oral understanding. That is why Pallone insisted on a written agreement which he never got. Finding no breach of contract or fraud being proven, an order will be entered accordingly.
An example of this follows:
THE COURT: Well, I guess you're saying that you believed that you had to do what he was requesting here, didn't you — or didn't that mean anything to you? I'm a little bit confused by your answer. He says there:
Please review the attached invoice and return to us with your acceptance and your purchase order, only then can we consider our deal finalized.
Are you saying you don't agree with that?
THE WITNESS: Well, I — I guess, I'm — I'm saying that since we had had a meeting of the minds over the telephone as far as the quantity and the price, that these requests on his part were just confirmations of what we had already concluded.
One important matter remains in this case. Plaintiff has filed a motion for sanctions. It is clear from the record that defendants did not comply with order after order.
Defendants have responded to plaintiff's motion and are entitled to a hearing before the court to determine if sanctions should be imposed, and if so, in what form.
ORDER
AND NOW, this 31st day of October, 2003, in accordance with the foregoing memorandum, it is hereby ORDERED that judgment is entered in favor of Defendants Omni Trade Group, Inc., Andyan Rahardja, Shank's Extracts, Inc. and York Import and Export, Inc. and against Plaintiff Pro Spice, Inc.
A HEARING on plaintiff's motion for sanctions is scheduled for Monday, November 24. 2003 at 2:00 p.m. in Courtroom 14A.