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Aircraft Inventory Corporation v. Falcon Jet Corporation

96-5350 (U.S. Dist. Ct. D. N.J. 1998) (Unpublished)

UCC; LETTERS OF INTENT; STATUTE OF FRAUDS—To satisfy the UCC’s “merchant’s exception” for the Statute of Frauds, a confirmatory letter must contain language sufficient to indicate that the parties reached an agreement; parol evidence will not be accepted as a substitute for such required language.

This dispute revolves around an alleged oral contract between the seller of executive business jets and a dealer in airplanes—or, failing that, an alleged promise by the seller regarding the sale of a particular jet airplane. The seller, in connection with the transaction involving the sale of a new airplane, was expecting to receive a used airplane as a trade-in. In contemplation of that transaction, the seller looked to find someone that would buy the “trade-in” from it. A merchant broker expressed interest, inspected the airplane and its records, and after some negotiations, the buyer was instructed to send a letter “accepting the airplane.” The buyer sent the letter which claimed to confirm “our personal contact with” the seller’s representative and made an offer to buy the airplane for $3,100,000. The seller’s director of pre-owned aircraft sales and did not respond to the letter and believed that he did not because the offer was not sufficiently attractive to warrant a response. In addition, the seller’s salesman testified that no agreement was ever reached on price. The salesman testified that when the buyer made an offer, his response was “then go a little bit higher and you’ll probably get the aircraft. Because other offers would be coming in… .” At that point, the buyer offered $3,100,000, but the salesman said that he never agreed not to shop the offer nor did he request a firm offer. According to the salesman, he told the buyer that he was not authorized to accept or say anything about an offer, but that all offers must be submitted to the seller’s pre-owned division. Following the sending of the letter, the buyer spoke with an individual within the seller’s pre-owned department and supposedly was advised that the seller would not shop the offer and if the trade-in was really made, the buyer would get the used airplane. The buyer asserted that the seller’s salesman told him that the seller was accepting the $3,100,000 offer, told him when the trade-in arrived, and then called to say that the trade-in deal had gone through and that the plane was committed to the buyer. The sale was not made. Instead, when the buyer saw an advertisement in the Wall Street Journal that the very same used airplane was for sale, it contacted the seller and was told that the seller was not going to “wholesale the airplane” and that if the buyer wanted to buy the aircraft, it would have to make a higher offer. It never made a higher offer. Instead, it filed suit asserting breach of an oral contract and promissory estoppel. The Court reviewed both counts on a motion for summary judgment.

The Court’s analysis with respect to an oral contract began with UCC Sec. 2-201(1) stating that, to be enforceable, contracts for the sale of goods costing more than $500 must be signed by the party against whom enforcement is sought. According to the Court, the signature requirement is “essential” under the Statute of Frauds. There was no such signature on the part of the seller. The buyer, while conceding that there was no signed agreement, argued that the “merchant’s exception” to the Statute of Frauds applied. Under that exception, when a transaction is one between merchants, a writing which is not signed (by the party against whom enforcement is sought) may nonetheless satisfy the statute. The party seeking to enforce the oral agreement must, however, have sent to the opposing party, within a reasonable time, a “writing and confirmation of the contract” which is “sufficient against the sender.” Along this line, the buyer asserted that its letter to the seller’s pre-owned aircraft sales department was a confirmation of the oral agreement reached between the parties and, having failed to object to the letter, the seller cannot now assert the Statute of Frauds defense. The difficulty with this argument, however, was that the Court took the letter to be simply an offer or a confirmation of negotiations, and not an oral contract. In New Jersey, a writing is “in confirmation of the contract” if it “indicate[s] that a binding or completed transaction has been made.” The letter was titled a “Letter of Intent,” and nothing in the letter indicated that the buyer was confirming the existence of the contract between the parties. Instead, it contained “a typical offer” stating expressly that “[the buyer] wishes to offer this letter of intent for your consideration” and confirming only the “personal contact” with seller’s salesman and not any sort of agreement reached between the parties. The letter further merely confirmed pre-contractual negotiations and the buyer requested a “pre purchase survey,” a “possible acceptance flight,” and a response. Ultimately, a confirmatory letter must contain language sufficient to indicate that the parties reached an agreement because extrinsic statements are immaterial to the issue of whether a writing is sufficient on its face to satisfy the Statute of Frauds. Citing prior case law, the Court said that it must look only to the document itself because “[c]onsideration of parol evidence in assessing the adequacy of a writing for Statute of Frauds purposes would otherwise undermine the very reason for a Statute of Frauds in the first instance.” Finally, the Court found that an owner and merchant would not view the buyer’s letter as confirming a contractual relationship between the parties.

The buyer also argued that even if the Court found that there was no contract or that the enforcement of any such contract was barred by the Statute of Frauds, it can nonetheless be awarded damages on the theory of promissory estoppel. The buyer claimed that when it reached an agreement to buy the airplane, it abandoned its opportunity to acquire an identical airplane and when it learned that the seller would not sell its used airplane to it, it resumed negotiations and ultimately was able to purchase the identical airplane at an increased price, leaving it with damages of $445,000. It alleged that these damages were due to its reliance on the seller’s promise to sell it the used airplane and therefore the promise should be enforced. The Court, in its analysis, found that the promise upon which the buyer allegedly relied was not sufficiently clear and definite. Furthermore, contingency conditions existed on both ends; i.e., the seller conditioned the sale on the success of its receiving the trade-in and the buyer seemingly conditioned the sale on a “pre-purchase survey” a possible “acceptance flight,” and ” the use of a purchase agreement inter alia.” Moreover, the buyer failed to establish that the seller induced a definite and substantial detriment reliance by the buyer which would warrant enforcement of an otherwise unenforceable agreement. The evidence revealed that the buyer actually abandoned its negotiations with respect to the second airplane before any alleged promise was made by the seller. Also, the buyer never asserted that it was unable financially to purchase two jet planes in the same time period, having purchased yet another jet plane in the very same time period. To the Court, it was clear that whatever reason the buyer chose not to purchase the replacement jet plane during the course of its supposed negotiations, it was not based on its reliance upon a promise, conditional and contingent at best, by the seller to sell it the trade-in jet. Finally, the Court indicated its overall view of the matter by writing: “[m]ore is required of a sophisticated businessperson before there can be enforcement of a multi-million dollar deal or even minimal reliance damages than a phone call confirmed in writing by only a unrevised ‘letter of intent’.” “Such lax practices are precisely what the statute of frauds serves to minimize.”


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