Unisys v. Pergament Distributors

Citation: Unisys Corp. v. Pergament Distribs., Inc., 1991 WL 29965 (E.D.N.Y. Feb. 15, 1991).

Factual Background
Plaintiff Unisys Corp. (“Unisys”), formerly Burroughs Corp., and defendant Pergament Home Centers, Inc. (“Pergament”) entered into a purchase agreement for the B6800 computer system (the “System”). On September 21, 1979, Robert Bisom, Pergament’s director of information systems, began the contractual process by signing a Burroughs Agreement for Equipment for the computer system. Five days later, Michael Fields, a Unisys branch manager, submitted the contract documents relating to Pergament’s purchase of the system to his superiors for approval. However, Fields knowingly withheld side letter submitted by Bisom that purported to give Pergament a right to cancel the contract at any time. Instead, Fields informed Pergament that he would sign the side letter and have it “rubber stamped” by his superiors in Detroit.

On March 10, 1980, Paul Bunton, Unisys’ Regional Manager, reviewed the documents sent by Fields, signed the necessary paperwork and returned them to Fields’ office. At no time prior to signing the Burroughs Agreement for Equipment Sale did Bunton see or review the side letter signed by Fields purporting to give Pergament the right to cancel the contract.

Shortly after the Burroughs Agreement for Equipment documents were executed, Pergament became aware that Unisys would not honor the cancellation provision included as a side letter to the initial agreement. As a result, Pergament brought suit against Unisys, alleging that the company was in breach of its contract and that it was bound by the actions and representations of its agent, Fields.

Trial Court Proceedings
At trial, the district court determined that Pergament was not entitled to relief on their breach of contract claim. In reaching this decision, the court analyzed whether Michael Fields had the proper authority to bind his principal, Unisys, through his actions. In reviewing the facts, the court determined that Fields did not have actual authority to bind Unisys to either the formal contract, or the terms of the disputed side letter.

In addition, the court determined that Pergament had actual knowledge that Michael Fields did not have the authority to bind Unisys and realized that the side letters would have to be approved by Fields’ superiors prior to becoming binding. Furthermore, Unisys did not engage in any conduct that could have led Pergament to believe that it would “rubber-stamp” or approve an agreement proposed by Fields without Unisys’ consent. As a result, Fields act of withholding the relevant side letters was not done in the interest of Unisys; rather it was in his own self-interest. Since this act had the tendency to fraudulently induced both Unisys and Pergament to enter into a contract, Unisys could not be bound by his actions and, as a result, was not liable for breach of contract on these grounds. Additionally, in an attempt to reinforce their holding, the district court looked to paragraph 13(c) of the Agreement, which stated, “No modification or amendment to this Agreement and no waiver of any provision shall be valid unless in writing, signed by duly authorized representatives of the parties.” The court found that this clause, in addition to the paragraph that established that “Burroughs Agreement for Equipment constituted the entire agreement”, was enough to illustrate to Pergament that the Cancellation Clause that “conferred an extraordinary and unheard of concession”, was not assented to by Unisys. As a result, the Cancellation Clause was never part of the Agreement and Unisys was entitled to prevail on its claim for late lease payments plus interest.