552 F.2d 1061 (4th Cir. 1977), 75-1473, Renfro Hosiery Mills Co. v. National Cash Register Co.

Docket Nº:75-1473.
Citation:552 F.2d 1061
Case Date:March 30, 1977
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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552 F.2d 1061 (4th Cir. 1977)




No. 75-1473.

United States Court of Appeals, Fourth Circuit

March 30, 1977

Argued Oct. 30, 1975.

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Norwood Robinson, George Little, Jr., and Steven E. Philo, Winston Salem, N. C. (Hudson, Petree, Stockton, Stockton & Robinson, Winston Salem, N. C.), for appellant.

John R. Surratt, Winston Salem, N. C. (Surratt & Early, Winston Salem, N. C.), for appellee.

Before BUTZNER, Circuit Judge, BRYAN, Senior Circuit Judge, and WATKINS, Senior District Judge. [*]

WATKINS, Senior District Judge:

The instant appeal arises from an action by Appellee NCR Corporation against Appellant Renfro Corporation 1 in which NCR, seeking liquidated damages, alleged that Renfro had breached a contract to lease NCR's computer equipment. Renfro counterclaimed, alleging breach of express and implied warranties, negligence, and fraudulent misrepresentations by NCR. A directed verdict was granted on the issue of negligence, and the case was submitted to the jury on the remaining issues. The jury found that Renfro had breached the lease agreement but awarded no damages, and made no finding with respect to the issues raised in the counterclaim. 2 Renfro has now appealed, assigning as error various rulings by the trial judge on evidence offered by Renfro, some of which was excluded and some of which was admitted for certain purposes only.


Prior to 1969, Renfro, a North Carolina sock manufacturing company, had used manual data gathering techniques to keep track of sales, inventory, production, deliveries, billing, and general accounting. In July 1968, Renfro began negotiations with NCR regarding the possible leasing of automatic data processing equipment. Interest centered on the Century 100 Series, a new computer system then being developed by NCR which had not yet been installed in the field. It appears from the record that Renfro was advised by NCR that the computer was new to the market. Tr. 1131, 1883. Despite the fact that the Century 100 was in fact developmental at the time the negotiations were being carried on, NCR made repeated oral and written representations to Renfro to the effect that the Century 100 was "reliable" or would give "increased reliability." The statements were extremely general, however; reliability was not defined in terms of what specifically might be expected of the equipment. 3 Furthermore, it appears that no reference

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was made to testing then being conducted by NCR on the prototype of the Century 100 or, later, on the first production model. 4

In September 1968, the parties executed a contract by which Renfro agreed to lease the Century 100 Series basic system and certain peripheral equipment for five years at a stated monthly rental. This contract was superseded by another agreement executed on March 14, 1969, which essentially repeated the terms of the September contract but which contained certain changes in equipment specifications. Under the terms of the March agreement, Renfro was to pay a monthly charge of $3,515 to NCR. NCR warranted that "the Equipment will be in good working order," disclaiming all other warranties, and agreed to furnish maintenance service for the computer system. The lease further provided that the customer might terminate the arrangement short of the five-year term but that, in such a case, NCR could levy a termination charge. In separate writings, the parties agreed that no rental would be due until both parties were satisfied with the installation and operation of the computer at Renfro's site.

Installation of the computer system began in early November 1969. From November 21, 1969, through December 11 or 12, the computer system was tested; and, on December 12, Renfro informed NCR that it was satisfied with the operation of the computer, although not all of the applications for which the computer was intended had then been fully implemented. Tr. 437-438. Accordingly, from December 11 until termination of the lease, Renfro was billed for rental according to the monthly schedule.

During the first few months of operation, Renfro maintained a "parallel" system of data collection; that is, the old manual system was maintained as a check on the operation of the computer system, at least to some extent. However, on May 15, 1970, Renfro decided to abandon the manual system entirely and "go live" on the computer.

At first, this operation appeared to be satisfactory. In June, however, Renfro claims to have experienced serious problems relating mainly to customer service. It is alleged that these problems were caused by the unreliability of the computer system and the inability of NCR to keep it in repair. In August 1970, Renfro informed NCR that the lease was terminated and directed NCR to remove its equipment. In Renfro's view, it had suffered significant loss of business due to the malfunctioning of the NCR computer, along with loss of good will and consequential damages. NCR did not let the matter rest, however, and insisted upon payment of the termination charge prescribed by the lease as liquidated damages. Renfro refused to pay these charges.

NCR then filed suit, claiming that it was entitled to recover the termination charge prescribed by the lease as liquidated damages. It was asserted that NCR had complied with its obligation to supply the equipment specified in the lease and that the equipment had been maintained in good working order as warranted.

In response, Renfro posed numerous affirmative defenses not relevant to the instant appeal and, in addition, entered a counterclaim for very substantial damages allegedly suffered because of the alleged disastrously poor performance and maintenance record of the NCR computer system. The counterclaim went to the jury on two issues. The first of these was Renfro's contention that repeated malfunctions of the computer and the inability of NCR to maintain the computer in an "up" condition amounted to a breach of express and implied warranties; Renfro averred, of course, that the disclaimer of warranties in the lease was ineffective. The other was the claim that NCR had made repeated representations and assurances to Renfro that the Century 100 was a "reliable" computer system, when in fact NCR was aware that this was not the case, and that Renfro had relied on these assurances to its detriment. As stated above, the jury found that Renfro

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had breached the lease but awarded no damages and made no finding as to the counterclaim.

Several adverse rulings on evidence are challenged in this appeal. These are discussed individually in the subsequent sections of this opinion.


Appellant complains, first, of the exclusion of all evidence pertaining to the "B Test," a series of tests performed by NCR on a prototype Century 100 Series computer system beginning in April 1968 and lasting for several months. These tests coincided in part with the Renfro-NCR negotiations. Contending that the test data showed that NCR was experiencing "severe difficulties" with the Century 100, Renfro offered the B Test results as proof of the actual operation of the Renfro computer and of Appellant's awareness of these "difficulties" at the same time that it was being represented to Renfro that the Century 100 was "reliable." The trial judge, however, found that the subject prototype had not been shown "to have resembled in any reasonable manner the Century 100 actually delivered to Renfro," so that the relevance of the B Test data was "highly suspect," Tr. 1509. Accordingly, this evidence was excluded.

Renfro claims that this ruling was erroneous on two principal grounds. First, Appellant asserts that the prototype "clearly" was constructed to the same specifications as the production models and was "virtually identical" to the system installed at Renfro. Second, Appellant argues that, in the context of this transaction, NCR had a duty to disclose any unfavorable test results which might have affected the decision to enter into a lease agreement, because it involved a new product still undergoing development and so complicated that the customer was forced to place unusual reliance on NCR's expertise. Brief at 6-11. Thus, Renfro contends that the B Test results were particularly relevant because they were the only test results available to NCR at the time of the negotiations.

Under both North Carolina and federal law, 5 the relevance of experimental evidence depends on whether or not the experiment was performed under conditions "substantially similar" to those of the actual occurrence sought to be proved. Perfecting Service Co. v. Product Development and Sales Co., 259 N.C. 400, 412-413, 131 S.E.2d 9, 19 (1963); Mintz v. Atlantic Coast R.R. Co., 236 N.C. 109, 114-115, 72 S.E.2d 38, 43 (1952); Olin-Mathieson v. Allis-Chalmers, 438 F.2d 833, 837 (6 Cir. 1971); Ramseyer v. General Motors Corporation, 417 F.2d 859, 864 (8 Cir. 1969); Derr v. Safeway Stores, Inc., 404 F.2d 634, 638-639 (10 Cir. 1968). If there is substantial similarity, the differences between the test and the actual occurrence ordinarily are regarded as affecting the weight of the test evidence rather than its admissibility. Ramseyer, supra. On the other hand, the differences between the test and the actual occurrences may be such that the trial judge is justified in concluding either that the evidence is totally lacking in probative value as to any material issue, or that the probative value of the evidence is overborne by the danger that introduction of the evidence will tend to confuse the issues, unnecessarily prolong the trial, or create a likelihood of undue prejudice. In such cases, it is proper to...

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