Jones & McKnight Corp. v. Birdsboro Corporation

Decision Date02 December 1970
Docket NumberNo. 69 C 2628.,69 C 2628.
Citation320 F. Supp. 39
CourtU.S. District Court — Northern District of Illinois
PartiesJONES & McKNIGHT CORP., Plaintiff, v. BIRDSBORO CORPORATION, Defendant.

John R. Porter, Gerhard E. Seidel, Peter M. Sfikas, Charles W. Herf, of Peterson, Lowry, Rall, Barber & Ross, Philip W. Tone, of Jenner & Block, Chicago, Ill., for plaintiff.

Richard E. Powell and Peter C. John, Isham, Lincoln & Beale, Chicago, Ill., for defendant.

MEMORANDUM OPINION

WILL, District Judge.

This is an action by Jones & McKnight Corporation against Birdsboro Corporation for damages arising out of Birdsboro's alleged breach of its contract to manufacture and deliver to plaintiff certain automated machinery and equipment. Plaintiff alleges that defendant did not design and manufacture the machinery and equipment in a workmanlike manner, that it failed to take remedial action to redesign and remake the machinery and equipment when necessary under the purchase agreement, and that plaintiff's production was therefore seriously interrupted and impaired, causing plaintiff to suffer substantial losses. The defendant moves for partial summary judgment as to the issues of whether certain clauses excluding the recovery of consequential damages are part of the contract and whether certain categories of plaintiff's requested damages must be denied as a matter of law because of their consequential nature.1 On its part, Jones & McKnight is moving for leave to file an amended complaint adding a second count to its original complaint charging defendant with a wilful breach of its alleged duty to do promptly whatever was necessary to put the machinery and equipment in operating condition. For reasons stated below, we deny defendant's motion for partial summary judgment and grant plaintiff's motion for leave to file the amended complaint.

The initial issue presented by the motion for partial summary judgment concerns the scope of the parties' contract. Although the delivery of the machinery and equipment to plaintiff and the plaintiff's payment therefor conclusively indicate the existence of a contract for sale, the precise terms of that contract do not readily appear from the parties' negotiations and subsequent writings. The complaint alleges an oral contract, whereas Birdsboro's answer and counterclaim allege a written contract. For purposes of its motion, however, Birdsboro contends that its "Form 64D, General Terms and Conditions," which included, inter alia, a clause limiting its liability for consequential damages, was incorporated into the contract irrespective of whether it was oral, written, or partially oral and written.2

The factual background of the contract negotiations is as follows. After prior meetings, an understanding between plaintiff and defendant was reached on June 4, 1968, as to the items of machinery and equipment to be manufactured by Birdsboro and the prices therefor. The parties are in agreement that they each contemplated that a written confirmation would be made of their accord. On July 23, 1968, Jones & McKnight received a written confirmation from Birdsboro which had attached to it and incorporated into it the Birdsboro General Terms and Conditions Form 64D. This confirmation stated that it had to be accepted within thirty days to become effective. It is undisputed that Jones & McKnight did not execute and return the July 23, 1968 letter from Birdsboro. On August 6, 1969, Jones & McKnight sent a letter to defendant embodying the detailed order for machinery and equipment, requesting the return of a signed copy if acceptable. A portion of the letter stated:

"Confirming the discussion between your representative and our company on June 10, 1968, regarding the above orders, we are pleased to submit written verification of our verbal orders No. 2062 and 2063 * * *.
"It is understood that your General Terms and Conditions as set forth on your form 64D will govern * * *"

Birdsboro claims to have returned the requested signed copy of this letter, but plaintiff denies ever having received it.

For purposes of this summary judgment motion, Birdsboro contends that it is immaterial whether each party ever received the acknowledged return of its own memorandum from the other party. We agree. In an endeavor to bridge the legal abyss created in contract formation by industry's perennial battle-of-the-forms, the draftsmen of the Uniform Commercial Code included several provisions in the Act highly relevant to the type of situation before us.

Section 2-207(3) of the Code, Ill.Rev. Stat., Ch. 26, § 2-207(3), states:

"Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.
In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act."

Because no dispute is present that a contract in fact exists, the terms of the contract consist, at the least, of those terms on which the writings of the parties agree. As both parties have written and signed confirmatory memoranda recognizing that the terms of Birdsboro's General Terms and Conditions Form 64D were to govern the contract, we conclude that those terms are embodied and incorporated into the contract.

Section 2-202 of the Code, Ill. Rev.Stat., Ch. 26, § 2-202, supports this conclusion and obviates the necessity of determining, as plaintiff suggests we must do, whether the contract was oral or written. This section provides:

"Terms with respect to which the confirmatory memoranda of the parties agree * * * with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a) by a course of dealing or usage of trade * * * or by course of performance * * *; and
(b) by evidence of consistent additional terms."

Under the unambiguous wording of this provision, therefore, plaintiff can only clarify uncertain terms of the contract in light of usage of the trade or prove consistent additional terms. Plaintiff cannot, however, disavow a term of the contract by evidence of an alleged prior oral agreement when there exist subsequent confirmatory memoranda between the parties which are entirely consistent with each other. We hold, therefore, that the terms and conditions of Form 64D are included in the contract between Birdsboro and Jones & McKnight.3

Plaintiff contends that, even if Form 64D is part of the contract, the defendant's conduct subsequent to the numerous oral and written notices to it of defects and deficiencies in the design and workmanship of the machinery violated defendant's duty to institute corrective action within a reasonable time and constituted wilful and dilatory behavior amounting to an express repudiation of defendant's warranty obligation, thus destroying any benefits to the defendant under the warranty, particularly the limitation of liability for consequential damages. The plaintiff contends that its most substantial damages, the categories of damages that the defendant is seeking to exclude by way of this motion for partial summary judgment, resulted directly from the conduct of defendant in its wilful failure to correct the defects and deficiencies in the machinery for an extended period of time.

Plaintiff's theory that the contractual clause of the warranty limiting the defendant's liability must be disregarded when the defendant substantially breaches its limited obligation under that warranty is based upon § 2-719(2) of the Code, 12A Purdon's Pa.Stat.Ann. § 2-719(2). That section provides:

"Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act."

The plaintiff thus suggests that, because of the alleged failure of defendant to honor its limited liability under the warranty, the exclusive remedy has failed of its essential purpose and the warranty's limitation of remedy must be disregarded.

The issue presented by this aspect of this litigation is whether a wilful breach by a seller of its duties under its warranty negatives a second clause of that warranty under which the buyer's remedy is limited to an exclusive course of action. Research and the parties indicate that this question is one of first impression in Pennsylvania. When a court is obligated to follow state law and a presented issue is one of first impression in the state, the federal court may not, with but few exceptions, stay the proceedings until a determination of the point may be had in the applicable state courts. Meredith v. City of Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9 (1943). Rather, the federal court must, notwithstanding the lack of a controlling state decision, apply the rule it believes the courts of the state would apply if the specific question were put to them. Stool v. J. C. Penney Co., 404 F.2d 562 (5 Cir. 1968); Costello v. Schmidlin, 404 F.2d 87 (3 Cir. 1968). With no state court decisions to guide it, the federal court becomes obligated to arrive at the decision which reason dictates, with the faith that the state courts would arrive at the same decision. Insurance Company of North America v. English, 395 F.2d 854 (5 Cir. 1968).

The issue of whether under § 2-719(2) of the Uniform Commercial Code the alleged repudiation by a seller of its obligation under its warranty likewise deprives the seller of benefits under that warranty has apparently been decided in only one reported case. In Adams v. J. I. Case Company, 125 Ill.App.2d 388, 261 N.E.2d 1 (4 Dist.1970), the court, faced with a warranty almost identical to the one given by Birdsboro in this litigation, held inapplicable the exclusion of consequential damages in a warranty that limited the seller's liability to replacement...

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