Hendricks & Associates, Inc. v. Daewoo Corp.
| Decision Date | 08 January 1990 |
| Docket Number | No. 89-1583,89-1583 |
| Citation | 923 F.2d 209 |
| Court | U.S. Court of Appeals — First Circuit |
| Parties | 13 UCC Rep.Serv.2d 1099 HENDRICKS & ASSOCIATES, INC., Plaintiff, Appellee, v. DAEWOO CORPORATION, Defendant, Appellant. . Heard |
Michael J. Keefe with whom Charles J. O'Malley and Johnson, O'Malley and Harvey, Boston, Mass., were on brief, for defendant, appellant.
Michael A. Fitz with whom Fitz & O'Sullivan, Holyoke, Mass., was on brief, for plaintiff, appellee.
Before BREYER, Chief Judge, BOWNES, Senior Circuit Judge, and CYR, Circuit Judge.
Daewoo Corporation appeals from a district court judgment awarding Hendricks & Associates (Hendricks) $375,000 in consequential damages, representing Hendricks's loss of prospective profits from anticipated future business with Champion Products, Inc., and $21,614.73 in consequential damages, representing commission credits withheld by Champion. We affirm the $21,614.73 damages award. We affirm an award for loss of prospective profits, conditioned on a partial remittitur, and remand for new trial or for amendment of the judgment.
Champion, a wholesaler of sporting apparel, provided Hendricks with design specifications for a new line of fashion sportswear ("Stripe Collection") which Champion planned to market. Hendricks, a Massachusetts import agent, selected Daewoo, a Korean company, to manufacture the Stripe Collection goods. There were no direct contractual arrangements between Daewoo and Champion. Champion placed purchase orders with Hendricks; Hendricks placed purchase orders with Daewoo.
James Hendricks founded Hendricks in 1979 as a consulting firm. 1 In December 1981, James Hendricks contracted to consult with Champion, for a fee, concerning the overseas manufacture of sporting apparel and its importation into the United States. By the end of 1983, Hendricks had entered into similar contracts with eleven other companies.
Champion intended to develop overseas sources of supply to increase its domestic market competitiveness in certain lines of apparel. James Hendricks, hence Hendricks & Associates, possessed considerable experience in the importation of apparel manufactured in the Far East, a complex undertaking involving customs duties, tariffs and byzantine quota systems. Hendricks's role with Champion gradually evolved from fee-based consultant to "import agent." Hendricks assisted Champion in the selection of overseas manufacturers.
On the recommendation of Hendricks, Champion initially placed two small orders with Daewoo. Although Champion encountered minor quality problems with these early orders, its complaints to Daewoo were resolved satisfactorily through the efforts of Hendricks. In 1984 Champion launched its Stripe Collection line. With Champion's concurrence, Hendricks placed orders for the manufacture of the Stripe Collection goods with Daewoo, notwithstanding Champion's earlier complaints about minor defects in the goods previously manufactured by Daewoo.
Contractual arrangements for the Stripe Collection goods were structured differently than the two previous Daewoo transactions. Rather than acting as Champion's import agent as in the past, Hendricks was to act as the "middleman" between Champion and Daewoo. Hendricks placed purchase orders with Daewoo requiring Daewoo to manufacture the Stripe Collection goods to Champion's specifications. Hendricks The Hendricks purchase orders required Daewoo to deliver the Stripe Collection goods directly to Champion in three shipments. Champion's inspection of the first shipment disclosed serious quality defects in a substantial number of garments. Upon notification by Hendricks, Daewoo assured Hendricks that all garments in the remaining shipments would conform to specifications, and Hendricks accordingly reassured Champion. The second shipment was no better than the first, however, and Champion determined on final inspection that the entire third shipment was unacceptable. By this time, of course, both Hendricks and Daewoo had received payment in full from Champion under the terms of the irrevocable letters of credit. In order to recover these payments and its inspection costs, allegedly aggregating $213,486.61, Champion issued "debit memoranda" against Hendricks's account with Champion. At the time the debit memoranda were issued, Hendricks's records reflected that it was owed $21,614.73 by Champion. There is no evidence that Hendricks has ever been held accountable for the $191,871.88 balance. Champion is not a party to these proceedings.
in turn sold the goods to Champion at a five percent markup over Daewoo's sale price to Hendricks. Daewoo and Hendricks received payment by means of irrevocable letters of credit, funded entirely by Champion and negotiable "FOB Korea."
Hendricks brought the present action against Daewoo for $213,486.61 in consequential damages, the total amount of the Champion debit memoranda, and for $150,000 in consequential damages for anticipated future profits allegedly lost by Hendricks as a consequence of Champion's termination of their business relationship. The jury did Hendricks one better by awarding it $275,000 in consequential damages in connection with the Champion debit memoranda, and $375,000 in consequential damages for loss of future profits. The district court denied Daewoo's motion for judgment notwithstanding the verdict. The court contemporaneously denied Daewoo's motion for new trial, on the condition that Hendricks remit all Champion debit memoranda damages in excess of $21,614.73 2. The $375,000 award for lost profits was permitted to stand.
[Consequential damages for] loss of prospective profits may be allowed ... where it appears that the loss was the natural, primary and probable consequence of the breach, that the profits arising from the performance of the contract or the loss likely to result from its nonperformance were within the contemplation of the parties, and the profits were not so uncertain or contingent as to be incapable of reasonable proof.
Cannon v. Yankee Products, Inc., 21 UCC Rep.Serv. (Callaghan) 525, 530 (Mass.App.1977) (quoting Gagnon v. Sperry & Hutchinson Co., 206 Mass. 547, 555, 92 N.E. 761 (1910)) (applying common law and Uniform Commercial Code ("UCC") Sec. 2-715). As a venerable Massachusetts case teaches:
The fundamental principle of law upon which damages for breach of contract are assessed is that the injured party shall be placed in the same position he would have been in, if the contract had been performed, so far as loss can be ascertained to have followed as a natural consequence and to have been within the contemplation of the parties as reasonable men as a probable result of the breach, and so far as compensation therefor in money can be computed by rational methods upon a firm basis of facts .... When a claim for prospective profits is brought to the test of this principle, recovery can be had where loss of profits is the proximate result of the breach, and is such as in the common course of events reasonably might have been expected, at the time the contract was made, to ensue from a breach, and where it can be determined as a practical matter with a fair degree of certainty what the profits would have been.
John Hetherington & Sons, Ltd. v. William Firth Co., 210 Mass. 8, 21, 95 N.E. 961 (1911) (emphasis added). See also Redgrave v. Boston Symphony Orchestra, Inc., 855 F.2d 888, 893 (1st Cir.1988) (citing Hetherington & Sons, 210 Mass. at 21), cert. denied, 488 U.S. 1043, 109 S.Ct. 869, 102 L.Ed.2d 993 (1989).
These common law principles comport with the letter and spirit of UCC section 2-715(2). See Mass.Gen.L. ch. 106, Sec. 2-715 official comment 2 (section 2-715(2) adopts the common law rule that a seller is liable for all consequential damages of which he had reason to know in advance, but requires the buyer to mitigate damages); Cannon, 21 UCC Rep.Serv. (Callaghan) at 530-31 (); 4 R. Anderson, Uniform Commercial Code Secs. 2-715:7 & 2-715:10 (3d ed. 1983) (). 4 UCC section 2-715(2) provides: "Consequential damages resulting from the seller's breach include (a) any loss resulting In sum, Massachusetts law, as embodied in its Uniform Commercial Code, permits an award of consequential damages for prospective profits lost as "the natural, primary and probable consequence of the breach," Gagnon, 206 Mass. at 555, 92 N.E. 761 (quoted in Cannon, 21 UCC Rep.Serv. (Callaghan) at 530), unless 1) the loss was not "such as in the common course of events reasonably might have been expected, at the time the contract was made, to ensue from a breach," Hetherington & Sons, 210 Mass. at 21, 95 N.E. 961, or 2) the extent of the loss has not been evidenced with a fair degree of certainty, id.
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