Alafoss v. Premium Corp. of America, Inc., 78-1381

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Citation: 599 F.2d 232
• Docket Number: No. 78-1381,78-1381
• Parties: 26 UCC Rep.Serv. 382 ALAFOSS, h. f., Appellant, v. PREMIUM CORPORATION OF AMERICA, INC., Appellee.
• Decision Date: 06 June 1979

Page 232

599 F.2d 232 26 UCC Rep.Serv. 382 ALAFOSS, h. f., Appellant,
v.
PREMIUM CORPORATION OF AMERICA, INC., Appellee. No. 78-1381. United States Court of Appeals,
Eighth Circuit. Submitted Dec. 11, 1978.
Decided May 7, 1979.
Rehearing and Rehearing En Banc Denied June 6, 1979.

Page 233

P. Sveinbjorn Johnson of Head, Johnson, Martin & Parizek, Chicago, Ill. (argued), Michael K. Shannon, Chicago, Ill., and Robert W. Gislason of Gislason & Martin, Minneapolis, Minn., on brief, for appellant.

J. Patrick McDavitt of Levitt, Palmer, Bowen, Bearman & Rotman, Minneapolis, Minn. (argued), and Joel H. Gottesman, Minneapolis, Minn., on brief, for appellee.

Before GIBSON, Chief Judge, and BRIGHT and HENLEY, Circuit Judges.

BRIGHT, Circuit Judge.

Alafoss, h. f., an Icelandic corporation, appeals from a judgment of the district court in favor of the Premium Corporation of America, Inc. (PCA), because of Alafoss' breach of contractual warranties. Alafoss brought this action against PCA for the balance due on a contract for the sale of ladies' white wrap coats to PCA. PCA admitted its liability on the contract but brought a counterclaim for damages for breach of warranties by Alafoss. The district court awarded PCA a net judgment in the amount of $133,275.86, together with costs and interest.

Alafoss raises the following issues on appeal:

1) The district court erred in permitting PCA to bring an action for breach of warranty after PCA had accepted the goods by reselling them;

2) The district court erred in finding that Alafoss failed in its efforts to cure the nonconformities;

3) The district court erred in failing to give appropriate significance to PCA customers' letters which allegedly demonstrated that most coats were returned to PCA for reasons other than defects in the coats attributable to Alafoss; and

4) The district court's damage award was contrary to the evidence and to applicable statutory law.

We find no merit in Alafoss' first three allegations, and we affirm the decision of the district court holding Alafoss liable on PCA's counterclaim. However, we believe the trial court erred in its assessment of damages. Accordingly, we remand the case to the district court for a redetermination of damages consistent with this opinion.

Page 234

I. Factual Background.

In the summer of 1972, Alafoss, h. f., an Icelandic corporation engaged in the sale and export of garments made from the fur and wool of Icelandic sheep, supplied PCA, a Minnesota corporation engaged in a variety of business ventures, including mail sales programs, with samples of ladies' wrap-around coats (hereafter "wrap coats"). The bodies of these sample coats were of white wool, and the coats' detachable, solid white fur collars exhibited a full, silky texture. PCA approved these samples, and Alafoss informed PCA representatives that it could furnish coats conforming to the samples in the quantity required for a PCA mail-marketing program aimed at American Express cardholders.

PCA purchased 750 wrap coats from Alafoss and conducted a test marketing. The fur collars on the test coats were solid white with a full, silky texture, conforming to the samples.

In January 1973, the interested parties PCA, Icelandic Imports, a New York corporation serving as agent for Alafoss, and American Express entered into a written agreement whose terms called for a full-scale mail-marketing promotion of the Alafoss-manufactured wrap coat, to begin in the autumn of 1973. The agreement incorporated a copy of the sales brochure to be used in the mail-marketing of the coats, representing the color and texture of the coats' fur collars as identical to those of the sample coats.

In February 1973, Alafoss contracted to sell PCA at least 7,200 wrap coats. ¹ The agreement contained an express warranty that the coats would conform to the color and quality of the sample wrap coats.

PCA issued one purchase order to Alafoss for 7,200 wrap coats on March 9, 1973, and another order on October 10, 1973, for 1,025 additional coats. The purchase orders provided that Alafoss guaranteed the wrap coats were "fit * * * for the purpose for which such merchandise is intended to be used." PCA relied on Alafoss to select and ship wrap coats conforming to the sample approved by PCA. During August-September 1973, PCA mailed the sales brochure for the wrap coats to over 3,000,000 American Express cardholders. ²

Alafoss delivered the wrap coats in the spring and summer of 1973. In October 1973, PCA discovered irregularities in the wrap coats remaining in their stock. A number of the fur collars were discolored, and some of the coats had loosely-sewn pockets. After discussing the nonconformities with representatives from Alafoss, the parties agreed that the collars on the approximately 4,350 coats not conforming to sample should be detached and sent to Mademoiselle Furs, a New York furrier, for treatment. Alafoss agreed to bear the price of treatment, which amounted to.$24,186.90, plus an additional $2,800 expense for sewing the loose pockets.

The furrier treatment initially appeared to remedy the irregularities in the collars, and PCA used coats with such treated collars to fill some customers' orders. However, by early 1974, customers had returned a number of wrap coats with yellow and ragged collars. All of the collars on the returned coats were similar in appearance, whether or not they had been treated by Mademoiselle Furs. ³

In January 1974, PCA again apprised Alafoss that coats in its possession were nonconforming because of discolored collars. In mid-March 1974, approximately 4,000 nonconforming coats remained in PCA's possession.

Page 235

On June 12, 1974, after attempting to sell its stock of leftover wrap coats, PCA sent Alafoss a letter stating that

because of these defects and discoloration, the best offer we have been able to obtain after a substantial effort on our part is $25 per coat. Please be advised that unless you advise us of an acceptable offer of a higher price by June 17, 1974, we intend to accept this offer.

PCA sold 3,736 wrap coats to Alden's Inc. for $71,740 (approximately $20 per coat).

Alafoss brought this action in May 1974, seeking recovery from PCA of $132,474 for unpaid wrap coats. PCA counterclaimed for $350,000 in damages allegedly resulting from Alafoss' breach of its warranties of conformity to sample and of fitness for a particular purpose.

The district court, sitting without a jury, held that Alafoss breached such warranties and ordered that a net judgment be entered for PCA in the amount of $133,275.86, plus costs.

II. Discussion.

A. Acceptance/Rejection Issue.

Alafoss claims that PCA cannot bring an action for damages because PCA's resale of the wrap coats constituted an "acceptance" of the goods and statutorily precludes PCA from subsequently rejecting them and suing Alafoss for breach of warranty. In addition, Alafoss contends that PCA never effectively revoked its acceptance of the wrap coats.

Alafoss' argument misapprehends Minnesota's version of the Uniform Commercial Code relating to acceptance of goods by a buyer, which, in pertinent part, reads:

(2) Acceptance of goods by the buyer...