American Enka Co. v. Wicaco Mach. Corp.

• Decision Date: 16 August 1982
• Docket Number: No. 82-1109,82-1109,Nos. 82-1080,No. 82-1080,82-1080,s. 82-1080
• Citation: 686 F.2d 1050
• Parties: AMERICAN ENKA COMPANY, Appellant in, v. WICACO MACHINE CORP. AMERICAN ENKA COMPANY v. WICACO MACHINE CORP., Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 1050

686 F.2d 1050

AMERICAN ENKA COMPANY, Appellant in No. 82-1080, v. WICACO MACHINE CORP.

AMERICAN ENKA COMPANY v. WICACO MACHINE CORP., Appellant in No. 82-1109.

Nos. 82-1080, 82-1109.

United States Court of Appeals Third Circuit.

Argued Aug. 4, 1982.

Decided Aug. 16, 1982.

Patrick T. Ryan (argued), James S. Gkonos, Drinker, Biddle & Reath, Philadelphia, Pa., for plaintiff-appellant/cross-appellee.

J. Stokes Adams, III (argued), Hepburn, Ross, Willcox & Putnam, Philadelphia, Pa., for defendant-appellee/cross-appellant.

Before ALDISERT and WEIS, Circuit Judges, and RE, Chief Judge. ^*

OPINION OF THE COURT

ALDISERT, Circuit Judge.

The major question for decision in this diversity case tried non-jury under Pennsylvania law is whether, in the absence of agreement, goods lost by a bailee are valued at the time of bailment or at the time the bailor demands their return. The district court determined damages based on the value of the goods at the time of bailment and the bailor appeals. The bailee's cross- appeal requires us to decide as a threshold matter whether the district court erred in concluding that the bailment was for mutual benefit requiring the bailee to exercise ordinary care, rather than a gratuitous bailment requiring only slight care. Finally we must decide whether the district court erred in refusing to award damages for delay, sometimes called "pre-judgment interest." We reverse the court's damage award and remand on the issue of pre-judgment interest.

I.

The present controversy arises out of the bailor's aborted plan to build a rayon manufacturing plant in Tennessee. American Enka Company, plaintiff below, employed Chemtex, Inc., as its agent to build the plant and Chemtex, in turn, engaged Wicaco Machine Corporation, defendant below, to fabricate spinnerette housings and clusters for use in the plant. Because the spinnerettes are immersed in acid during rayon manufacturing, they are constructed of hastelloy, a special alloy comprised of nickel, chromium, molybdenum, and carbon. In October 1974, at Chemtex's directions, Wicaco purchased and took delivery of 6,000 pounds of hastelloy for $23,250.00, and billed Chemtex for that amount. Chemtex paid Wicaco and Enka in turn reimbursed Chemtex. The parties agree that this transaction created a bailor-bailee relationship between Enka and Wicaco respectively.

Declining demand for rayon caused Enka to suspend the project for six months in November 1974, but Wicaco agreed to store the hastelloy ingots in its plant until the project resumed, in return for immediate payment of services and materials it already had provided under the agreement. In March 1975, Enka informed Chemtex that the Tennessee project would be cancelled; Wicaco was not notified. One year later the board of directors of Akzona, Inc., Enka's parent company, formally cancelled the construction project and apparently Wicaco learned of the cancellation at about the same time.

Even though it knew that the Tennessee project had been cancelled, in April 1977, Wicaco agreed to hold the hastelloy for a while longer at no additional charge. In the meantime and until early 1979 Enka tried to find a use for the hastelloy but was unsuccessful. Those efforts included collaboration between Enka and Chemtex to design a spinnerette cluster for use on equipment in existing Enka facilities. In June 1977, Enka requested a quotation from Wicaco for forty spinnerettes, but Wicaco's bid was rejected because it was too high. Finally, on January 17, 1979, Chemtex demanded that Wicaco return the hastelloy to Enka; Wicaco responded that it was unable to locate the ingots, and they are still unaccounted for.

Enka sued Wicaco demanding damages of $52,800, the market price of hastelloy at the time of the 1979 demand, more than double the price paid in 1974. After hearing the evidence non-jury, the district court determined that the bailment was for the mutual benefit of Enka and Wicaco and held that Wicaco had breached its duty of care in storing the ingots. The court awarded only $23,250 in damages, however, on the theory that Wicaco could only be held liable to the extent of the risk it agreed to undertake when the bailment was created. Pursuant to Pa.R.Civ.P. 238, the court awarded "pre- judgment interest" from the date of the complaint to the date of judgment, but refused Enka's request for common law pre-judgment interest for the period between the demand and the complaint because it did not find that the defendant engaged in the type of misconduct warranting additional damages for delay.

Enka appeals, arguing that the basis of the award should be the value on the date of demand and that it is entitled to pre-judgment interest from that date; Wicaco cross-appeals, contending that the bailment was for the sole benefit of the bailor and that under the reduced standard of care for such bailments it is not liable.

II.

A bailment is a delivery or deposit of personalty under an implied or express agreement that at the termination of the bailment the personalty will be redelivered to the bailor, otherwise dealt with according to the bailor's directions, or kept until the bailor reclaims it. Wright v. Sterling Land Co., 157 Pa.Super. 625, 627, 43 A.2d 614, 615 (1945). Although the bailor-bailee relationship has its origins in contract, liability is based on the tort concept of negligence. Thus ordinarily a bailee is not an insurer of the property absent an express agreement, Light v. Miller, 38 Pa.Super. 408, 414 (1909), and will be held liable for loss of or damage to the bailed property only upon proof of a departure from the appropriate standard of care, id. Recognizing the superior position of the bailee to account for the goods, the courts cast on the bailee the burden of coming forward with evidence of due care once the bailor has demonstrated delivery to the bailee and failure to return or return of the goods with damage. E. I. duPont de Nemours & Co. v. Berm Studios, Inc., 211 Pa.Super. 352, 357, 236 A.2d 555, 557 (1967).

The standard of care imposed on the bailee under Pennsylvania law is determined by the classification of the bailment, whether for mutual benefit of the bailee and bailor, for the sole benefit of the bailor (a gratuitous bailment), or for the sole benefit of the bailee. First National Bank of Carlisle v. Graham, 79 Pa. 106, 116 (1875). If the bailment is for the bailor's sole benefit, Pennsylvania law requires only slight diligence on the part of the bailee and correspondingly imposes liability only for gross neglect. E. I. duPont de Nemours & Co. v. Berm Studios, Inc., 211 Pa.Super. at 356, 236 A.2d at 557. If for the sole benefit of the bailee, the bailee is liable for damage caused by slight negligence. First National Bank of Carlisle, 79 Pa. at 116. A bailment for the mutual benefit of bailor and bailee requires the bailee to exercise reasonable and ordinary care. Fidelman-Danziger, Inc. v. Statler Management, Inc., 390 Pa. 420, 136 A.2d 119, 123 (1957); Kleckner v. Hotel Strand, 60 Pa.Super. 617 (1915).

III.

The dispute in this case is whether the facts establish a bailment for mutual benefit or one for the sole benefit of Enka. Wicaco argues that although the bailment began as one for mutual benefit because of its expectation of profit in making the spinnerettes, once Enka notified it that the Tennessee project was cancelled, Wicaco's agreement to continue holding the ingots without charge converted the bailment to one for the sole benefit of the bailor. Accordingly, it contends that it can be held liable only for gross neglect.

Classification of a bailment as one for mutual benefit does not require the bailor to demonstrate a specific, tangible benefit or compensation running to the bailee. Pennsylvania's appellate courts have said that "a possibility or chance of expected profit to accrue" from the bailment is sufficient to make the relationship one for mutual benefit. Kleckner, 60 Pa.Super. at 620. See also Woodruff v. Painter & Eldridge, 150 Pa. 91, 24 A. 621 (1892). The specific question presented for review is whether, as the district court found, Wicaco retained a realistic expectation of profit from the bailment relationship after the Tennessee project was cancelled. Because the nature of the relationship in this case turns on the objective expectations of the bailee, it is a question of fact, and our review of the district court's decision is limited by Fed.R.Civ.P. 52(a), the clearly erroneous rule. See Universal Minerals, Inc. v. C. A. Hughes & Co., 669 F.2d 98, 104 (3d Cir. 1981).

We conclude that the district court's findings were supported by the evidence and we reject Wicaco's argument because it ignores the business realities of Wicaco's relationship with Enka. As evidenced by the testimony of Wicaco president Donald F. Palmer, Wicaco expected either that the Tennessee project would be revived or that it would receive future orders from Enka and Chemtex, or Chemtex alone, allowing use of the bailed hastelloy. Indeed, in June 1977 Enka solicited a Wicaco bid for the manufacture of spinnerettes for use in existing Enka plants. Because Wicaco is in the business of manufacturing mill equipment, not the storage of metal alloys, an expectation of future orders would be sufficient to make the bailment one for mutual benefit. We therefore conclude that the district court's finding that the bailment was for mutual benefit was not clearly erroneous. Because Wicaco does not contend in its cross-appeal that the district court erred in holding that it breached the duty of ordinary care, we turn to Enka's appeal challenging the amount of damages and the refusal to award common law pre-judgment interest.

IV.

The appropriate measure of damages is not always free from doubt. Lord Holt in Serrer v. Beale, 1 Lord Raym. 692 (1707), stated that "(e)veryone should recover damages in proportion to the prejudice which he hath sustained." E. Re, Cases and...