Aries v. Palmer Johnson, Inc., 2

Decision Date24 March 1987
Docket NumberCA-CV,No. 2,2
Citation153 Ariz. 250,735 P.2d 1373
Parties, 4 UCC Rep.Serv.2d 85 Frank ARIES, Plaintiff/Appellee/Cross-Appellant, v. PALMER JOHNSON, INC., Defendant/Appellant/Cross-Appellee. 5914.
CourtArizona Court of Appeals

HOWARD, Presiding Judge.

This is an action by the purchaser of a yacht (Aries) against the manufacturer/seller for breach of contract, breach of warranty, and fraud. The defendant Palmer Johnson, Inc. (PJ) filed a counterclaim for wrongful interference with prospective business. The trial court granted plaintiff's motion for summary judgment on the counterclaim. PJ has not appealed from this summary judgment.

The action was tried to the court, sitting without a jury, which found that PJ breached its contractual promise concerning time of delivery, breached express and implied warranties as to description and quality, and defrauded Aries in regard to the boat's promised delivery date. The court awarded Aries $218,795.58 in damages together with attorney's fees in the sum of $70,523.25 pursuant to A.R.S. § 12-341.01, but refused to include in the award of attorney's fees any amounts incurred by paralegals.

The record discloses the following facts. Aries, a resident of Tucson, is a sophisticated and experienced real estate developer. From 1966 to 1975 he owned a series of relatively moderately priced yachts. In 1978 he purchased a 70-foot sailing yacht named "Varuna" for approximately $420,000. He made substantial personal use of Varuna which he also chartered, for a fee, to a corporation of which he was the president and sole shareholder.

PJ is a Wisconsin corporation with its principal place of business in Sturgeon Bay, Wisconsin. It is engaged in the business of constructing, storing, repairing, and selling custom sailing yachts throughout the United States, including Arizona, and holds itself out as being internationally famous for constructing yachts of the finest quality.

In 1978 Aries met Mike Kelsey, the president of PJ, and was invited to Florida by Kelsey to inspect a boat constructed by PJ, an "Alden 75" yacht which was named "Ma-Mu 5." About two years later, in 1980, Aries entered into a contract with PJ for the purchase of an Alden 75 for $925,000. However, he was unable to obtain financing, and the parties agreed to cancel the contract. Thereafter, Kelsey kept in contact with Aries by telephone and mail, transmitting promotional material to Aries and soliciting the purchase of a new yacht. During this period Aries also read various boating and yachting magazines in Arizona which contained advertisements by the defendant representing itself as a manufacturer of the finest quality custom sailing yachts.

In August of 1982, Aries sent PJ $100,000 as a deposit toward the purchase of an Alden 75 yacht, to be called "Scheherazade." The boat was to be a "sister ship" to Ma-Mu 5, except for certain design changes. On September 1, 1982, Aries sent a letter to PJ which contained a list of specifications for the new yacht. He also inquired about a queen-size bunk for the master stateroom and asked Kelsey's opinion as to whether it could be done. Fifteen days later, PJ signed and mailed one of its standard form contracts for Aries' signature. The contract price was $1,237,500. The delivery date was "on or about June 25, 1983" in accordance with prior discussions between Aries and Kelsey wherein Aries told Kelsey of his intended use of the yacht for the summer of 1983. One day after mailing the contract, PJ wrote Aries in response to his September 1 letter. PJ did not address the issue of the queen-size bunk, but stated that construction was already under way and that PJ expected no problem in completing the yacht by the scheduled delivery date of June 25, 1983.

On November 6, 1982, Aries signed the contract but made a change in it before mailing it back to PJ, which did not reject the change. 1 The contract provided that the boat would be complete in "every detail" in regard to workmanship, material, and equipment "in accordance with the Plans and Specifications." In case of conflict, the contract provided that it would control first, the specifications second, and the prints third. The specifications to the contract provide in part that:

"Builder will assist Owner in reproduction of revised plans as items discussed for those items in Owner's letter to M. Kelsey as September 1, 1982 consisting of ... redesign of galley area for settee ... redesign of stateroom areas making bunks as wide as possible ... modifications to the master stateroom head enlarging it as per new revised plans and Owner request."

The specifications also provided that the owner's quarters were to be larger than those on Ma-Mu 5, port and starboard. Aries paid PJ all sums of money that were due under the contract.

On January 20, 1983, Aries wrote Kelsey and stated that he was not happy with the plans for the crew's quarters which PJ had sent to him for review. In this letter Aries included another arrangement for the quarters. On January 27, 1983, Aries wrote to Bjorn Johansen, PJ's superintendent of construction, setting forth a number of items discussed in a previous telephone call between them. Many of these items dealt with interior appliances and furniture. Johansen responded to that letter on February 25, 1983. The response made no mention of any delay as a result of the items considered in either the January 20 or January 27 letters.

From the fall of 1982 until early spring of 1983, Aries had regular conversations with Kelsey and Johansen concerning the progress of the construction. It was uncontradicted that in these conversations Aries was advised that construction was proceeding on schedule and that the contract delivery date would be met. Pictures of the progress of construction sent by PJ to Aries in the fall of 1982 and the winter of 1983 showed what appears to be a shell with no completed interior work.

The construction of Scheherazade was part of PJ's overall production schedule, without individual project managers, which included three other yachts. Of those yachts, Ondine had a contract delivery date of April 30, 1983, Centurian had a past due contract delivery date of June 15, 1982, and Kongere had a contract delivery date of April 1, 1983. The Ondine contract contained a $2,000 per day late charge provision personally guaranteed by the individual owners of PJ. Aries' contract with PJ contained no such penalty. PJ's record showed work hours doubled and tripled on Ondine from the spring to summer 1983, and that the hours on Scheherazade were correspondingly reduced during that period. PJ stopped carpentry work on Scheherazade during October, November and December 1982 and most of January 1983. Aries was not informed of this in letters from PJ dated December 30, 1982 and January 6, 1983 indicating that construction was on schedule, nor was Aries otherwise informed of this by PJ. Neither Ondine, Centurian nor Kongere were delivered on time.

In late May or early June of 1983, Aries sent his yacht captain to Sturgeon Bay to be present for what Aries believed to be the final weeks of construction. The captain advised Aries that the boat was not even near completion. Aries personally visited Sturgeon Bay on June 6, 1983, and observed what appeared to be a vessel in the final stages of completion and a larger force working on Ondine than on his yacht. He expressed these observations in a letter to Kelsey on June 15, 1983, and Kelsey's June 18 response did not dispute Aries' observations but rather promised delivery in time for Aries to be at the America's Cup with "a perfect boat." Kelsey's letter stated that they were spending many more hours than they had hoped, but he did not indicate that any of the additional time was the result of anything done by Aries. In June 1983, PJ promised Aries delivery of his boat in early August.

In August 1983, PJ had not completed the boat but it promised delivery to Aries in September. On August 25, PJ's lawyer wrote Aries' lawyer stating that the boat would be delivered on or before September 24, 1983, and would be "of the finest quality that Palmer Johnson can construct...." In that letter, Aries' claims for damages due to delay were denied, but there was no mention as to the specific causes for delay and no statement that Aries was in any way responsible for the delay.

The boat was not delivered until November 23, 1983, five months late, depriving Aries of all use during the summer and fall of 1983. After delivery, it promptly broke down. It was dry-docked in a repair facility for approximately 168 days during the year following delivery. Defects in quality and material were wide ranging, from delaminating paint, to drill holes in the hull, to a jerry-rigged sewage tank system which was vented near the cabin portholes.

Aries informed PJ repeatedly, both before and after executing the contract, of his intended use of the boat during the summer and fall of 1983, which included the "shakedown cruise" in Lake Michigan, attendance at the quadrennial America's Cup races in August and September, and then on to the Caribbean. From the time the contract was executed in the fall of 1982, to the early spring of 1983, PJ's president and construction superintendent repeatedly assured Aries that construction was proceeding in a timely manner and that delivery would be timely. The record shows that Aries relied on those representations to his detriment. For example, he decommissioned the yacht he then owned and did not secure a substitute vessel for his intended use during the summer and fall of 1983.

For the first time, at trial, PJ contended that the delay was due to Aries' changes of the boat's...

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