Axion Corp. v. G. D. C. Leasing Corp.

Decision Date11 May 1971
Citation359 Mass. 474,269 N.E.2d 664
Parties, 9 UCC Rep.Serv. 17 AXION CORPORATION v. G.D.C. LEASING CORPORATION (and two companion cases).
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Robert W. Harrington, Boston, for G.D.C. Leasing Corp. & another.

Frederic N. Halstrom, West Roxbury (Albert P. Zabin, Boston, with him), for Axion Corp.

Before TAURO, C.J., and SPALDING, SPIEGEL, REARDON and BRAUCHER, JJ.

BRAUCHER, Justice.

These cases arise out of the sale of three valve testing machines. The three machines were delivered and two of them were paid for. The seller brings two actions of contract for failure to pay for the third machine, and the buyer brings an action of contract or tort against the seller for damages for breach of express and implied warranties. 1 The cases were consolidated for trial by jury. At the close of the evidence the judge denied the buyer's motions for directed verdicts in the two cases brought by the seller, and allowed the seller's motions for directed verdicts in all three cases. The cases are here on the buyer's exceptions to these actions.

The following facts are substantially undisputed except as indicated. Negotiations began in late 1963, and included a good deal of correspondence. The buyer's purchase order, 'To Design and build' the first machine for $7,500, is dated January 9, 1964. The machine was delivered the following May and was paid for in June, 1964. There were many problems with it, and the parties and the buyer's parent company, Watts Regulator Company (Watts), worked together to solve them. In August, 1964, the seller by letter to the buyer listed twenty-eight 'revisions in the next two valve setters to be built.' The buyer ordered the second and third machines in October, 1964, for a total price of $14,950; they were delivered in December, 1964, and one of them was paid for in March, 1965. At the time of the second order, the first machine was sent back, modified to conform to the new design, then shipped back to the buyer and put into service.

Development and testing continued. In July, 1965, the buyer by letter told the seller it 'would like to negotiate a price (for the third machine) which would take into account the amount of money and time that we have had to expend trying to perfect these devices.' In August, 1965, the buyer told the seller that the third machine was useless and that the buyer would not pay for it unless it would meet a 'plus or minus five per cent' specification. The seller then agreed to take back the third machine at the buyer's expense and to work on it. In January, 1966, representatives of the buyer went to the seller's plant to conduct a series of tests. The parties do not agree on the meaning of the specification or on what the tests showed. In February, 1966, the buyer notified the seller that it was reserving its rights for recovery of its losses and expenses, and that the third machine was unacceptable and would not be paid for.

1. The governing law. The seller is a Connecticut corporation with its principal place of business in Connecticut, and its correspondence with the buyer was conducted from Connecticut. The machines were delivered to the buyer's plant in New Hampshire. The buyer was wholly owned by Watts, located at Lawrence, Massachusetts; Watts was in effect the buyer's only customer, and the decisions to buy the machines were made by Watts. The parties agree that the cases are governed by the Uniform Commercial Code as enacted in Massachusetts, G.L. c. 106 (hereafter UCC). The relevant statutory provisions in Connecticut and New Hampshire are substantially indentical to those in Massachusetts. Conn.Gen.Sts.Anno. Title 42a. N.H.Rev.Sts.Anno. c. 382--A.

2. Acceptance and rejection. 'The buyer must pay at the contract rate for any goods accepted.' UCC § 2--607(1). The parties appear to agree that the buyer accepted the first two machines, but disagree as to whether the third machine was accepted or rejected. The seller argues that the second and third machines, which were ordered together, delivered together, tested together, and complained of essentially as a unit, together constituted one 'commercial unit.' Hence, it argues, UCC § 2--606(2) applies: 'Acceptance of a part of any commercial unit is acceptance of that entire unit.' The seller relies on National Wholesale Grocery Co., Inc. v. Mann, 251 Mass. 238, 249, 146 N.E. 791, and Heyman v. DeChristopero, 259 Mass. 29, 31, 155 N.E. 657, decided under the Uniform Sales Act, former G.L. c. 106, § 37. That reliance is misplaced, since the Uniform Sales Act did not contain a provision like UCC § 2--601(c) permitting the buyer, where goods are nonconforming, to 'accept any commercial unit or units and reject the rest.'

UCC § 2--105(6) 2 defines 'commercial unit' as a unit which 'by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use.' Point 1 of the sponsors' comment to § 2--601 elaborates: 'The only limitation on partial acceptance is that good faith and commercial reasonableness must be used to avoid undue impairment of the value of the remaining portion of the goods. This is the reason for the insistence on the 'commercial unit' in paragraph (c). In this respect, the test is not only what unit has been the basis of contract, but whether the partial acceptance produces so materially adverse an effect on the remainder as to constitute bad faith.'

The buyer here first ordered one machine separately. Later, after the second and third machines were ordered and delivered together, the seller took the third back separately to work on it. There is no evidence that there was a commercial usage to treat two machines as a single whole or that division of a pair of machines materially impaired their character or value, or that acceptance of one produced a materially adverse effect on the other. In these circumstances, it could not be ruled as a matter of law that the two machines constituted a single commercial unit, or that one machine was not a commercial unit.

Alternatively, the seller argues that the buyer accepted the third machine by virtue of § 2--606(1)(b) by failing to make an effective rejection under § 2--602(1), which provides: 'Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.' We think this contention is correct. The buyer received the machine on December 22, 1964, and claims to have determined that it was nonconforming shortly thereafter. Notice of rejection was first given on February 2, 1966. As a matter of law, after delay of more than a year, the notification was not 'seasonable,' and the rejection was not 'within a reasonable time.' Miron v. Yonkers Raceway, Inc., 400 F.2d 112, 118--119 (2d Cir.); Ingle v. Marked Tree Equip. Co., 244 Ark. 1166, 1173--1174, 428 S.W.2d 286; Woods v. Van Wallis Trailer Sales Co., 77 N.M. 121, 123, 419 P.2d 964; Julian C. Cohen Salvage Corp. v. Eastern Elec. Sales Co., 34 Pa.Dist. & Co.R.2d (Pa.) 705, 710, affd. 205 Pa.Super. 26, 206 A.2d 331; Campbell v. Pollack, 101 R.I. 223, 230, 221 A.2d 615. Compare, under the Uniform Sales Act, Moore v. Foss & Co., Inc., 18 F.2d 635, 637 (D.Mass.); United States v. D. C. Loveys Co., 174 F.Supp. 44, 47--48 (D.Mass.), affd. sub nom. A. Belanger & Sons, Inc. v. United States, 275 F.2d 372 (1st Cir.).

The buyer contends that the time for rejection was extended because the machine was complicated and purportedly one of the first of its kind, citing Carlo Bianchi & Co., Inc. v. Builders' Equip. & Supplies Co., 347 Mass. 636, 648--649, 199 N.E.2d 519, 527, where we said that 'use during the period when both parties were concerned with improving the plant signified only that the buyer would accept it if the attempted improvements proved efficacious.' We pass the point that that case was decided under the Uniform Sales Act, and that under the Uniform Commercial Code it might be more appropriate to treat the problem as one of revocation of acceptance. Bianchi 'discovered soon after its arrival that the plant was not operating properly and * * * notified Builders that no payments would be made until it was.' About four months after delivery Bianchi made an unequivocal rejection. In the present case, in contrast, it was eight months before the buyer said it would not pay unless the machine met certain standards, and nearly six months more before notice of rejection was given. Of course, it is possible for a seller to deliver goods on the understanding that they can be returned at any time. Cleary v. Barlow, 252 Mass. 101, 104, 147 N.E. 348. UCC § 2--326(1). But no such agreement was shown here.

3. Revocation of acceptance. Since the goods were accepted, the buyer had the burden of establishing breach. UCC § 2--607(4). 3 If it met that burden, however, it could in proper circumstances revoke its acceptance under § 2--608. 4 It would then have the same rights and duties with regard to the goods as if it had rejected them. Thus the principal effects of acceptance are to shift the burden of proof and to subject the buyer's rights to the limitations stated in § 2--608. See Miron v. Yonkers Raceway, Inc., supra. See also Note, Rejection or Revocation under the Uniform Commercial Code, 31 Ohio St.L.J. 151.

The buyer contends that it appears, either as a matter of law or sufficiently to raise questions of fact for the jury, that the machine was nonconforming, that the nonconformity substantially impaired its value to the buyer, that the case was well within the conditions of either the cure provision of § 2--608(1) (a), or the nondiscovery provision of § 2--608(1)(b), and that revocation and notice of revocation came within a reasonable time under subsection (2). We agree with the seller's contention that there is insufficient evidence that the alleged...

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