Bead Chain Mfg. Co. v. Saxton Products, Inc.

• Decision Date: 03 March 1981
• Court: Connecticut Supreme Court
• Parties: , 31 UCC Rep.Serv. 91 BEAD CHAIN MANUFACTURING COMPANY v. SAXTON PRODUCTS, INC.

Page 314

439 A.2d 314

183 Conn. 266, 31 UCC Rep.Serv. 91

BEAD CHAIN MANUFACTURING COMPANY v. SAXTON PRODUCTS, INC.

Supreme Court of Connecticut.

Argued Jan. 9, 1981.

Decided March 3, 1981.

Prescott W. May, Seymour, with whom, on the brief, was Arthur J. O'Neill, Southbury, for appellant (defendant).

Joseph T. Gormley, Jr., Bridgeport, for appellee (plaintiff).

Before BOGDANSKI, PETERS, HEALEY, ARMENTANO and WRIGHT, JJ.

PETERS, Associate Justice.

This is an action for the breach of a contract for the purchase of specially manufactured electronic parts. The plaintiff, The Bead Chain Manufacturing Company, the seller, sued the defendant, Saxton Products, Inc., the buyer, for failure to accept delivery of goods tendered pursuant to the contract of sale, and for failure to pay related costs and damages. The defendant denied the plaintiff's allegations and entered both special defenses and a counterclaim. After a trial to the court, judgment was rendered for the plaintiff on the complaint and on the counterclaim, and this appeal followed.

The underlying facts are not, on this appeal, in dispute. After more than a year of discussion, negotiation, and examination of handmade samples, the defendant Saxton in January, 1973, sent to the plaintiff B a purchase order for five million electrical components known as female contacts. The contract called for the production of special new tooling for these newly designed parts. The purchase order described the material out of which the goods were to be made and specified that they were to conform to "Sketch S-1318." A month later, a superseding design drawing was prepared by Bead and approved by Benjamin Jarmolow, Saxton's chief engineer and vice president. The idea for and the design of the female contacts was initially provided by Jarmolow who made some changes in it subsequent to the original submission. After receipt of the initialed drawing from Jarmolow in February, 1973, Bead began to prepare for production, by manufacturing the necessary tooling and producing preproduction samples in conformity with the initialed drawing.

Although the contract called for the first instalment of 250,000 contacts to be delivered by the middle of June, 1973, Bead first sent 100 preproduction samples to Saxton for its approval in August of that year. These samples were lost. When this loss came to light upon inquiry by Bead, further preproduction samples were delivered in October, 1973, and February, 1974. Small instalments, 1000 each, of finished contacts were delivered in April and May of 1974. Until July, 1974, Saxton neither rejected any of these tenders nor made any complaint about their conformity with Jarmolow's design or about their timeliness. In July, confronted with a bill for the costs of tooling, Saxton for the first time stated that the contacts were defective because they lacked "memory" characteristics, i.e., the ability to return to their original shape after having been deformed. "Memory" characteristics were, according to Saxton, essential to the incorporation of this component in the electrical products which Saxton intended to market and to sell. Saxton never suggested what specific design modifications would be required to make the contacts acceptable. Further discussions proved fruitless, and this lawsuit ensued.

The trial court, after extensive proceedings, found all of the issues for the plaintiff, the seller Bead. It concluded that the contract required Bead to provide electrical contacts in accordance with the specifications in the initialed design drawing, rather than requiring Bead to design the contacts subject to the buyer Saxton's approval. Essentially, the court concluded that the basic responsibility for design rested with Jarmolow, Saxton's engineer, while Bead's responsibility was to manufacture goods in conformity with that design. The court also interpreted the contract's provision that tooling for these contacts was to be reserved for the "exclusive use" of Saxton, the court holding that despite Saxton's obligation to pay for the tooling, Bead was not required to turn over the tools it had made but merely to segregate the tools for Saxton's use. Finally the court determined that Saxton could not rely on contract provisions making time of the essence with regard to Bead's performance, when Saxton, by its conduct, had waived compliance with the delivery dates specified in the purchase order. Having thus concluded that Saxton was in breach in refusing to accept the tendered female contacts and in refusing to pay the tooling charges stipulated in the purchase order, the court awarded the plaintiff Bead damages in the amount of $8411 plus interest and costs. The defendant Saxton's appeal challenges each of these conclusions, in whole or in part.

Before we address the merits of the defendant's claims of error, we must observe that this case has been presented with virtually total disregard of the relevant provisions of our statutes, in particular Article 2 of the Uniform Commercial Code, General Statutes § 42a-2-101 et seq. While it is true that the Code incorporates, by reference, supplementary general principles of contract law and of the law merchant, § 42a-1-103, such supplemental bodies of law cannot displace those provisions of the Code that are directly applicable. Article 2 applies to all contracts for the sale of goods, whether those goods be existing at the time of sale or whether, as in this case, they are to be specially manufactured. See, e.g., §§ 42a-2-106(1); 42a-2-201(3)(a); 42a-2-704(2).

The defendant's first claim of error challenges the court's conclusion that the defendant waived contract provisions concerning the time for delivery. The defendant's purchase order made time of the essence, providing, "The dates of delivery in quantities herein specified are of the essence of this order, and delivery must be effected within the time specified. If deliveries are not made on time and in the quantities specified, Buyer reserves the right to cancel and to purchase elsewhere and hold Seller accountable therefor." At the trial, the defendant relied on this provision both as a defense to the plaintiff's claim for damages and as the basis of its counterclaim. We agree with the trial court that this clause, in the circumstances of this case, neither excused the defendant's nonperformance nor supported its own cause of action "because the defendant did not exercise its right to cancel in a timely fashion."

Under the Uniform Commercial Code, "(r)ejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller." General Statutes § 42a-2-602(1). Although a buyer must be afforded a reasonable opportunity to inspect goods to determine whether they should be rejected; §§ 42a-2-606(1)(b); 42a-2-513(1); he must exercise his right to inspect in a timely fashion. Section 42a-2-602 establishes a policy that requires the buyer to act with reasonable speed in determining whether to reject and requires prompt implementation of rejection by notification to the seller. See White & Summers, Uniform Commercial Code (2d Ed.) § 8-3, p. 309. The parties, in their contract, may establish guidelines to determine whether any action required by the Code has been taken within a reasonable time, but their agreement may only fix a time period "which is not manifestly unreasonable." § 42a-1-204(1).

Applying these statutory provisions to the case before us, we conclude that Saxton's protracted delay in rejecting the contacts tendered by Bead, coupled with its delay in notifying Bead of their alleged nonconformity, obligated Saxton to accept those deliveries. It would be manifestly unreasonable, in the circumstances of this case, to permit a printed time-is-the-essence clause in Saxton's contract form to extend for six months or more its opportunity to inspect and to reject. Cf. Q. Vandenberg & Sons, N.V. v. Siter, 204 Pa.Super. 392, 204 A.2d 494 (1964); Neville Chemical Co. v. Union Carbide Corporation, 422 F.2d 1205 (3d Cir. 1970). As White and Summers point out (p. 312), one of the relevant factors in determining timeliness is the course of performance between the parties after the sale but before the formal rejection. This course-of-conduct factor in effect incorporates the common law principles of waiver which the trial court found persuasive in this case. See, e.g., O'Loughlin v. Poli, 82 Conn. 427, 437, 74 A. 763 (1909). Contrary to the defendant's assertion, Saxton's silence in the face of Bead's deliveries now precludes it from complaining about defects, such as delay in delivery, that were readily apparent at the time of tender. ¹

The defendant's second claim of error argues that the trial court misinterpreted the provision of the purchase order which requires the buyer Saxton to pay Bead $3475 as fitting-up charges for tooling and gives Saxton "exclusive use without limitation of the part as shown in Sketch S-1318." The court held that this provision entitled Saxton to exclusive use only, and not to ownership, of the tools manufactured by Bead to produce the contacts. We agree.

The defendant relies on a printed provision in its purchase order that all tools "furnished or specifically paid for by buyer, shall be the property of the buyer...." The trial court may have found ambiguity in the relationship between this printed term and the typed clause on the second page of the purchase order expressly limiting Saxton's rights to exclusive use. The court's conclusion resolved this ambiguity in favor of the plaintiff Bead because of an earlier letter by Jarmolow for Saxton that the defendant was "prepared to pay for any special tooling with the understanding that this part will be manufactured for our exclusive use." No claim is now made, nor was it made at trial, that this letter was improperly introduced into evidence. Even if the purchase order is regarded as...