Bedford Recycling, Inc. v. U.S. Granules Corp.

Citation634 N.E.2d 1361
Decision Date07 June 1994
Docket NumberNo. 50A04-9308-CV-283,50A04-9308-CV-283
PartiesBEDFORD RECYCLING, INC., Appellant-Plaintiff, v. U.S. GRANULES CORPORATION, Appellee-Defendant.
CourtCourt of Appeals of Indiana

Roy D. Burbrink, Stevens, Travis, Fortin, Lukenbill & Burbrink, Plymouth, for appellant.

James N. Clevenger, Kizer & Neu, Plymouth, for appellee.

RILEY, Judge.

STATEMENT OF THE CASE

Plaintiff-Appellant Bedford Recycling, Inc. (Bedford) appeals from the adverse judgment on its breach of contract claim against Defendant-Appellee U.S. Granules Corporation (Granules) and the judgment in favor of Granules on its counterclaim.

We affirm.

ISSUES

Bedford raises eight issues for our review. We consolidate and restate them as follows:

1. Whether Granules had a legal justification for avoiding performance under the contract.

2. Whether the trial court erred when it awarded damages to Granules on its counterclaim and denied damages to Bedford on its complaint.

FACTS AND PROCEDURAL HISTORY 1

In the Spring of 1988, both Bedford and Granules independently learned of an upcoming sale of scrap materials to be conducted by the Department of Defense Reutilization and Marketing Service. The sale included certain aluminum boring and turnings which were stored at Crane Naval Weapons Support Center (Crane). Both parties submitted bids for the purchase of the material, and Bedford was the eventual successful bidder.

After notice that Bedford was the successful bidder, Robert D. Beiter as a representative of Granules initiated negotiations on behalf of Granules for the purchase of the aluminum scrap boring and turnings from Bedford. 2 A meeting was eventually arranged on June 14, 1988, at Bedford. After Parsons showed no interest in selling the aluminum scrap to Granules, Beiter left. Later Immediately thereafter, both parties began performance of their respective promises under the contract. Parsons, having completed the remaining payment obligation to the United States Government, released to Granules the materials located at Crane. Granules had commenced its performance of payment obligations with the check enclosed in the letter of confirmation. Over the weekend Granules began transporting the materials to its Plymouth, Indiana, plant and began processing. 4 Granules contends that of the two loads that were delivered the materials were heavily oxidized.

                that night, Beiter made a purchase offer to Parsons of $0.54 per pound, which offer Parsons rejected.  The next day, June 15, 1988, Parsons and Beiter had further communication at which time Parsons accepted Granules' offer of $0.54 per pound but only agreed to sell half of the scrap materials which were located at Crane.  The other half of the materials had been transported from Crane to Needmore Processing, Inc. by Bedford's hauler.  Thus at this time, Bedford did not wish to sell the portion of the materials already transported to Needmore.  However, later on June 15, Parsons agreed to sell Granules the materials that had already been transported from Crane to Needmore. 3  The agreement was memorialized in a June 15, letter from Granules to Bedford.  Enclosed was payment of $30,240.00 for the 56,000 pounds of aluminum material located at Crane.  The agreement regarding the second half of the material which had been transported to Needmore was also addressed in the letter
                

On Monday morning, a representative of Granules at the direction of the owner of Granules, telephoned Parsons at Bedford and advised him that Granules was rejecting the goods because they were highly oxidized. Parsons immediately responded that Bedford considered this prospective non-performance by Granules as a breach of contract. This conversation was memorialized in a June 29, 1988, letter from Bedford's local counsel, Mr. Bruce A. Hewetson. Bedford attempted to mitigate damages by processing the remaining materials. On August 10, 1988, Bedford received $21,001.68 from Central Foundry for the remaining processed product.

Bedford initiated its breach of contract action against Granules in January, 1991, seeking damages in the amount of $17,238.72. Granules counterclaimed seeking damages in the amount of $13,703.45. After a bench trial, the trial court found against Bedford on its claim and for Granules on its counterclaim, awarding damages to Granules in the amount of $13,703.45. Bedford appeals. Additional facts will be provided as necessary.

STANDARD OF REVIEW

Because neither party requested special findings of fact and because the trial court did not gratuitously enter such findings, we will review the decision of the trial court under the general judgment standard. Ind.Trial Rule 52(A); Klebes v. Forest Lake Corp. (1993), Ind.App., 607 N.E.2d 978, 982, reh'g denied, trans. denied. A general judgment will be affirmed if it can be sustained upon any legal theory consistent with the evidence introduced at trial. Id. On appeal, we will neither reweigh the evidence nor rejudge the credibility of the witnesses. Emmons v. Brown (1992), Ind.App., 600 N.E.2d 133, 134.

DISCUSSION AND DECISION

I. Rejection/Revocation of Acceptance

We initially note that the transaction at issue involves the sale of goods between merchants. 5 The parties agree that the Uniform Bedford first contends that the trial court erred because it failed to recognize the existence of a valid contract between the parties and the subsequent breach by Granules. As we see it, the existence of a valid contract is not in dispute. Rather, the disputed issue is whether Granules had a legal justification for avoiding performance under the agreement.

                Commercial Code, Article 2 is controlling. 6  We further note that it is undisputed that an agreement was reached whereby Granules agreed to purchase and Bedford agreed to sell aluminum scrap
                

Granules argues that it made either a valid rejection or revocation of acceptance of the goods. The Code provides that Granules, as buyer, had the right upon delivery of the material either to reject all of it, accept all of it, or accept any commercial unit or units and reject the rest "if the goods or the tender of delivery fail[ed] in any respect to conform to the contract." I.C. 26-1-2-601 (1993). The Code further provides as follows:

(1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.

(2) Subject to the provisions of the sections on rejected goods (citations omitted):

(a) after rejection, any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and

(b) if the buyer has before rejection taken physical possession of goods in which he does not have a security interest ... he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but

(c) the buyer has no further obligations with regard to goods rightfully rejected.

(3) The seller's rights with respect to goods wrongfully rejected are governed by the provisions of I.C. 26-1-2-703 on seller's remedies in general.

I.C. 26-1-2-602 (1993). The Code provision on revocation of acceptance provides as follows:

(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it

(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.

(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.

(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

I.C. 26-1-2-608 (1988).

The first requirement for a valid rejection or revocation of acceptance is that the goods be "non-conforming." The Code defines conforming goods as goods that are "in accordance with the obligations under the contract." I.C. 26-1-2-106(2). The question then is whether there was a "non-conformity" within the meaning of the Code upon which to premise a rejection, or alternatively a revocation of acceptance. Granules contends that the tendered material was aluminum oxide rather than the reactive metal aluminum material contemplated by the agreement.

It is clearly stated in section 608 that revocation of acceptance applies where the non-conformity substantially impairs the value of the goods to the buyer. The test then "is not what the seller had reason to know at the time of contracting; the question is whether the non-conformity is such as will in fact cause a substantial impairment of value The burden of proof is unambiguously on the buyer to establish breach after acceptance. I.C. 26-1-2-607(4); McClure Oil v. Murray Equipment, Inc. (1987), Ind.App., 515 N.E.2d 546, 553, reh'g denied. The record reveals that Granules had a specific need for aluminum scrap material in order to manufacture aluminum and sell it to a manufacturer of ammonium nitrate fuel oil, an explosive. Beiter concedes that at no time did he ever express to Parsons any quality specifications necessary for Granules to accept the goods. The parties never discussed recovery rates either. Beiter testified that with the benefit of hindsight, he wishes he had expressed a quality standard to Parsons regarding the scrap. However, he further testifies that he would not expect someone in the scrap business to deliver corroded material, i.e. aluminum oxide, when the buyer was unambiguously seeking aluminum material.

                to the buyer though the
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