Clark v. Ferro Corporation

• Decision Date: 29 December 1964
• Docket Number: Civ. A. No. 3783.
• Citation: 237 F. Supp. 230
• Parties: William F. CLARK, Trustee in bankruptcy for Hood Ceramic Corporation v. FERRO CORPORATION.
• Court: U.S. District Court — Eastern District of Tennessee

237 F. Supp. 230

William F. CLARK, Trustee in bankruptcy for Hood Ceramic Corporation v. FERRO CORPORATION.

Civ. A. No. 3783.

United States District Court E. D. Tennessee, S. D.

December 29, 1964.

Spears, Moore, Rebman & Williams, Chattanooga, Tenn., for plaintiff.

Folts, Bishop, Thomas, Leitner & Mann, Chattanooga, Tenn., for defendant.

FRANK W. WILSON, District Judge.

In this case the plaintiff, William F. Clark, acting in his capacity as trustee in bankruptcy for Hood Ceramic Corporation (hereinafter referred to as "Hood"), seeks to recover damages from the defendant, Ferro Corporation (hereinafter referred to as "Ferro"), for the alleged breach of contract for the design and construction of a kiln used in the manufacture of quarry tile. A counterclaim has been filed by the defendant in which it is alleged that Hood is indebted unto the defendant in the sum of $4,247.78 on an open account and the further sum of $25,000.00 plus interest and attorney fees due upon a note. The case was tried by the Court sitting without a jury.

The plaintiff, Hood Ceramic Corporation, formerly known as the B. Miflin Hood Company, was for many years engaged in the production and sale of quarry tile, along with related products, with its plant located at Daisy, Tennessee. Quarry tile is a form of tile used in construction, particularly in tile floor construction, it being most often seen in red and buff color. It appears that Hood was at one time perhaps the largest producer of this type of tile in the United States, manufacturing in excess of 30% of the total production of this tile in the nation. For many years, in fact until 1958, the plaintiff fired its tile in periodic kilns, described as "beehive" kilns by reason of their appearance. In more recent years a continuous kiln, known as a "tunnel" kiln, also by reason of its appearance, had been developed in the industry and installed by many of Hood's competitors so that by 1949 Hood found itself in a poor competitive position and rapidly losing its dominance in the market. It thereupon undertook negotiations with the defendant for the design and installation of a tunnel kiln, which negotiations ultimately and after lengthy delays, due in part to the ill health of the president of Hood and in part to Hood's difficulty in financing construction of a new kiln, led to the execution under date of May 7, 1957, of the contract herein sued upon. The defendant, Ferro Corporation, through its Allied Engineering Division, with offices located in Cleveland, Ohio, is engaged in the business of designing and constructing kilns for the production of quarry tile. It appears to bear a most favorable reputation in the field of designing and constructing tunnel kilns. As noted above, negotiations between the parties extended over a period of years, but ultimately resulted in the execution of a contract under date of May 7, 1957. By the terms of this contract the defendant was to design and construct a tunnel kiln for Hood at its plant in Daisy, Tennessee, for the price of $190,000.00. Attached to and made a part of the contract was a set of general specifications relating to the kiln, including the following:

"SIZE OF KILN — Length of Kiln — 250'-0" plus two track 67'-8" Preheater Setting width — 58" Setting height — 21" above dock OPERATING TEMPERATURE — Cone 10 or lower ESTIMATED PRODUCTION-5000 square feet 6" × 6" per 24 hours ESTIMATED TOTAL FIRING CYCLE — 78 hours ESTIMATED SCHEDULE — 2 hours and 10 minutes per car"

Certain site preparation was to be performed by Hood, including construction of a building to house the kiln. This work was duly performed by Hood and upon September 30, 1957, the design of the kiln having been completed, construction of the kiln was begun. Construction of the kiln was completed upon January 10, 1958.

Thereafter one or more persons from Ferro remained upon the site to supervise the starting of the kiln and to make adjustments necessary to put the kiln into proper operation. Many problems were encountered, as testified to in the proof, with a result that it was not until December 1958 that the last of the Ferro personnel departed, leaving the further operation of the kiln unto Hood. Payment of the contract price of $190,000.00 was made by Hood to Ferro from the proceeds of a loan obtained by Hood from the Small Business Administration. The right of Hood to make claim against Ferro for any alleged breach of contract was expressly reserved at the time of the final payment. Following the turning over of the kiln to Hood, both production and financial problems continued to be encountered by Hood with the result that in August of 1961 a voluntary petition in bankruptcy was filed and Hood was adjudged a bankrupt. This lawsuit was instituted about the same time and was adopted by the trustee in bankruptcy.

There appears to be no dispute with regard to the amounts claimed by Ferro in its counter-claim. The amount of $4,247.78 is owed by Hood upon open account. The note for $25,000.00 represents a loan made by Ferro to Hood in 1958 when Hood was in need of operating capital. An issue was raised by the plaintiff with regard to the right of Ferro to assert their claim in this case rather than filing the claim in bankruptcy, but the law appears to be settled that the right of setoff or counter-claim to which a debtor of a bankrupt is entitled may be asserted in any court in which the trustee sues to recover a debt owing unto the bankrupt estate. 9 Am.Jur.2d Bankruptcy, Sec. 519; 11 U.S.C.A. § 108; Smith v. Hale, 56 S.D. 12, 227 N.W. 373; Blake v. Weiden, 291 N.Y. 134, 51 N.E.2d 677, 149 A.L.R. 1050; In Re Field Heating & Ventilating Co., Inc., 201 F.2d 316 (C.C.A. 7, 1953).

There are three major issues raised in the trial of this case which require decision by the Court. The first issue involves the construction of the contract entered into by the parties for the design and erection of the kiln. The plaintiff contends that the defendant contracted to design and erect a tunnel kiln that would have a firing cycle of 78 hours, would operate on a schedule of one kiln car each two hours and ten minutes, and fire a minimum of 5,000 square feet of 6" × 6" × ¾" quarry tile or a minimum of 7,500 square feet of 6" × 6" × ½" quarry tile in a 24 hour period, seven days a week and 365 days a year, and that the tile thus produced would be not less than 95% standard or marketable grade. In arriving at this construction of the contract, the plaintiff further contends that the contract in its specifications is ambiguous and that parol evidence of prior negotiations is admissible in arriving at a construction of the contract. The defendant upon the other hand contends that its obligation under the contract was only to properly design a kiln along the lines described in the specifications, in which the production schedule and quantity were only estimates, and then erect the kiln in accordance with that design. The defendant denies that it specified that it would construct a kiln that would produce any particular percentage of marketable or standard grade tile and contends that no ambiguity exists in the contract in this respect which would render admissible parol evidence to vary or add to the specifications in this regard, but rather that paragraph X of the contract specifically provided that the written agreement constituted the whole agreement between the parties. The defendant further denies that the parol evidence relied upon by the plaintiff would in fact establish any specification with regard to the production of a minimum percentage of marketable or standard grade tile.

The second major issue for decision by the Court is as to whether the evidence establishes a breach of contract by the defendant. In this regard the plaintiff has introduced evidence which it contends establishes that only 41.25% of the tile fired through the kiln from January 1, 1958, through August 21, 1961, the date of bankruptcy, was of standard or marketable grade, with the kiln, by reason of defective design and construction, causing cracking or other defects in the remaining tile fired through it. The defendant, upon the other hand, contends that no breach of the contract has been shown, that the evidence establishes that after the initial adjustment of the kiln in operation, the kiln operated satisfactorily, produced up to 80% to 95% standard grade tile, with cracking and defects in the tile being caused not by the design and operation of the kiln, but rather by the plaintiff's other antiquated equipment and methods and by numerous other production faults and errors.

The third major issue for decision by the Court relates to the measure and proof of damages. The plaintiff contends that the law entitles it to recover for sums spent by it in an effort to bring the kiln up to specifications and for the loss of profits on the sale of tile due to the failure of the kiln to produce marketable or standard grade tile in accordance with the specifications. The defendant denies that the plaintiff is entitled either by law or under the provisions of the contract to recover for any alleged loss of profits on the sale of tile, denies that the plaintiff has introduced any competent evidence of expenditures by it in the repair of any defect in the design or construction of the kiln and denies that the plaintiff has introduced any competent evidence of profits alleged to have been lost or that they were lost by reason of any cause attributable to the kiln.

Returning to the issue of the construction of the contract, the Court is of the opinion that the specifications are ambiguous with regard to the production to be designed and constructed into the kiln and that parol evidence upon this issue was properly admitted. 20 Am. Jur., Evidence, Sec. 1147. The contract specifies "estimated production — 5000 square feet 6" × 6" per 24 hours". Only two dimensions of the tile are given in this specification,...