Continental Sand & Gravel, Inc. v. K & K Sand & Gravel, Inc., s. 83-2923
| Decision Date | 04 February 1985 |
| Docket Number | 83-2012,Nos. 83-2923,s. 83-2923 |
| Citation | 755 F.2d 87 |
| Parties | 40 UCC Rep.Serv. 387 CONTINENTAL SAND & GRAVEL, INC., an Illinois corporation, Plaintiff-Counterdefendant-Appellee, v. K & K SAND & GRAVEL, INC., an Indiana corporation, Curtis Kamminga, and Shirley Kamminga, Defendants-Counterplaintiffs-Appellants. CONTINENTAL SAND & GRAVEL, INC., an Illinois corporation, Plaintiff-Counterdefendant-Appellant, v. K & K SAND & GRAVEL, INC., an Indiana corporation, Curtis Kamminga, and Shirley Kamminga, Defendants-Counterplaintiffs-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Robert K. Blain, Altheimer & Gray, Chicago, Ill., for plaintiff-counterdefendant-appellee.
Alvin W. DeJong, Chicago, Ill., for defendants-counterplaintiffs-appellants.
Before BAUER and CUDAHY, Circuit Judges, and DOYLE, Senior District Judge. *
Plaintiff Continental Sand & Gravel Inc. ("Continental") sued for breach of express warranties made by defendants K & K Sand & Gravel, Inc. and Kurt and Shirley Kamminga in a written agreement for the sale of certain real and personal property. The defendants counterclaimed for the balance due on a related consulting agreement. At issue in this appeal are the trial court's determinations regarding the defendants' breach of various warranties, the appropriate measure of damages and the plaintiff's liability under the consulting agreement. We affirm the judgment of the district court and remand for consideration of attorneys' fees.
The defendants owned and operated a sand and gravel pit near Demotte, Indiana. In 1979, they agreed to sell the pit, together with various inventory and mobile equipment, to plaintiff Continental's parent company, which assigned all its rights under the agreement to Continental. After initial negotiations between the parties, Continental offered to purchase the defendants' assets for a total price of $650,000, which consisted of $320,000 for real estate and inventory, $280,000 for plant equipment, and $50,000 for mobile equipment. The final agreement was the same, except that the purchase price for the plant equipment was reduced to $80,000 from $280,000 and, to offset this, a consulting agreement was added under which Continental would pay defendants $60,000 per year for four years.
The mobile equipment, which was sold for $50,000, consisted of a 120B pay front-loader, a 120C pay front-loader, two cranes, a truck, a tractor, a trailer and a dredging barge. The defendants made various express warranties in the agreement, including that "the Purchased Assets are all in good order, condition and repair" and that "[t]here are no defects in the Purchased Assets which would materially affect the use thereof for the purpose for which the Purchased Assets are now used."
Continental purchased the sand and gravel business in March of 1979. Soon thereafter, when Continental began operations, one of its employees found that the mobile equipment was in poor repair and had been poorly maintained. In April, Continental's president visited the operation, and then wrote to one of the defendants, Mr. Kamminga, stating that the equipment was in poor condition. Between March and June 26, 1979, Continental incurred repair bills totaling more than $23,000. On June 26, a federal inspector found that one of the cranes was unsafe to operate, and shut production down. The plaintiff then rented a replacement crane and used it throughout the summer. In July, Continental wrote to defendants that in light of the poor condition of the mobile equipment, it believed the warranties pertaining to the equipment had been breached. It also submitted repair estimates on certain pieces of equipment, which totaled about $164,000.
The defendants apparently did not respond to Continental's letters. Continental subsequently decided to change its basic dredging operation rather than expend more money on repairing the equipment. Continental bought equipment that allowed it to pump sand and gravel out of the lake bed rather than digging the material out, and began the new operation in the spring of 1980. Also, based on its belief that defendants had breached the warranties pertaining to the mobile equipment, Continental refused to pay the $240,000 balance due to defendants under the Consulting Agreement.
The first set of issues involved in this appeal relates to whether defendants breached the warranties they made with respect to the condition of the mobile equipment. The district court found that during the first three months of operation, most of the mobile equipment was in working condition, but that certain pieces of equipment did not conform to the warranty that the equipment was in good condition and repair. In particular, the court found that the warranty was breached with respect to the dredging barge, which had been submerged in water and inoperable for several years, and the crane, which had been condemned by the federal inspector in June of 1979. The court also found that the warranty was breached as to the 120B pay loader.
The defendants contend that the lower court's finding that the warranties were breached was clearly erroneous because the evidence indicated that the equipment met the trade usage definition of equipment in "good" condition. The defendants placed in evidence a printed document distributed in the heavy equipment industry which they assert established that the trade usage definition of "good" equipment is that the equipment must be: Defendants claim that this definition was clearly met as to the crane and the pay loaders, since witnesses testifying about the condition of each responded affirmatively when asked whether those pieces of equipment were in operating condition, though they may have had worn parts that required repairing or replacing soon. In addition, defendants argue that most of the equipment clearly met the warranties since the equipment functioned during the first three months of the plaintiff's operation.
The district court's opinion does not indicate whether the court accepted defendants' proposed trade usage definitions of "good," "fair," etc. as controlling. We do not find this question particularly important, however, in light of the fact that the court expressly decided that the warranties made here were far broader than the mere representation that the equipment was in good condition and repair as of the date of sale; rather, the warranties extended beyond the date of purchase, and taken together were clearly intended to guarantee the continued operation of the sand and gravel equipment for an indefinite period. Thus, even if it were established that the equipment met the trade definition of "good" at the time of sale this fact alone would not demonstrate that the warranties were not breached. 1 The trial court carefully considered the language of the warranties as well as the used condition of the equipment in interpreting the warranties. 2 Moreover, the court extensively discussed conflicts in the evidence relating to the condition of each piece of equipment on the date of purchase, the length of time it remained operational if it ever was, and the cost of repairing it, as well as the amount of sand and gravel that the plaintiff was actually able to produce with the defective equipment. We find no error in the court's determination that the warranties were breached with regard to the 120B pay loader and other equipment. 3
The parties also assert various errors in the district court's computation of damages. The court used a repair cost formula in computing plaintiff's damages, and awarded $104,206.75, the cost of repairs that it found were necessary to bring the 120B pay loader, the crane and the dredging barge up to the warranted condition. The court refused to award consequential damages representing the plaintiff's lost profits, however, stating that the evidence as to lost profits was too speculative.
Defendants argue that, since the clear bargain of the parties was to sell and purchase the mobile equipment for $50,000, the plaintiff is only entitled to receive an amount of damages that represents the diminution in value from the purchase price as the result of the breach of warranty. In other words, defendants contend that the maximum amount of recoverable damages is the difference between the fair market value of the equipment as accepted, which they define as $50,000, and the fair market value of the equipment in the defective condition. Under this method of computing damages, Continental would be entitled to recover no more than the $50,000 purchase price, and as little as nothing, depending on the court's assessment of the value of the equipment in the defective condition. 4
The court below rejected this argument, and instead applied section 2-714(2) of the Illinois Uniform Commercial Code, ILL.REV.STAT., ch. 26, which provides that damages generally should represent the difference between the value of the goods at the time of acceptance and the value they would have had if they had been as warranted. The court stated that under this section the cost of repair is the proper standard. This was the correct approach under Illinois law, as well as under the general commercial law. Midland Supply Co. v. Ehret Plumbing & Heating Co., 108 Ill.App.3d 1120, 64 Ill.Dec. 601, 440 N.E.2d 153 (5th Dist.1982); Griese v. Cory Pools, Ltd., 58 Ill.App.3d 256, 15 Ill.Dec. 699, 373 N.E.2d 1383 (2d Dist.1978). As the district court noted, it is not unusual for damages in a breach of warranty case to exceed the purchase price of the goods. See Chatlos Systems, Inc. v. National Cash Register Corp., 670 F.2d 1304, 1306 (3d Cir.), cert. dis., 457 U.S. 1112, 102 S.Ct. 2918, 73 L.Ed.2d 1323 (1982). This...
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