Dale R. Horning Co. v. Falconer Glass Industries

• Decision Date: 25 January 1990
• Docket Number: No. IP88-502-C.,IP88-502-C.
• Citation: 730 F. Supp. 962
• Parties: DALE R. HORNING CO., INC., d/b/a Architectural Glass & Metal Co., Plaintiff, v. FALCONER GLASS INDUSTRIES, INC., Defendant.
• Court: U.S. District Court — Southern District of Indiana

730 F. Supp. 962

DALE R. HORNING CO., INC., d/b/a Architectural Glass & Metal Co., Plaintiff, v. FALCONER GLASS INDUSTRIES, INC., Defendant.

No. IP88-502-C.

United States District Court, S.D. Indiana, Indianapolis Division.

January 25, 1990.

Bill Kennedy and Heather McPherson, Kothe Claycombe Kortepeter & McPherson, Indianapolis, Ind., for plaintiff.

Gerald A. Wunsch and Cynthia Wodock, White & Raub, Indianapolis, Ind., for defendant.

ORDER ON BENCH TRIAL

McKINNEY, District Judge.

This cause comes before the Court after a two day bench trial on the merits on December 18-19, 1989. The plaintiff's complaint seeks recovery of consequential damages for breach of warranty under the Uniform Commercial Code. After hearing the evidence and reviewing the law, the Court now makes the following findings of fact and conclusions of law.

I. Findings of Fact:

Plaintiff Architectural Glass & Metal Company ("AGM") is an Indiana corporation engaged in the business of installing and glazing commercial glass products. During the summer of 1986, AGM was a subcontractor on the Finance Federal Credit Union construction project in Indianapolis. AGM was to install a curtain wall and other glass in the building, and time was of the essence for AGM because the building could not be completely enclosed until AGM was finished. Pursuant to its sub-contract agreement, AGM would incur daily penalties of $150.00 and possibly be terminated as the glazing subcontractor if it did not meet deadlines. AGM was to be substantially finished with its work by October 3, 1986.

On August 4, 1986, Greg Menefee, then president of AGM, telephoned defendant Falconer Glass, a New York corporation. AGM ordered a quantity of ¼ inch Spandrel, a ceramic-backed glass product. The Spandrel was to be used at AGM's credit union job site. The parties agreed by phone that the product would be delivered by Falconer within three to four weeks of being ordered. There was no discussion of limiting remedies or disclaiming warranties over the phone. Based on Falconer's experience in the industry and the context of AGM's order, Falconer knew or had reason to know of the buyer's general or particular requirements at the time of contracting.

The next day, AGM sent Falconer a confirming order form. This document contained no language regarding warranties or damages, and noted in handwriting that shipment was to be on an "as needed" basis. At the same time, Falconer sent off its form to subcontractor AGM. The front side of Falconer's form indicated that it confirmed "verbal 8/4/86," that the product was due in "3rd Qtr.1986," and that manufacturing time would be four weeks.

Falconer's standard form contained fine print on the reverse side, with 16 separate paragraphs under the heading "General Terms and Conditions of Sale." Paragraph 7 recited that the product would be free from defects. Paragraph 8, however added that the buyer's "exclusive and sole remedy" for defective goods "shall be to secure replacement...." It also added that the seller shall not be liable for "special, direct, indirect, incidental or consequential damages...." This language was in the same small print as the rest of the terms, and was not underlined, bold-faced, or set forth in capital letters.

Later on in the month of August, AGM provided Falconer with the precise dimensions for the Spandrel panels. On September 23, 1986, defendant Falconer delivered a shipment of defective Spandrel to AGM. Upon timely inspection AGM determined that some of the glass was defective. AGM notified Falconer, and attempted to correct the defects per Falconer's instructions. Gregory Hass, then an officer of AGM, contacted Falconer and informed them that AGM was going to temporarily install the glass to enclose the structure by the deadline date. If the first shipment had been satisfactory, AGM would have completed the project on time and without extra cost. Falconer's first shipment to AGM was timely under the contract as it was made within four weeks of the date the specifications were given to Falconer.

Hass told Carlo Carmen, Falconer's manufacturing manager, that Falconer would be liable for AGM's extra costs, and Carmen did not object. Hass presumed that Carmen had the authority to bind Falconer, and Hass believed that Falconer would pay AGM's extra costs stemming from the defective glass. AGM then temporarily installed the Spandrel in order to keep the construction project on schedule and to avoid incurring other costs such as heating expenses. Approximately 37 replacement panels were then shipped on September 29, 1986.

Carmen came to Indianapolis at some point to inspect the glass. Hass picked Carmen up at the airport and the drove to the job site. Hass mentioned the extra charges that would be incurred, and indicated to Carmen that AGM would hold Falconer responsible. Carmen did not object or otherwise respond in any fashion.

Later, AGM's manager, Greg Menefee, stated to Carl Defenderfer, Falconer's mid-western sales representative, that AGM expected Falconer to pay for the extra costs incurred by AGM because of the defects in the product. Defenderfer agreed that Falconer should be responsible but said "take it easy on us."

Through late 1986 and early 1987, several corrective shipments were sent by Falconer to AGM, and on several occasions AGM had to remove defective glass and install new product in its place. During this time, AGM paid for the preparation and installation of the defective glass, the preparation of the replacement product, the removal of the defective glass, and the permanent installation of the replacement glass. AGM eventually invoiced Falconer for the charges relating to the Spandrel installation less the expenses and charges that would have been incurred had the original shipment been satisfactory. AGM's invoice was in the sum of $19,415.67.

No agent or employee of AGM was aware of the restrictive terms and conditions on the back of Falconer's forms, although AGM representatives did know that Falconer and other suppliers placed terms and conditions on the back of their forms. AGM was not expressly aware of the limitation on consequential damages contained on the confirmation form sent by Falconer in this transaction.

In the commercial glass industry, it is common practice for suppliers to place restrictive warranty terms on the back of their forms. Despite such standard terms, suppliers will often work with the buyer to help cover some or all of the extra costs incurred when the product is defective. On several occasions, Greg Menefee has been involved in projects where Falconer or other glass suppliers have paid for extras due to defects in their products. Commercial glass subcontractors are routinely subject to additional costs if their own work is unsatisfactory or untimely.

II. Discussion:

As this Court discussed at length in an earlier opinion, a key issue in this case is whether Falconer's limitation of consequential damages contained on its standard form is a term of the parties' contract under the Code. Resolution of this issue is a question of fact that depends upon the evidence in the case as applied to several key provisions of the Code.¹

The starting point must be § 2-715 of the Code, which provides that consequential damages may be recovered by the buyer for "any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise." The drafters of § 2-715 commented that there need not be a "conscious acceptance of an insurer's liability on the seller's part, nor is his obligation for consequential damages limited to cases in which he fails to use due effort in good faith." Uniform Commercial Code Comment to § 2-715. Thus, "Any seller who does not wish to take the risk of consequential damages has available the Section 2-719 on contractual limitation of remedy." Id.

In this case, then, because there was no specific agreement reached as to consequential damages on August 4, 1986, and because Falconer knew or had reason to know of AGM's general or particular requirements at that time and such extra costs could not be avoided by cover or otherwise, the initial premise must be that, as of August 4, 1986, AGM could recover consequential damages under § 2-715 of the Code.

On August 5, 1986, however, Falconer dispatched one of its standard forms to AGM and attempted to exclude consequential damages per its fine print on the reverse of the document. This raises the question of whether these terms become a part of the parties agreement by operation of law under § 2-207.

A. Battle of the forms under § 2-207:

As set forth in this Court's previous opinion, the central issue in this case is whether these additional or different terms become part of the parties' contract. Section 2-207(2) provides that where, as here, both parties are merchants, such terms become part of the contract unless they materially alter the prior agreement. The standard for resolving this question is well settled. An additional term is said to materially alter a contract "if its incorporation into the contract without express awareness by the other party would result in surprise or hardship." Maxon Corp. v. Tyler Pipe Industries, Inc., 497 N.E.2d 570, 576 (Ind.App.1986); accord, Greenberg, Rights and Remedies Under U.C.C. Article 2, at 75 (1987); Annot., What Are Additional Terms Materially Altering Contract Within Meaning of UCC § 2-207(b), 72 A.L.R.3d 479, 483 (1976).

As this Court ruled at the summary judgment stage, the case law makes it clear that the seller's attempt to limit the implied warranty of merchantability operates to materially alter the prior agreement as a matter of law. See Official Comment 4 to § 2-207; Twin Disc, Inc. v. Big Bud Tractor, 772 F.2d 1329, 1334 (7th Cir.1985). The case law on consequential damages, however, is not in total...