Delano Growers' Co-op. Winery v. Supreme Wine Co., Inc.

Decision Date21 January 1985
Parties, 40 UCC Rep.Serv. 93 DELANO GROWERS' COOPERATIVE WINERY v. SUPREME WINE CO., INC.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Richard L. Neumeier, Boston (Leonard Zandrow, Boston, with him), for plaintiff.

Morris Michelson, Brookline, for defendant.

Before HENNESSEY, C.J., and LIACOS, NOLAN, LYNCH and O'CONNOR, JJ.

NOLAN, Justice.

The plaintiff, Delano Growers' Cooperative Winery (Delano), appeals from a final judgment dismissing its complaint and awarding $160,634, with interest, to the defendant, Supreme Wine Co., Inc. (Supreme), on its counterclaim. Supreme appeals from that portion of the judgment which granted Delano an "offset" of $25,823.25 to Supreme's damages under the counterclaim. For the reasons stated below, we affirm the judgment.

Delano filed a complaint in Suffolk County Superior Court seeking $25,823.25 for wine sold and delivered. Supreme admitted receipt of the wine and filed a counterclaim for breach of contract alleging that earlier shipments of wine for which payment had been made and all of the wine for which no payment had been made had spoiled due to the presence of lactobacillus trichodes (Fresno mold). As a defense, Supreme asserted that it did not owe Delano $25,823.25 because the wine was not merchantable. Supreme also sought incidental and consequential damages alleging that the "sick wine" destroyed its reputation and market thereby forcing the company into liquidation. 1

The case was referred, facts not final, to a master. The master found Delano responsible for the presence of Fresno mold in the wine and awarded damages. Although the master found that the spoiled wine caused Supreme's liquidation, he declined to award damages for lost good will. His view was that Supreme failed to carry its burden of proof as to the fair market value of the good will lost by Supreme.

The case was then tried to a judge without a jury. 2 The master's report and additional testimony were introduced. In a memorandum of decision and order, the judge made findings of fact and rulings of law coinciding with the master's report. Additionally, the judge found that Supreme could recover for its loss of good will and assessed additional damages of $100,000 for such good will. Judgment was entered dismissing Delano's complaint and awarding $160,634 on Supreme's counterclaim. Delano appealed to the Appeals Court and we transferred the case to this court on our own motion.

Delano argues on appeal that: (1) its motion to strike the master's report should have been granted; (2) the judge applied an erroneous standard in reviewing the master's findings; (3) Delano should have been awarded judgment for the contract price not paid plus interest and costs; (4) it did not violate the warranty of merchantability; (5) Supreme failed to provide timely and sufficient notice of breach; (6) the judge erred in awarding damages for lost good will and other incidental and consequential damages.

On cross-appeal, Supreme argues that: (1) the contract price should not have been deducted from its damages; (2) the judge erred in eliminating the master's award of damages for labels rendered worthless.

The facts as found by the master and accepted by the judge may be summarized as follows. Supreme operated a wine bottling plant in Boston from 1935 to November, 1978. It purchased finished wine, ready for bottling and consumption, from California, selling it to retailers after bottling under Supreme's label.

In 1968, Supreme began buying sweet wine from Delano, a California winery. By the spring of 1973, Supreme was purchasing all its sweet wine from Delano. Delano shipped this wine to Supreme's bottling plant in Boston in tank cars. When the wine arrived, Supreme took samples from each compartment of the tank cars. The samples were labeled, dated, sealed, and kept in Supreme's safe. Supreme then pumped the wine into redwood vats in its building. The wine was pumped through a filter into storage tanks from which it was later filtered into bottles for delivery.

Until April or May, 1973, Supreme did not experience any difficulty with Delano wine. Supreme then began receiving widespread returns of certain sweet wine from its customers. The wine was producing sediment, was cloudy, and contained a cottony or hairy substance. Supreme could identify the defective sweet wine as Delano wine because it purchased all its sweet wine from Delano. Supreme also matched the returned defective wine with the samples taken from the Delano wine on delivery. This identification was corroborated somewhat by shipment records, the dates of bottling and the color to which the Delano wine was blended.

Supreme made oral reports and complaints about the problem to Delano. It also sent Delano samples from the Delano shipment. When the help promised by Harold Roland, Delano's manager, did not materialize, Supreme purchased wine from another California grower in June, July, and August, 1973. Supreme bottled and sold that wine and received no complaints or returns on it. Roland, with renewed promises of assistance, induced Supreme to recommence purchasing from Delano in September, 1973.

Delano made four shipments of sweet wine to Supreme between September 28 and December 20, 1973. Each shipment invoice stated that payment was due forty-five days from the invoice date. Supreme paid all but the last invoice, which was in the amount of $25,823.25. It withheld payment for that amount as customers continued to return defective wine which was identified as Delano wine. When oral reports and complaints evoked no tangible help, Vito Bracciale, assistant to Supreme's president, wrote to Roland on April 9, 1974. This letter requested assistance and explained Supreme's crisis caused by the defective wine. The letter also indicated the high number of returns caused by this defective wine.

In response to this letter, Delano sent James Lunt, an assistant winemaker, to Supreme's bottling plant. His microscopic examination of the defective wine and a microscopic examination by Delano's chemist in California showed that the wine contained Fresno mold. Lunt had earlier observed the mold in the samples returned to Delano by Supreme. These were samples from the tank cars taken on arrival at Supreme and samples from wine returned by Supreme's customers.

While Lunt was at Supreme, customers returned a number of cases of Delano wine containing Fresno mold. After examining these returns, Lunt told Supreme to pasteurize, refilter, rebottle, and resell the defective wine. Supreme followed Lunt's directions and reprocessed 8,000 cases of spoiled wine (5,000 cases returned from customers and 3,000 cases still on hand). During this process, 1,000 cases were lost through breakage, spillage, and shrinkage. Supreme sold the remaining cases of reprocessed wine at a reduced rate.

1. The master's report. Delano asserts that the judge applied the wrong standard in reviewing the master's report and improperly denied its motion to strike that report. 3 Delano's argument is based on disassembling the judge's examination of the effect of the master's report. Taken out of context, certain statements in his memorandum might suggest that the judge took an erroneous view. However, the judge concluded properly that a "facts not final" report is admissible only as prima facie evidence. Levings v. Forbes & Wallace, Inc., 8 Mass.App.Ct. 498, 500, 396 N.E.2d 149 (1979). The judge considered additional evidence.

Delano argues that the judge's clear statement of the standard is contradicted by a footnote in his memorandum of decision. It contends that this indicates the judge applied the more restrictive "clearly erroneous" standard for "facts final" reports. This argument is not supported by a contextual reading of the memorandum of decision and order. The particular discussion alluded to concerned Delano's failure to conform to Rule 49(8) of the Superior Court (1978). This rule governed the procedure for asserting that a master's findings are not supported by the evidence. There are strict procedural requirements of the rule. Miller v. Winshall, 9 Mass.App.Ct. 312, 315-317, 400 N.E.2d 1306 (1980). Delano failed to meet these requirements. Therefore, the judge correctly refused to order the master to file a summary of the evidence. See rule 49(8); Miller, supra at 315-317, 400 N.E.2d 1306.

Delano, as the objecting party, had the burden of demonstrating that any asserted error appeared on the face of the master's report. Bills v. Nunno, 4 Mass.App.Ct. 279, 282-283 n. 3, 346 N.E.2d 718 (1976). Delano failed to meet its burden. Id. Therefore, the judge properly reviewed the master's report on its face. See Ball v. Williamson, 336 Mass. 547, 551, 146 N.E.2d 659 (1957). In reviewing the master's findings upon their face, the judge explicitly delimited these findings to the status of prima facie evidence. He did not treat the report as if the reference had been "facts final."

2. Delano's breach of the implied warranty of merchantability. This sale of wine by Delano is governed by the Uniform Commercial Code, G.L. c. 106. Delano impliedly warranted that the goods were of merchantable quality. G.L. c. 106, § 2-314. See Regina Grape Prods. Co. v. Supreme Wine Co., 357 Mass. 631, 635, 260 N.E.2d 219 (1970). This warranty required the wine to "pass without objection in the trade under the contract description" and be reasonably suited for ordinary uses for which goods of that kind are sold. G.L. c. 106, § 2-314(2)(a). See Vincent v. Nicholas E. Tsiknas Co., 337 Mass. 726, 729, 151 N.E.2d 263 (1958); Gilbert & Bennett Mfg. Co. v. Westinghouse Elec. Corp., 445 F.Supp. 537, 548 (D.Mass.1977).

The contract in this case required Delano to deliver "finished wine" to Supreme. Delano contends that, when it delivered wine that appeared good and which could be bottled, its obligation was satisfied. In...

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