Erie Casein Co., Inc. v. Anric Corp.

• Decision Date: 23 August 1991
• Docket Number: No. 3-90-0377,3-90-0377
• Citation: 577 N.E.2d 892,217 Ill.App.3d 602
• Parties: , 160 Ill.Dec. 567, 15 UCC Rep.Serv.2d 1240 ERIE CASEIN COMPANY, INC., Appellee, v. ANRIC CORPORATION, Appellant.
• Court: United States Appellate Court of Illinois

Page 892

577 N.E.2d 892

217 Ill.App.3d 602, 160 Ill.Dec. 567,

15 UCC Rep.Serv.2d 1240

ERIE CASEIN COMPANY, INC., Appellee, v. ANRIC CORPORATION, Appellant.

No. 3-90-0377.

Appellate Court of Illinois Third District.

Aug. 23, 1991.

Peter C. Fieweger (argued), Katz, McAndrews, Durkee, Lefstein & Fieweger, P.C., Rock Island, for Anric Corp.

John A. Guzzardo (argued), Ward, Murray, Pace & Johnson, P.C., Sterling, for Erie Casein Co., Inc.

Justice McCUSKEY delivered the opinion of the court:

Plaintiff, Erie Casein Company, Inc., is a buyer of casein for use as food and feed ingredients. Defendant, Anric Corporation, buys and resells casein on a wholesale basis. Defendant appeals from the trial court's award of money damages to plaintiff for defendant's breach of contracts to supply casein. The primary issue presented is whether plaintiff failed to mitigate damages by not timely obtaining substitute casein. The trial court found that plaintiff properly effected cover, and we affirm.

In January 1986, the parties entered into the first of three contracts for the sale of casein by defendant to plaintiff. In the first contract, plaintiff agreed to purchase 330,000 pounds of New Zealand casein from defendant at $0.805 per pound for delivery in March 1986 (Contract A). Although defendant eventually delivered all of the New Zealand casein contracted for, defendant was unable to meet the March 1986 delivery date.

In May 1986, plaintiff's vice president and plaintiff's purchasing agent met with defendant's president to discuss defendant's failure to timely fulfill Contract A. Plaintiff declined defendant's offer to supply a different type of casein, but advised defendant that continuing efforts should be made to fulfill Contract A with the New Zealand casein originally contracted for. Thereafter, the parties maintained telephone contact concerning defendant's efforts to supply plaintiff with the Contract A casein.

In November and December 1986, defendant delivered approximately 126,000 pounds of Irish and New Zealand casein in partial fulfillment of Contract A, and received payment from plaintiff at the Contract A price.

With Contract A only partially completed, the parties entered into a second contract (Contract B) in February 1987 for 165,000 pounds of New Zealand casein at $1.0725 per pound for delivery not later than the end of March 1987.

In March 1987 the parties entered into a third and final contract (Contract C) for 80,000 pounds of Irish casein at $1.0975 per pound for delivery in the middle of March 1987.

During the first two weeks of March 1987, defendant delivered various quantities of casein sufficient to meet the remaining quantity called for under the terms of Contract A, and all but 10,802 pounds of the quantity called for in Contract C.

Plaintiff's vice president and defendant's president met again in April 1987. Defendant's president acknowledged that his company would not be able to supply any New Zealand casein at that time, but said the casein could be available in late 1987.

Following the March 1987 deliveries, defendant's president had several telephone conversations with plaintiff's purchasing agent concerning payment of the now outstanding invoices from those deliveries. The parties agreed that the invoices would be paid at the Contract A price, with additional quantities paid at the Contract C price. Upon plaintiff's receipt from defendant of written confirmation of the modification, plaintiff wired payment to defendant's bank.

Defendant still showed a deficiency of approximately $55,000 as a result of plaintiff's payment at the Contract A price for defendant's deliveries of casein originally intended to fulfill Contracts B and C. Following discussions by the parties, defendant's president executed a promissory note in July 1987 in the principal amount of $54,927.43. The promissory note was in the exact amount of the deficiency resulting from plaintiff's payment at the Contract A price for the Contract B and Contract C casein.

Defendant never delivered the remaining 10,802 pounds due under Contract C, nor any amounts due under Contract B. To fulfill its need for additional casein, plaintiff attempted to purchase casein on the open market. By the time comparable casein was available for purchase in August 1987, the price had risen to $1.45 per pound.

In November 1987, plaintiff filed a complaint to recover damages resulting from defendant's failure to deliver the casein due under Contracts B and C. Defendant raised as an affirmative defense plaintiff's failure to mitigate damages by not obtaining substitute casein without unreasonable delay. Defendant also counterclaimed for unpaid charges from casein delivered under Contracts B and C. The trial court, sitting without a jury, entered judgment in favor of plaintiff in the amount of $66,095.20, and against defendant on its counterclaim. Defendant appeals. We affirm.

Defendant presents three issues for review:

(1) Whether plaintiff failed to mitigate damages by not obtaining substitute casein;

(2) Whether the parties modified Contract A to include a rescission of part of the contract; and

(3) Whether defendant's agreement to modify Contracts B and C resulted from economic duress imposed by plaintiff.

Defendant maintains that provisions of the Uniform Commercial Code and Illinois case law require plaintiff to obtain substitute casein within a reasonable commercial time and without unreasonable delay. Defendant argues that plaintiff should have effected cover following the first meeting between the parties in May 1986.

A buyer effects cover, under the Uniform Commercial Code, by "making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller." Ill.Rev.Stat.1989, ch. 26, par. 2-712(1).

According to the official comment to section 2-712 of the Code, "[t]he requirement that the buyer must cover 'without unreasonable delay' is not intended to limit the time necessary for him to look around and decide as to how he may best effect cover. The test here is similar to that generally used in this Article as to reasonable time and seasonable action." (Ill.Ann.Stat., ch. 26, par. 2-712, Uniform Commercial Code Comment 2, at 561 (Smith-Hurd 1963).) Section 1-204 of the Code states that "a reasonable time for taking any action depends on the nature, purpose and circumstances of such action", and that "[a]n action is taken 'seasonably' when it is taken[,] * * * if no time is agreed[,] within a reasonable time." Ill.Rev.Stat.1989, ch. 26, par. 1-204(2), (3).

We agree with the trial court's finding that plaintiff reasonably relied upon defendant's continued assurances that the Contract A casein (originally scheduled to be supplied in March 1986) would eventually be delivered. The trial court properly found that plaintiff had no duty to effect cover prior to April 1987 when defendant first acknowledged at a meeting between the parties that it would be unable to deliver the casein. Upon being so informed, plaintiff made efforts to obtain substitute goods. Despite plaintiff's attempts, sufficient casein was not available until August 1987 because of a market shortage. Under these circumstances, we do not find the delay unreasonable. We find, therefore, that the trial court properly awarded damages based upon the August 1987 market price of $1.45 per pound. See Lyntel Products, Inc. v. Alcan Aluminum Corp. (1981), 107 Ill.App.3d 176, 63 Ill.Dec. 4, 437 N.E.2d 653.

Defendant cannot complain about the plaintiff effecting cover in a rising market, since plaintiff apparently experienced the same difficulties obtaining substitute casein that defendant did in first attempting to supply the Contract B and Contract C casein. Comment 2 to section 2-712 of the Code provides "[t]he test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective." Ill.Ann.Stat., ch. 26, par. 2-712, Uniform Commercial Code Comment 2, at 561 (Smith-Hurd 1963).

Defendant argues the parties modified Contract A to provide that New Zealand casein need only be delivered if casein became available to defendant from its supplier. Defendant also argues the contract was rescinded following the partial deliveries in November and December 1986. Defendant maintains that from the parties' meeting in May 1986, it was clear to both that defendant could not perform Contract A. However, the trial court specifically found it was not until April 1987 that defendant acknowledged his inability to obtain casein from its New Zealand supplier. The trial court also found the parties applied a portion of the March...