Figueroa v. Kit-San Co.

• Court: Idaho Court of Appeals
• Writing for the Court: WALTERS
• Citation: Figueroa v. Kit-San Co., 123 Idaho 149, 845 P.2d 567 (Idaho App. 1992)
• Decision Date: 06 July 1992
• Docket Number: 18872,KIT-SAN,Nos. 18325,s. 18325
• Parties: , 20 UCC Rep.Serv.2d 799 Manuel FIGUEROA, dba Friendship Truck Express, Plaintiff-Respondent, v.COMPANY, aka Kit-San Azusa, Inc., and the Travelers Indemnity Company, Defendants-Appellants. H & H BENTONITE AND MUD, INC., Plaintiff-Respondent, v.COMPANY, aka Kit-San Azusa, Inc., and the Travelers Indemnity Company, Defendants-Appellants.

Page 567

845 P.2d 567

123 Idaho 149, 20 UCC Rep.Serv.2d 799

Manuel FIGUEROA, dba Friendship Truck Express, Plaintiff-Respondent, v. KIT-SAN COMPANY, aka Kit-San Azusa, Inc., and the Travelers Indemnity Company, Defendants-Appellants.

H & H BENTONITE AND MUD, INC., Plaintiff-Respondent, v. KIT-SAN COMPANY, aka Kit-San Azusa, Inc., and the Travelers Indemnity Company, Defendants-Appellants.

Nos. 18325, 18872.

Court of Appeals of Idaho.

July 6, 1992.

Rehearing Denied Dec. 11, 1992.

Petition for Review Denied Feb. 18, 1993.

Randall, Blake, Cox, Risley & Trout, Lewiston, for defendants-appellants. Kim Jay Trout, argued.

Marcus, Merrick & Montgomery, Boise, for plaintiffs-respondents. Gale M. Merrick, argued.

WALTERS, Chief Judge.

This is a breach of contract case involving the seller of a special type of clay called bentonite, the trucking company that shipped the clay, and the buyer who intended to use the clay to line a sewage treatment lagoon. The clay was supplied and shipped, but ultimately was not used because it allegedly did not meet specifications. The buyer did not pay for the clay or the shipping. The seller and the trucking company sued the buyer, who defended and filed a third-party action against the seller asserting that the clay was not the quality promised and the seller was the only party who had contracted with the trucking company. The cases were consolidated, the third-party complaint was dismissed, and the district court entered judgments in favor of the seller and the trucking company. The buyer appeals. We reverse.

FACTS AND PROCEDURAL BACKGROUND

In July, 1984, appellant Kit-San Azusa Company (Kit-San), defendant/third-party plaintiff below, won a contract to expand the wastewater treatment facilities for the city of St. Maries, Idaho. The first step in the project was to build a 24 acre "polishing lagoon." Due to weather and the water table at the site, the lagoon had to be built in the late summer or early fall, when the ground was driest. To build the lagoon, Kit-San was required to use a type of clay called bentonite, which occurs naturally in Wyoming and Utah and is used because it swells when exposed to water and makes a good natural sealant. Sometimes, however, bentonite must be treated with inorganic polymers to provide a good seal.

Brown and Caldwell, the city's engineering firm, specified that Kit-San use a "high swelling sodium based Wyoming bentonite containing an optimum level of anionic or non-ionic organic polymer," having a specific fineness grade and not allowing a seepage rate in excess of 1 X 10-7 centimeters per second. Kit-San was required to submit test results from the bentonite supplier showing that bentonite similar to that furnished was tested within the last year and met all the specified requirements, including a 200 day permeability test.

During the spring of 1984, H & H Bentonite and Mud, Inc., (H & H), the respondent/plaintiff/third-party defendant, learned of Kit-San's involvement in the project. On April 25, 1984, a salesman at H & H, Robert McClung, sent a letter to Kit-San addressed "To Whom It May Concern" and quoting prices for various types of bentonite. The letter stated that H & H had been in contact with Brown and Caldwell about the project and enclosed a brochure describing some of the qualities of H & H bentonite, which was available from Salina, Utah. The brochure stated that, "It usually takes 2-3 lbs. per square foot of this bentonite to meet the EPA requirement of 10-7." In the letter, McClung stated, "We ask that you pay freight companies directly. If you can help get better rates, great!"

Kit-San also considered a proposal from another supplier, American Colloid, for the use of Wyoming polymered bentonite. Kit-San eventually was awarded the contract for the construction of the sewage lagoon upon its proposal to use American Colloid's bentonite at prices quoted to Kit-San by American Colloid. The projected application rate was 2.3 lbs. per square foot based on this product. Unfortunately, when the time came for actual purchase and delivery, no trucks were available, causing a construction delay. The delay was exacerbated by extra time spent dealing with a soil compaction problem and an error setting grade stakes for the lagoon. Ultimately, because of the trucking problem, Kit-San sought an alternative supplier of bentonite, resulting in renewed negotiations with H & H.

Richard Imus, the person at Kit-San responsible for the project, became aware of McClung's letter from H & H. On October 9, 1984, Imus phoned H & H and talked to its president, Douglas Hawke. Gene Johnson, the project engineer from Brown and Caldwell, was with Imus during the conversation. Before the call was made, Johnson told Imus that he, Johnson, did not know the quality of the H & H bentonite, that it would have to equal the quality of American Colloid's product, and if Imus ordered the material from H & H he was doing so at his own risk. He also told Imus that the H & H bentonite would have to be tested upon arrival and would have to meet specifications.

During the phone call, Hawke offered Imus a delivered price of $80.00 per ton, including freight. Based on Kit-San's urgent need and H & H's representations that its bentonite was "as good or better than American Colloid bentonite," Imus accepted the offer, f.o.b. St. Maries, and ordered 1,150 tons. This amount was based upon the 2.3 lbs. per square foot estimated application rate for the American Colloid product, even though Kit-San and H & H were aware that the soil compaction problem might require a higher application rate.

The same day, Hawke sent a handwritten note to Imus to confirm the details of their telephone agreement. The note stated:

Dear Dick: I am writing long hand in time for Federal Express. Delivered price is $80.00 per ton [i]ncluding freight less 2.00 [sic] a ton discount if paid within 30 days. Thanks Douglas M. Hawke

The letter was received by Kit-San on October 10, 1984. On October 11, Hawke sent another letter to Kit-San accompanied by duplicate sales contracts. In the letter of October 11, Hawke wrote that the product being shipped was Utah bentonite, "a high-grade sodium bentonite which has been approved by several government agencies" and described as " 1/8th inch to minus 200 mesh grade of bentonite which will work very well in your St. Maries sewage lagoon project." The letter referred to test results conducted previously by two independent laboratories and already mailed to Imus. Imus had sent the results to Brown and Caldwell, which returned them on October 16, 1984, essentially saying that the tests were insufficient because they did not address a 200 day test, laboratory permeability, application rate, or what type polymers were used and in what percentage. In other words, the submitted test results did not show that the bentonite complied with project requirements.

The contracts which Hawke sent to Imus recited a sale of 1,150 tons of bentonite for $38 per ton, f.o.b., Salina, Utah. They also stated that Kit-San would be responsible for paying freight costs of $42 a ton to the trucking firm within ten days after delivery and that H & H was "responsible for delivery of the bentonite to the project site," but was not responsible for the "design, application, functioning or operation of the project." Imus became concerned that the freight charges had been separated from the overall price and that Kit-San would be directly responsible for paying the trucking firm within ten days of delivery. He was also concerned that Kit-San was, in his view, disclaiming any warranty for the bentonite. However, Imus did not notify H & H of his disagreement with the proposed contracts. He wanted time to test the bentonite. Therefore, he did not communicate his objections or return the contracts to H & H, but left them unsigned in his files.

Delivery of the bentonite began on October 10, 1984. Thereafter, Kit-San hired the engineering firm of Budinger and Associates (Budinger) to test and compare the H & H and American Colloid bentonite. Imus was concerned that the H & H bentonite be of equal quality to the American Colloid bentonite so that the contract specifications would be met, no greater quantity would be needed, and no greater cost would be incurred by Kit-San. Evidence indicates that although Kit-San had won the contract based on an American Colloid bentonite application rate of 2.3 lbs. per square foot, it did not actually know what rate would be required considering the soil compaction problems it had encountered.

On October 31, 1984, Budinger sent a letter to Brown and Caldwell telling them that the H & H bentonite, using an application rate of 3.8 lbs. per square foot, produced test results indicating that the permeability (seepage rate) value was approximately three times greater than the value allowed by the specifications. Brown and Caldwell notified Imus at Kit-San, and Imus called H & H to stop shipment.

From the time shipping started until it was stopped on October 31, thirty-nine truck loads (approximately 983 tons) had been delivered to St. Maries by Manuel Figueroa and his company, Friendship Truck Express (Friendship). At trial, Imus testified that he stopped the deliveries because of the unfavorable test results. He also testified that he and Hawke talked about the lack of polymers in the bentonite and that Hawke responded by saying no polymers were needed and mailed some information to support the claim. On the other hand, Hawke testified that Imus stopped the deliveries because wet, winter weather had set in precluding construction until the spring. Evidence indicates that there was some discussion regarding the quality of the bentonite during the phone call on October 31, however, Brown and Caldwell's daily inspection notes for the project also reveal that the weather was becoming cold and wet, with occasional rain, and snow the next day.

On November 8, 1984...