Frank's Maintenance & Engineering, Inc. v. C. A. Roberts Co., 79-1854

CourtUnited States Appellate Court of Illinois
Citation408 N.E.2d 403,86 Ill.App.3d 980,42 Ill.Dec. 25
Docket NumberNo. 79-1854,79-1854
Parties, 42 Ill.Dec. 25, 30 UCC Rep.Serv. 163 FRANK'S MAINTENANCE & ENGINEERING, INC., Plaintiff-Appellant, v. C. A. ROBERTS CO. and Leland Tube Company, Inc., Defendants-Appellees.
Decision Date24 July 1980

Page 403

408 N.E.2d 403
86 Ill.App.3d 980, 42 Ill.Dec. 25, 30
UCC Rep.Serv. 163
C. A. ROBERTS CO. and Leland Tube Company, Inc., Defendants-Appellees.
No. 79-1854.
Appellate Court of Illinois, First District, Fourth Division.
July 24, 1980.

[86 Ill.App.3d 982]

Page 404

[42 Ill.Dec. 26] Douglas W. Graham, Chicago, for plaintiff-appellant.

Roxane C. Busey, Chicago, John R. Doyle and N. Rosie Rosenbaum, Chicago (Hopkins, Sutter, Mulroy, Davis & Cromartie, and McDermott, Will & Emery, Chicago, of counsel), for defendants-appellees.

ROMITI, Justice:

The plaintiff, upon discovering that goods ordered from one defendant and sent by the other defendant were defective, sued to recover

Page 405

[42 Ill.Dec. 27] the purchase price and certain other damages. Both defendants moved for summary judgment contending the plaintiff was not entitled to recover since it had simply junked the goods. They also contended that the plaintiff was not entitled to recover consequential damages because of a limitation of damages provision on the back of the purchase acknowledgment. The trial court granted the motion. We reverse and remand.

The pleadings, affidavits and other evidence in the record disclose the following: The plaintiff, Frank's Maintenance & Engineering, Inc., manufactures motorcycle front fork tubes. These tubes bear the full front weight of the motorcycle and connect the motorcycle frame, through other parts, to the front wheel. On February 1, 1974 the plaintiff orally ordered some steel tubing from the defendant C. A. Roberts Co. (Roberts). Roberts sent a written acknowledgment. The record does not disclose whether there was an oral contract or merely an oral offer and a subsequent acceptance in the form of an acknowledgment from Roberts. On the back of this acknowledgment were various conditions including the following paragraph 11:

"Seller shall not be liable for consequential damages, and except as provided in paragraph 10 hereof, Seller's liability for any and all losses and damages sustained by Buyer and others, rising out of or by reason of this contract, shall not exceed the sum of the transportation charges paid by Buyer, mill or warehouse price and [86 Ill.App.3d 983] extras, applicable to that portion of the products upon which liability is founded. Claims for defective products must be promptly made upon receipt thereof and Seller given ample opportunity to investigate; whereupon Seller may, at its option, replace those products proven defective or allow credit for an amount not exceeding the sum of the transportation charges, mill or warehouse price and extras, applicable thereto."

While several paragraphs on the front of the acknowledgment informed the plaintiff that the order had been entered with Roberts' mill and advised plaintiff to compare the acknowledgment with the original order and to advise Roberts of any error, nothing on the face of the acknowledgment advised plaintiff of the conditions on the back. To the contrary, the printed legend "conditions of sale on reverse side" had been stamped over and rendered practically illegible. Indeed, at first glance that box appears to read "No conditions of sale on reverse side." The terms of limitation were not discussed by Roberts and the plaintiff and were first brought to the attention of plaintiff's president after the commencement of the suit. Roberts ordered the steel from the other defendant, Leland Tube Company, Inc. (Leland), and directed it to send the steel directly to the plaintiff, which it did. Although the steel was supposed to be shipped in July, it was not shipped until December 1974.

The occurrence of cracks or other defects in steel tubing of the nature ordered is highly unusual. However, they can occur and such defects may be invisible to the naked eye particularly if they originate on the inside surface of the tube and do not reach the outer surface. The outer surface of the tube is covered with oxide which conceal marks which would otherwise be visible. Plaintiff had no testing equipment for such defects, the quality control procedure of manufacturers usually making such testing unnecessary.

When processing was begun on the first part of the shipment in the summer of 1975 it was discovered that the steel was pitted and corroded beyond the point where it could be reclaimed by grinding; the steel was cracked, useless and dangerous for the high-stress purposes for which it was ordered. Contrary to the express terms of the contract, the steel was welded rather than seamless. Plaintiff gave notice to Roberts of these defects on August 25, 1975, informed Roberts that it was revoking its acceptance of the goods and that it would hold the goods for thirty days for Roberts and after that time the steel would be sold and any amount received deducted from plaintiff's claim. In fact, after some sixty days had elapsed, and Roberts failed to

Page 406

[42 Ill.Dec. 28] respond in any way the plaintiff scrapped the entire lot of steel, allegedly because it was worthless. Plaintiff pointed out in its affidavit in response to the motion for summary judgment that it [86 Ill.App.3d 984] was a small plant with limited storage space and that it feared that if the steel remained on the premises parts of it might have found their way into plaintiff's production process. The plaintiff was, at that time, unable to obtain products liability insurance. The steel was only removed when another shipment was expected and further storage became impossible. No scrap value was realized from the steel since the salvager expended labor in shearing the finished and partially finished pieces to prevent their possible use on motorcycles and since many pieces were chromed, greatly reducing their value as steel scrap.

The plaintiff filed suit against both Roberts and Leland for breach of warranty of merchantability, seeking the following damages:

1. The entire purchase price since no salvage value was realized;

2. The cost of cover (replacement) in excess of the purchase price of the defective lot;

3. surface grinding expenses;

4. machining expenses;

5. chrome-plating expenses.

The defendants moved for summary judgment contending (1) that any action is barred by plaintiff's act in scrapping the goods, citing Ozite Corp. v. F. C. Clothier & Sons Corp. (1970), 130 Ill.App.2d 716, 264 N.E.2d 833; and (2) the plaintiff is barred from recovering consequential damages by paragraph 11 of the purchase confirmation.

Plaintiff denied that its conduct barred recovery as a matter of law and contended that paragraph 11 was unconscionable. As already noted, the trial court granted the defendants' motion. In its well written opinion, the trial court indicated it relied heavily on the Ozite case, which it considered controlling, in finding plaintiff barred from recovery by its act of scrapping the steel. The trial court found that paragraph 11 was not unconscionable as it involved a commercial transaction between corporations and a claim of wholly commercial loss. The trial court apparently did not receive any evidence as to the circumstances surrounding the agreement.



The defendants contend that, following Ozite v. F. C. Clothier & Sons Corp. (1970), 130 Ill.App.2d 716, 264 N.E.2d 833, the plaintiff by scrapping the steel accepted it and cannot therefore sue for breach of warranty. Ozite is not in point on this issue since no suit for breach of warranty was involved. All that case held was that the buyer, having by its conduct accepted the goods, was liable for the purchase price.

§ 2-607(1) of the Uniform Commercial Code (Ill.Rev.Stat.1973, ch. 26, par. 2-607(1)), provides that the buyer must pay at [86 Ill.App.3d 985] the contract rate for any goods accepted. (Murray v. Kleen Leen, Inc. (1976), 41 Ill.App.3d 436, 354 N.E.2d 415; Southern Illinois Stone Co. v. Universal Engineering Corp. (8th Cir. 1979), 592 F.2d 446; Jorritsma v. Farmers' Feed & Supply Co. Inc. (1975), 272 Or. 499, 538 P.2d 61.) However, as the Code itself clearly provides (Ill.Rev.Stat.1973, ch. 26, par. 2-607(2); Ill.Ann.Stat., ch. 26, par. 2-607, Official U.C.C. Comment 3, at 453 (Smith-Hurd 1963)), acceptance of the goods does not of itself preclude a suit for breach of warranty and a buyer who has accepted the goods with knowledge of the breach, or has failed to revoke the acceptance after discovery of the breach but has given the seller timely notice is entitled to damages for the breach. (Murray v. Kleen Leen, Inc. (1976), 41 Ill.App.3d 436, 354 N.E.2d 415; S. M. Wilson & Co. v. Reeves Red-E-Mix Concrete, Inc. (1976), 39 Ill.App.3d 353, 350 N.E.2d 321, leave to appeal denied; Alafoss, h. f. v. Premium Corporation of America, Inc. (8th Cir. 1979), 599 F.2d 232.) The usual measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods

Page 407

[42 Ill.Dec. 29] accepted and the value they would have had as warranted (unless special circumstances show proximate damages of a different amount) plus incidental and consequential damages including expenses in connection with effecting cover. (Ill.Rev.Stat.1973, ch. 26, pars. 2-714, 2-715; Burrus v. Itek Corp. (1977), 46 Ill.App.3d 350, 360 N.E.2d 1168, 4 Ill.Dec. 793; Murray v. Kleen Leen, Inc. (1976), 41 Ill.App.3d 436, 354 N.E.2d 415.) As these were precisely the damages sought in the complaint, 1 it is clear that defendants' motion failed to establish that the plaintiff would be unable to recover and thus the court erred in awarding summary judgment to the defendants.


While it is clear from the foregoing that the plaintiff may be entitled to recover even if it did not effectively revoke its acceptance of the steel, and that, therefore, the defendants' motion failed to establish that it was clearly entitled to judgment, nevertheless we are not convinced that it has been established as a matter of law...

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