Heritage v. Caterpillar Financial

• Decision Date: 30 June 2009
• Docket Number: Docket No. 284036.
• Citation: 774 N.W.2d 332,284 Mich. App. 617
• Parties: HERITAGE RESOURCES, INC. v. CATERPILLAR FINANCIAL SERVICES CORPORATION.
• Court: Court of Appeal of Michigan — District of US

774 N.W.2d 332

284 Mich. App. 617

HERITAGE RESOURCES, INC. v. CATERPILLAR FINANCIAL SERVICES CORPORATION.

Docket No. 284036.

Court of Appeals of Michigan.

Submitted June 9, 2009, at Grand Rapids.

Decided June 30, 2009, at 9:00 a.m.

Schenk, Boncher & Rypma (by Brent W. Boncher), Grand Rapids, for Heritage Resources, Inc.

Dickinson Wright PLLC (by Richard A. Glaser and Rock A. Wood), Grand Rapids, for Gencor Industries, Inc.

Before: JANSEN, P.J., and HOEKSTRA and MARKEY, JJ.

Opinion of the Court

JANSEN, P.J.

Following a 16-day bench trial, the circuit court determined that defendant Gencor Industries, Inc. (Gencor), had breached certain express warranties, and entered judgment for plaintiff Heritage Resources, Inc. (plaintiff or Heritage), in the amount of $69,257 plus interest and taxable costs. Plaintiff appeals by right, arguing among other things that the circuit court erred by failing to award it substantial additional damages. Gencor cross-appeals, arguing that the circuit court erred by entering judgment in favor of plaintiff because it did not have a contract with plaintiff and made no warranties to plaintiff. For the reasons set forth in this opinion, we reverse and remand for entry of judgment in favor of Gencor.

I

Plaintiff, owned by brothers Kirk and Kim Velting, had been involved in heavy aggregate mining for several years. Plaintiff became interested in purchasing a rock classification machine, also known as a "trommel," from Michigan Tractor & Machinery Company (MCAT).¹ Plaintiff entered into discussions with MCAT representative Paul McCourt concerning its desire to purchase such a machine. McCourt, Kirk Velting, and another MCAT customer traveled to Kansas to view a rock classification machine that had been manufactured by Gencor.² Velting believed that the type of Gencor rock classification machine he viewed in Kansas would be generally suitable, provided that Gencor could build the machine to plaintiff's specifications. Among other things, Velting expressed that plaintiff would be interested in purchasing a Gencor rock classification machine (1) with hydraulic legs that could lift the machine so that a front-end loader could remove the sorted rock from underneath the unit, (2) with chutes or bins rather than a conveyor system, (3) with flared, hinged sides to accommodate loading by dump trucks, and (4) with a front "stopper plate" to prevent large boulders from being pushed under the machine.³

McCourt did not know whether Gencor could manufacture a rock classification machine according to these specifications. He arranged for Kirk Velting to meet with Michael Dunne, a Gencor sales representative. McCourt, Velting, and Dunne met for lunch at a Grand Rapids area restaurant in December 2000 and discussed whether Gencor could manufacture a machine to meet plaintiff's specific needs. Dunne allegedly represented that Gencor could fully satisfy plaintiff's requirements by manufacturing a machine that meets all the desired specifications. However, no written agreement was produced at the lunch meeting. The parties did not discuss pricing at the lunch meeting, nor did Velting agree that plaintiff would purchase anything from, or pay anything to, MCAT or Gencor. The parties did apparently sketch on napkins while they met, but Dunne evidently took the napkins with him after the meeting. In addition, Dunne presented Velting with a Gencor brochure, which depicted Gencor rock classification machines and described them as "portable," "heavy duty," "low maintenance," able to produce "from 100 to 1000 tons per hour," able to be loaded from the rear by dump trucks, and able to function automatically without a human operator.

Velting informed Dunne that plaintiff would not want certain items included on its machine, such as the conveyor system that Velting had seen on the Gencor machine he observed in Kansas. Velting and Dunne also discussed timing issues, including when the Gencor machine could be delivered to plaintiff's Michigan site and whether the machine would arrive in time for the 2001 spring season. Velting testified that Dunne had also guaranteed him that the machine would be able to achieve and sustain a certain rate of production. The trial testimony varied considerably concerning the remaining items that were discussed at the lunch meeting. But it is undisputed, as the circuit court found, that "no contract was finalized or entered into" at the lunch meeting and that "[n]o confirming letter, memorandum, or any other writing of any kind was ever prepared by any of the three participants at the [lunch meeting] to summarize what had been discussed, represented, or agreed to there."

On January 5, 2001, MCAT sent plaintiff a quotation for a Gencor rock classification machine, describing the various components as a "Feed Hopper and Feeder," a "Rotary Screen," a "Main Underframe/Chassis," a "Control Panel," and a "Collecting Hopper and Conveyor." The document quoted a "Price F.O.B. Delivered" of $532,000. Among other things, the quotation stated that the Gencor machine would include (1) a steel "[f]eed hopper" with a capacity of 27.5 tons, (2) "[f]old up and pin hopper extensions to accommodate 40 ton articulated dump trucks," (3) a "[r]eciprocating tray type" feeder that would be "[f]itted directly under [the] feed hopper" and driven by a "hydraulic system powered by a CAT diesel engine," (4) a "[r]otary screen" with a diameter of 6 feet and a length of 33 feet, 4 inches, to be driven by the "main CAT [d]iesel [e]ngine," (5) a "[m]ain underframe" "[c]onstructed from rolled steel joists and channel sections of welded construction and heavily braced for strength and stability," (6) a "[r]unning gear," consisting of a "[q]uad-axle bogie fitted at [the] feed hopper end with . . . twin tyres, air brakes, screw type parking brake and 5th wheel towing connection at the discharge end," (7) a "[c]hassis fitted with hydraulic jacking type stabilising legs," (8) a "[c]ollecting hopper . . . [f]itted under the screening section," to be "[s]upported from the inside of the main chassis" and "[h]inged at the feed end with discharge point at the rear end of the unit," and (9) a "6 ft x 45 ft" "[b]elt conveyor" with a "[f]rame . . . [m]anufactured from heavy duty rolled steel channels." As the circuit court noted, the quotation "did not include certain of the things which Kirk Velting testified that he had been promised by Michael Dunne at the [lunch meeting.]" For example, the quotation did not include any guaranteed rate of production, and expressly stated that it excluded "[a]ny item not definitely specified." As the circuit court observed, "[n]either the Velting brothers, nor anyone else acting on behalf of [plaintiff], questioned the quot[ation] in any way, or requested that it be amended to include the items Kirk Velting testified were important to him, especially a guaranteed rate of production."

Notwithstanding the fact that the quotation did not mention certain items that were apparently important to the Veltings, plaintiff and MCAT entered into a "Sales and Security Agreement" on January 15, 2001, which was signed by representatives of both parties. The sales agreement stated that plaintiff had agreed to purchase, among other things, a "Gencor Portable 182M." As is made clear by other documents contained in the lower court record, the Gencor 182M was the rock classification machine that was the subject of MCAT's quotation of January 5, 2001.⁴ A space was provided on the sales agreement form for the parties to specify any warranties to be made by MCAT. However, the space was left blank.

Plaintiff began making preparations at its site in anticipation of the delivery of the machine. Then, in early March 2001, plaintiff received a fax containing "as built" drawings of the Gencor 182M. Upon receipt of the drawings, plaintiff realized that the machine had been built with a curved back rather than with a flat back as Kirk Velting had desired. However, as found by the circuit court, "neither Kirk Velting nor anyone else acting on behalf of [plaintiff] raised any objection or complaint about this non-conformity with either Gencor or MCAT, and no attempt was made to cancel the order." At that point, MCAT apparently informed plaintiff that the machine was already en route, but that it would be "a few weeks" late.⁵

Plaintiff had already purchased dump trucks and other equipment, and had hired several laborers, in anticipation of the expected delivery of the Gencor machine. Thus, plaintiff argues, it was "compelled to go ahead with the purchase and try to make it work since it already had procured . . . machinery for the operation that was being anchored by the Gencor machine." Plaintiff engaged in what it describes as "mitigation of damages" by modifying its site to better accommodate a machine with a curved back, by laying off or reassigning laborers who had already been hired to work on the machine, and by making other alterations and modifications. Plaintiff argues on appeal that, "[i]n hindsight, [plaintiff] may have been better off canceling the order at that time but it had no idea that other problems would arise and could not simply return the other equipment" that it had already purchased.

On March 7, 2001, plaintiff and MCAT entered into a second "Sales and Security Agreement" pertaining to the "Gencor Portable 182M." This second agreement contained a purchase price of $542,000, which was $10,000 higher than the price specified in the original quotation of January 5, 2001. Like the first sales agreement, the March sales agreement form contained a space in which the parties could specify any warranties to be made by MCAT. In the space "Std. Man. Warranty" was written by hand. Below the words "Std. Man. Warranty," the sales agreement stated in relevant part:

BUYER ACKNOWLEDGES THAT SELLER IS NOT THE MANUFACTURER OF THE EQUIPMENT AND DOES NOT MAKE AND IS NOT AUTHORIZED TO MAKE ANY WARRANTY. THE...