In re Chateaugay Corp., Bankruptcy No. 86-B-11270 (BRL) to 86-B-11334 (BRL)

CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
Writing for the CourtSTUART M. BERNSTEIN
Citation162 BR 949
PartiesIn re CHATEAUGAY CORPORATION, Reomar, Inc., The LTV Corporation, et al., Debtors. LTV ENERGY PRODUCTS COMPANY, Plaintiff, v. NORTHERN STATES CONTRACTING COMPANY, INC., Defendant.
Decision Date21 January 1994
Docket NumberBankruptcy No. 86-B-11270 (BRL) to 86-B-11334 (BRL),86-B-11464 (BRL) and 86-B-11307 (BRL). Adv. No. 93-8317A.,86-B-11402 (BRL)

162 B.R. 949 (1994)

In re CHATEAUGAY CORPORATION, Reomar, Inc., The LTV Corporation, et al., Debtors.

Bankruptcy Nos. 86-B-11270 (BRL) to 86-B-11334 (BRL), 86-B-11402 (BRL), 86-B-11464 (BRL) and 86-B-11307 (BRL). Adv. No. 93-8317A.

United States Bankruptcy Court, S.D. New York.

January 21, 1994.

162 BR 950
162 BR 951
162 BR 952
Seward & Kissel, New York City, for LTV Energy Products Company; M. William Munno, Peter C. Mester, of counsel

Eugene C. Tenney, Buffalo, NY, for Northern States Contracting Company, Inc.; Laura C. Doolittle, of counsel.


STUART M. BERNSTEIN, Bankruptcy Judge.

The Plaintiff and Debtor, LTV Energy Products Company ("LTV"), commenced this adversary proceeding to recover $22,517.60 from the Defendant Northern States Contracting Company, Inc. ("Northern"), and to expunge Northern's claim in the amount of $1,727,240.65. LTV's claim against Northern represents the unpaid purchase price for certain bridge bearing pads that LTV sold to Northern. Northern's claim against LTV represents the damages it claims it suffered because LTV delivered some of the pads over one year late.

LTV has moved for summary judgment to recover the purchase price and expunge Northern's claim. For the reasons set forth below, LTV's motion is granted to the extent of expunging so much of Northern's claim that seeks consequential, delay or labor-related damages, and is otherwise denied.


At all relevant times, LTV was engaged in the business, inter alia, of manufacturing materials used in the construction of bridges. At the time in question, Northern was competing for a construction contract with the New York State Department of Transportation ("NYSDOT") to construct a bridge in upstate New York. Toward that end, and on or about February 23, 1984, Northern sent LTV's representative, Beeco Products, a purchase order for 140 Plain Bearing Pads at a cost of $3,617.60, and 140 Steel Laminated Pads at a cost of $18,900.00. The order was contingent upon the award of the construction contract to Northern by NYSDOT. The Northern Purchase Order called for delivery "ASAP", but did not contain any general terms or conditions of sale.

Oil States Rubber Co., a division of LTV, sent a Sales Order Acknowledgement (the "Acknowledgement") to Northern on or about March 5, 1984. The Acknowledgement, on the reverse side, contained LTV's Conditions of Sale and Trade Customs (the "LTV Conditions"), a pre-printed form consisting of eleven separate paragraphs. As might be expected, the LTV Conditions contained broad exculpatory language designed to protect LTV from the normal perils of contract damages. Paragraphs 2 and 4 of the LTV Conditions, which go to the heart of the issues in this case, disclaimed implied warranties, exculpated LTV from delay, labor-related or consequential damages, and limited Northern's remedies to repair or replacement of, or credit for, defective goods at the option of LTV:

2. . . . Seller does not guarantee to ship within the time promised, but uses its best efforts to do so, and shall not be liable for any damage caused by delay in delivery. . . .
. . . .
4. Seller warrants goods of its own manufacture against defects in materials and workmanship only, for a period of one year from the date of purchase, to the extent that it will repair or replace such goods f.o.b. point of manufacture, or allow credit therefor, at its election, when such goods are in the hands of the original purchaser, and used in normal use and service. Other goods are warranted only to the extent of the express warranty of the manufacturer thereof and to the extent such is enforceable by Seller. NO WARRANTY EITHER EXPRESS OR IMPLIED IS MADE BY SELLER AS TO THE FITNESS, MERCHANTABILITY, CONDITION, CAPACITY OR EFFICIENCY OF ANY GOODS SOLD and no claims for labor or for consequential damage will be allowed. SELLER\'S LIABILITY IS LIMITED AS ABOVE SET FORTH
162 BR 953

The Acknowledgement stated that LTV would ship the bearing pads eight to ten weeks after approval of the shop drawings. On or about March 6, 1984, LTV submitted its shop drawings to NYSDOT, and on or about March 12, 1984, NYSDOT approved them. On March 14, 1984, NYSDOT awarded the contract to Northern at an approximate price of $9 million.

In July 1984, LTV shipped the Laminated Bearing Pads to Northern without further problem or delay, but did not ship the Plain Bearing Pads until a year later. The initial NYSDOT testing of the Plain Bearing Pads in July 1984 revealed excessive compression deflection and surface cracking. After the original rejection of the Plain Bearing Pads in July 1984, representatives of LTV met with NYSDOT officials in August 1984, and engaged in extensive and in-depth discussions about the types of pads which the job required, why the pads had failed the testing, and how the problem could be resolved.

After this meeting, LTV took steps to change the design to ensure NYSDOT acceptance. In November 1984, LTV resubmitted its revised pads for testing. The revised pads were again rejected in December 1984 and January 1985 on account of excessive compression deflection. Following these rejections, Northern, at LTV's request, asked NYSDOT for permission to substitute a different type of pad, but the request was turned down on February 19, 1985, as was a request to provide the rejected pads at a decreased price on March 15, 1985.

The February 19, 1985 letter is significant in another respect. According to an Amended Claim (No. 76466-A) dated January 30, 1990, and filed by Northern against the State of New York in the Court of Claims, the NYSDOT contract called for Plain Bearing Pads to be manufactured in accordance with Standard Specification § 716.02, while the Laminated Bearing Pads were to be manufactured in accordance with Standard Specification § 716.04.

When NYSDOT tested the Plain Bearing Pads, however, it apparently tested them to Specification § 716.04 (the test for steel laminated pads) rather than § 716.02 as per the contract with Northern. In its February 19, 1985, letter, NYSDOT advised Northern, for the first time, that "the Plain Neoprene Bearings shall be supplied in accordance with the Material Specifications 716.04". It appears, therefore, that LTV was manufacturing the Plain Bearing Pads to meet the contract specification (716.02), but NYSDOT was testing and rejecting them because they failed to meet a different specification (716.04). The delay in completing the construction project, and the damages that flowed to Northern from that delay, may be unrelated to anything LTV did or did not do; indeed, there is a serious factual question regarding whether LTV breached its agreement with Northern.1

Once NYSDOT clarified the specification, events moved more rapidly although not entirely without delay. On or about March 21, 1985, LTV submitted new shop drawings to NYSDOT, but NYSDOT returned them within a few days because they were not submitted in conformity with the requirements of Section 716.04. LTV resubmitted the drawings on or about April 1, 1985, and these drawings were accepted by NYSDOT. After additional alleged design and manufacturing delays, the Plain Bearing Pads were delivered to Northern on or about July 19, 1985. Northern accepted this delivery as it did the earlier Laminated Bearing Pad delivery in July, 1984, but has never paid for either.


LTV claims that it is entitled to summary judgment expunging Northern's claim for

162 BR 954
consequential, delay and labor-related damages because the LTV Conditions became part of the parties' contract pursuant to Sections 2-207 and 2-719 of the Uniform Commercial Code (the "UCC") as adopted in New York2. In addition, because Northern received the bearing pads it ordered and it did not reject the goods as either defective or untimely, LTV seeks to recover the purchase price which Northern has never paid. Northern, on the other hand, contends that it suffered substantial consequential and delay damages due to LTV's year long delay in delivering the Plain Bearing Pads, and is entitled to assert that claim against the estate

A. The "Battle of the Forms"

This case is a classic illustration of the "battle of the forms": two merchants exchanged two sets of forms that contained additional or different terms, ignored them, and fully or substantially performed their agreement. A dispute then breaks out, and the parties, or more likely their lawyers "haul out their forms and read them — perhaps for the first time — and they will find that their forms diverge. Is there a contract? If so, what are its terms?" 1 J. White & R. Summers, Uniform Commercial Code § 1-3, at 28-29 (3d ed. 1988) ("White & Summers").

The answer lies in the Uniform Commercial Code which we summarize in part and quote at length. The Northern purchase order constituted an offer which LTV could accept by actual shipment or by a promise to ship. UCC § 2-206(1)(b). LTV did not ship, but instead, sent its Acknowledgement. To determine if the Acknowledgement was an acceptance giving rise to a contract, we are directed to UCC § 2-207, which provides:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or

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