J.R. Cousin Industries, Inc. v. Menard, Inc.

• Decision Date: 03 October 1997
• Docket Number: No. 96-3568,96-3568
• Citation: 127 F.3d 580
• Parties: 33 UCC Rep.Serv.2d 958 J.R. COUSIN INDUSTRIES, INC., Plaintiff-Appellee, v. MENARD, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 580

127 F.3d 580

33 UCC Rep.Serv.2d 958

J.R. COUSIN INDUSTRIES, INC., Plaintiff-Appellee, v. MENARD, INC., Defendant-Appellant.

No. 96-3568.

United States Court of Appeals, Seventh Circuit.

Argued April 15, 1997.

Decided Oct. 3, 1997.

Page Anthony Pate (argued), R. Matthew Martin, Jones, Day, Reavis & Pogue, Atlanta, GA, for Plaintiff-Appellee.

Stephen G. Bohrer (argued), D. Andrew Bell, Eau Claire, WI, for Defendant-Appellant.

Before POSNER, Chief Judge, and BAUER and RIPPLE, Circuit Judges.

POSNER, Chief Judge.

Section 2-515(a) of the Uniform Commercial Code permits either party to a sale of goods, on reasonable notification to the other, to inspect, test, and sample sold goods that are in the possession of the other party, for the purpose of ascertaining facts and preserving evidence. So it is a little like a pretrial discovery rule; and it is at the center of this diversity breach of contract suit that resulted in a jury's awarding $70,000 in damages to the seller, J.R. Cousin Industries, from which the buyer, Menard, appeals. There are few reported cases dealing with section 2-515(a), and none dealing with the specific issues presented by this appeal; we write largely on a clean slate.

Cousin is an importer of hardware, Menard a retail chain selling home-improvement products. Cousin agreed to sell Menard more than 20,000 low-cost sinks and toilets that had been manufactured by a firm in Mexico. The goods were to be delivered directly by the manufacturer to Menard's stores. Cousin agreed to credit Menard for the price of any of the sinks or toilets that were defective or that Menard's customers returned to Menard for any reason, whether or not the returned good was defective. The contract gave Cousin the option, with respect to defective and other returned products, to have them shipped back to it at its expense or to have them destroyed by Menard. Cousin opted for destruction by Menard, presumably because the weight of the goods relative to their value (the price to Menard of the sinks was only $22 and of the toilets only $19) would make it uneconomical to ship them back to Cousin.

The first sinks and toilets were shipped to Menard in December 1994. Menard subtracted from Cousin's invoices what Cousin thought an unusually high amount for customer returns; upon inquiry Cousin was informed by Menard that many of the sinks and toilets were defective. In June of the following year Cousin asked Menard to let it inspect the defective goods at Menard's premises. Menard claims that by this time it had destroyed more than $15,000 worth of the goods because they were defective. After permitting Cousin to inspect a small quantity of undestroyed returned goods, it refused to allow further inspections and destroyed the rest. It subtracted a total of $72,000 from Cousin's invoices, for customer returns, and this is the amount for which Cousin has sued. Cousin claims that Menard broke the contract by violating section 2-215(a) (codified in Wisconsin as Wis. Stat. § 402.515(1)), which if applicable and not waived (issues raised by the appeal) conferred a right of inspection on Cousin. The jury's award of $70,000 gave Cousin slightly less than it was asking, presumably in consideration of the possibility that at least some of the returns either were bona fide or had been destroyed by Menard before it received Cousin's request to inspect the returned goods.

The award of damages may seem very peculiar, as there is no doubt that the contract authorized Menard to destroy any goods bought from Cousin that Menard's customers returned, for whatever reason. Cousin defends the verdict on the ground that section 2-515(a) authorized it by notice to freeze the process of destruction, so that any goods destroyed after it asked Menard to hold them for inspection were destroyed in breach of the contract and Cousin is entitled to their value as damages for the breach. Since some of the goods were destroyed before the June 1995 notice, when the contract clearly authorized such destruction, and since some and perhaps most or even all of the goods destroyed later were defective or returned and hence eligible for destruction under the contract, the jury's decision to award Cousin 97 percent of the full value of the goods that had been returned to Menard may seem an obvious overestimation of the damages. But Menard does not argue (but merely hints) that the jury's award was excessive. It would ill behoove Menard to complain about the size of the award if it violated the Uniform Commercial Code in failing to hold the goods for Cousin's inspection. For by doing this it prevented an accurate estimation of Cousin's damages. Even more important, it also prevented Cousin from attempting to obtain reimbursement for its lost sales from its Mexican supplier, by depriving Cousin of the evidence that the goods were defective, if they were. If most of the returned goods were defective, and if had it not been for Menard's alleged violation of the UCC Cousin could have recovered the cost of the goods from the manufacturer, the jury's award was not unreasonable--provided the UCC really was violated. Menard argues that section 2-515 is limited to cases in which the buyer either rejects the goods or revokes its acceptance of them, but that in any event Cousin waived by contract any right of inspection that the statute might have conferred on it.

The section does not contain the limitation for which Menard contends; nor is there a reason to interpolate such a limitation by judicial interpretation. Menard cites no cases for its reading because no case addresses the issue (though General Matters, Inc. v. Paramount Canning Co., 382 So.2d 1262 (Fla.App.1980), hints at rejection of Menard's position). It cites the unpublished notes by Professor Karl N. Llewellyn, the principal draftsman of the UCC, dated September 18-20, 1945, and filed in Box 4068, Folder 8, in the American Law Institute Archives of...