Klockner, Inc. v. Federal Wire Mill Corp.

• Decision Date: 12 November 1981
• Docket Number: No. 80-2532,80-2532
• Citation: 663 F.2d 1370
• Parties: 32 UCC Rep.Serv. 1097 KLOCKNER, INC., Plaintiff-Appellee, v. FEDERAL WIRE MILL CORP., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1370

663 F.2d 1370

32 UCC Rep.Serv. 1097

KLOCKNER, INC., Plaintiff-Appellee, v. FEDERAL WIRE MILL CORP., Defendant-Appellant.

No. 80-2532.

United States Court of Appeals Seventh Circuit.

Argued May 29, 1981.

Decided Nov. 12, 1981.

Michael H. Greenberg, Graudbard, Moskovitz, McGoldrick, Dannett & Horowitz, New York City, for plaintiff and counterdefendant-appellee.

C. Lee Cook, Jr., Chadwell, Kayser, Ruggles, McGee & Hastings, Ltd., Chicago, Ill., for defendant and counterplaintiff-appellant.

Before PELL, Circuit Judge, MARKEY, Chief Judge, ^* and WOOD, Circuit Judge.

PELL, Circuit Judge.

This appeal arises from a judgment entered in favor of the plaintiff-appellee Klockner, Inc. (Klockner) following a three-day bench trial of Klockner's diversity claim that Federal Wire Mill Corporation (Federal), anticipatorily breached a contract for the purchase of 1,800 tons of wire rods. The district court entered damages in favor of Klockner in the amount of $658,306.40. The court also denied Federal's counterclaim, which sought damages for a breach of warranty.

Federal raises a number of issues on this appeal. First, it contends the court erred as a matter of fact and law in finding that the 1,000 tons of 6.35 millimeter (mm) wire rods delivered on October 10, 1974, were not sold by sample. Second, Federal contends the failure of the rods to conform to the sample, and other defects of the rod, constituted a breach of express and implied warranties, and entitled Federal as a matter of law to rescind the contract. It was therefore error to deny Federal's defenses and counterclaim based on the breach of warranties. Third, Federal contends the trial court made numerous clearly erroneous findings of fact. Specifically, it assigns as error the following findings: that the parties entered a separate additional oral contract for the sale of Japanese-manufactured 5.5 mm rods; that the testimony of Dr. Blanche Schafroth, Federal's Executive Vice-President and chief operating officer, was incredible while independent testimony of other witnesses which corroborated her testimony was credible; that the subject of a November 7, 1974, meeting between the parties was not the defects of the October 10 shipment of 6.35 mm wire rods; that the October 10 rods were not defective; and that Federal never notified Klockner of its claim that the October 10 rods were defective. Finally, Federal contends that even if the court did not err in finding for Klockner on its complaint, the damages awarded were excessive.

I. The Trial Court's Findings of Fact.

A. The Court's Affirmative Findings.

The trial court made the following findings of fact. The plaintiff Klockner is a New York corporation engaged in the purchase and sale, through import and export, of steel mill products. The defendant Federal is a Nevada corporation engaged in the manufacture of steel wire and wire products, with its principal place of business in Herrin, Illinois.

In July 1974, Schafroth ordered 1,800 tons of 6.35 mm diameter wire rods from the plaintiff Klockner, in a telephone conversation with Rolf Mainz, Klockner's Chicago district manager. Federal confirmed the order by written purchase order, number 5836, dated July 10, 1974. Klockner confirmed the order on July 12, by its written acknowledgment number 4655.

The rods were to be rolled in Germany in the fourth quarter of 1974 and delivered some six weeks thereafter at a price of $23.75 per hundredweight. By letters of August 1 and 2, 1974, the parties confirmed their oral agreement to amend p.o. 5836 to consist of 1,080 tons of 6.35 mm rods, and 720 tons of 5.5 mm rods. On July 31 Klockner delivered a sample of 6.35 mm rods, "as per our order ... 4655," and it ran smoothly through Federal's wire drawing machinery. Federal then paid for the sample.

On October 1, 1974, Mainz sent Schafroth a letter confirming that Federal would receive 1800 tons under p.o. 5836. Klockner again wrote to Federal on October 16, 1974, with reference to p.o. 5836 but Federal did not respond.

In October and November of 1974 the price of wire rod dropped precipitously, and during October Schafroth called Mainz and attempted to cancel p.o. 5836. Mainz replied that delivery had already begun, with the rods already on the ocean, and that a valid contract was in effect.

On November 7, 1974, Mainz and Wolfgang Sander, Vice-President of Klockner, met with Schafroth at the Federal plant. The trial court noted that the evidence at trial was conflicting as to what was discussed at the meeting, but concluded that Klockner's testimony provided "the only possible credible version of what took place." Klockner's testimony established that both a prior order of 7 mm wire rod, p.o. 5835, and p.o. 5836 were discussed at this meeting. As to p.o. 5836, the Klockner representatives indicated that they had begun delivery and that Schafroth could not now cancel the contract. Mainz and Sander indicated to Schafroth that if Federal would not accept p.o. 5836, Klockner's only recourse would be a lawsuit. Schafroth replied, "Then sue me." Klockner attempted to contact Federal by certified mail in January and February 1975, "in an attempt to give Federal 'one further opportunity to fulfill (its) contractual obligation.' " Both letters were refused by Federal, and Klockner eventually resold the steel to various companies at the then prevailing, substantially lower, market price of $11.00 per hundredweight.

B. Federal's Version.

After finding the above facts, the trial court turned to and expressly repudiated the version of the facts upon which Federal's defenses and counterclaim were based. Federal's version of the facts required that p.o. 5836 be placed in the context of a series of orders Federal placed with Klockner in July and August of 1974.

The first of these orders was Federal p.o. 5826, issued on July 3, 1974, which sought 3,000 tons of 6.35 mm wire rods, delivery as soon as possible. However, when it became apparent that production schedules would not permit the immediate shipment of the entire order, Federal issued three new purchase orders to replace p.o. 5826. These were:

(1) p.o. 5835 for 500 tons of 7.0 mm rods delivered as soon as possible (Klockner acknowledgment no. 4526);

(2) p.o. 5826 (amended) for 1,000 tons of 6.35 mm rods delivered before the close of navigation on the St. Lawrence Seaway (Klockner acknowledgment no. 4653); and

(3) p.o. 5836 for 1,800 tons of 6.35 mm rods delivered from fourth quarter rolling 1974 (Klockner acknowledgment no. 4655).

The 500 tons of 7.00 mm rods under p.o. 5835 were delivered in the middle of July 1974, but assertedly did not work on Federal's drawing machines. Federal notified Klockner of the problem, and while continuing its efforts to use the rods, paid for them on July 25, 1974. In September Klockner issued a credit memo for the rejected 7.0 mm rods, which were then sold to another customer. This transaction is not at issue in this litigation, and has relevance only as establishing the past practices of the parties.

The parties entered another transaction on July 12, 1974, when Mainz called Schafroth and told her he had found 1,000 tons of Japanese-manufactured 5.5 mm rods available for immediate delivery. Schafroth asked that a sample be shipped, and when it proved satisfactory, requested in early August 1974 that the rest of the rods be shipped. Klockner then issued an acknowledgment, no. 4692, confirming placement of the order, "as per trial lot," and shipped the rods. The acknowledgment referenced Federal p.o. 3448, although Federal had issued no written purchase order, and its purchase order 3448 had actually been issued some years earlier to another manufacturer in a completely unrelated transaction. Federal logged the Japanese-manufactured 5.5 mm rods into its internal records under p.o. 5826 (amended), which had specified German 6.35 mm rods from the September 1974 rolling. Federal did not notify Klockner that it considered the Japanese rods to have been shipped under p.o. 5826 (amended). Federal paid for the rods with the credit memo issued in connection with the 7.0 mm rods in September 1974.

As noted above, at the end of July, 1974, Federal received a sample of 6.35 mm wire, followed in November by delivery of 1,000 tons of such wire. Federal contends that this latter delivery was pursuant to p.o. 5836, and that the wire rods were defective, did not conform to the sample shipped in July, and were rejected by Federal in the meeting of Federal and Klockner personnel on November 7, 1974. Federal's basis for considering the October shipment part of p.o. 5836 is its contention that the July shipment of Japanese rods was not pursuant to any separate oral agreement, but rather was a substitute shipment for 5826 (amended). Thus the 1,000 tons of wire delivered in October were not delivered pursuant to 5826 (amended), as Klockner claims, for that order had already been filled. Rather, they were shipped pursuant to p.o. 5836, the only remaining unshipped contract with Klockner. Federal further contends that the November 7, 1974 meeting centered on the defects of the October shipment of 6.35 mm rods.

Five days after the November 7, 1974, meeting, Federal issued a check for the invoice amount of the October 1,000 ton shipment. Federal contends its payment was for p.o. 5836, and that payment was made solely to take advantage of a prompt payment discount, and in the belief that Klockner would provide credit for the rods, as it had done in the prior instance with the 7.0 mm rods. The typed voucher accompanying the check indicated that it was in payment of p.o. 5826. The copy of the voucher retained by Federal for its records was altered by the handwritten superimposition of the numeral 3 over the typed numeral 2. Federal contends this correction to its internal records, which does not appear on the copy which was mailed to Klockner attached to the check, demonstrates that the rods were...