Madsen v. Murrey & Sons Co., Inc.

• Decision Date: 29 September 1987
• Docket Number: No. 19977,19977
• Citation: 743 P.2d 1212
• Parties: 5 UCC Rep.Serv.2d 99 Erik H. MADSEN, Plaintiff and Respondent, v. MURREY & SONS COMPANY, INC., Defendant and Appellant.
• Court: Utah Supreme Court

Page 1212

743 P.2d 1212

5 UCC Rep.Serv.2d 99

Erik H. MADSEN, Plaintiff and Respondent, v. MURREY & SONS COMPANY, INC., Defendant and Appellant.

No. 19977.

Supreme Court of Utah.

Sept. 29, 1987.

John Paul Kennedy, Scott C. Pugsley, Salt Lake City, for plaintiff and respondent.

Robert B. Hansen, Salt Lake City, for defendant and appellant.

HOWE, Justice:

Appellant Murrey & Sons Company, Inc. (seller), seeks reversal of the trial court's judgment ordering it to return $21,250 to respondent Erik H. Madsen (buyer) in partial restitution of $42,500 paid by him on a contract between the parties which the buyer subsequently breached. Utah Code Ann. § 70A-2-718(2), (3) (1980).

Seller is a corporation located in Los Angeles, California, and engaged in the business of manufacturing and selling pool tables. In early 1978, buyer, a resident of Salt Lake City, Utah, was working on an idea to develop a pool table which, through the use of electronic devices installed in the rails of the table, would produce lighting and sound effects in a fashion similar to a pinball machine. Buyer was experimenting with his idea on a used pool table in his home. This table had been modified to consist of ten pockets, rather than six as originally constructed, and buyer was attempting to design the electronics to be used in the table.

In late February 1978, Patrick W. Murrey, the general manager for seller, travelled to Salt Lake City to learn about buyer's idea, observe the pool table buyer had developed, determine the feasibility of constructing such a table, and discuss the possibility of manufacturing a large quantity of the unique tables for buyer. While in Salt Lake City, and through subsequent communications between the parties by means of telephone and mail, Mr. Murrey recommended that buyer abandon the idea of using a customized ten-pocket pool table and encouraged him to use seller's standard 4' X 8' six-pocket coin-operated pool table, with a customized rail. Buyer agreed.

Shortly thereafter, buyer and seller entered into a written agreement by means of a sales order signed by both parties. Seller agreed to manufacture 100 of its M1 4' X 8' six-pocket coin-operated pool tables, with customized rails capable of incorporating the electronic lighting and sound effects desired by buyer. Under the agreement, buyer was to design the rails and provide the drawings to seller, who would manufacture them according to buyer's specifications. Buyer was also to design, supply, and install all of the electronic components for the tables. Buyer agreed to pay seller $550 per pool table, or a total of $55,000 for the 100 tables.

On March 13, 1978, buyer paid $5,550 to seller, $550 of which went toward the purchase of a separately ordered and delivered pool table to be used as a prototype, leaving $5,000 as an advance on the purchase price for the 100 pool tables. In May and June 1978, buyer advanced another $25,000 and $12,500, respectively, totalling $42,500 in advance payments. During this time, seller commenced the manufacturing of the pool tables and buyer continued his efforts to develop a satisfactory design for the electronics and the customized rails. However, he encountered numerous problems with both. By the fall of 1978, the designs remained undeveloped, and buyer advised seller that he would be unable to take delivery of the 100 pool tables. Buyer then brought this action for restitution of the $42,500 he had paid.

Following buyer's repudiation of the contract, seller dismantled the pool tables and used the salvageable materials to manufacture other pool tables. A good portion of the material was simply used as firewood. As admitted by Patrick Murrey, seller did not attempt or make any effort to market or sell the 100 pool tables at a discount price or at any other price in order to mitigate or minimize its damages.

The trial court, sitting without a jury, found that buyer did not complete the design for the customized rails or the designs for the electronic components. Seller had already manufactured the 100 pool tables to the extent that it could do so and, the court found, "fully performed all of its obligations under the agreement." The court also found that had seller completed the tables, they would have had a value of at least $21,250 and could have been sold by seller for at least that amount following the repudiation of the contract. In turn, the court concluded that seller's action in dismantling the tables for salvage and for firewood, rather than attempting to sell or market them at a full or discounted price, was not commercially reasonable. The court fixed seller's damages at $21,250 and held that seller did not prove that it had been damaged any greater. Apparently in reliance on Utah Code Ann. § 70A-2-718(2), (3), judgment was entered that buyer recover from seller the $42,500 paid, less the $21,250 damages suffered by seller as a result of the repudiation, for a net recovery of $21,250.

I.

Seller first contends that the trial court erred in concluding that it had failed to mitigate or minimize its damages in a commercially reasonable manner by not attempting to sell the 100 pool tables on the open market. It is a well-settled rule of the law of damages that "no party suffering a loss as the result of a breach of contract is entitled to any damages which could have been avoided if the aggrieved party had acted in a reasonably diligent manner in attempting to lessen his losses as a consequence of that breach." 3 Williston on Sales § 24-5, at 405 (4th ed. 1974). This doctrine is the mitigation of damages rule "that a party has the active duty of making reasonable exertions to render the injury as light as possible ... and that no recovery may be had for losses which the person injured might have prevented by reasonable efforts and expenditures." Fairfield Lease Corp. v. 717 Pharmacy, Inc., 109 Misc.2d 1072, 1077, 441 N.Y.S.2d 621, 624 (N.Y.City Civ.Ct.1981) (citations omitted). We have held:

Where a contractual agreement has been breached by a party thereto, the aggrieved party is entitled to those damages that will put him in as good a position as he would have been had the other party performed pursuant to the agreement. A corollary to this rule is that the aggrieved party may not, either by action or inaction, aggravate the injury occasioned by the breach, but has a duty actively to mitigate his damages.

Utah Farm Production Credit Association v. Cox, 627 P.2d 62, 64 (Utah 1981) (citations omitted).

Seller asserts that it sufficiently mitigated its damages by dismantling the pool tables and salvaging various components that could be used to manufacture other pool tables. The salvage value to seller was claimed to be $7,448. It presented testimony that selling the tables as "seconds" would damage its reputation for quality and that the various holes, notches, and routings placed in the tables to accommodate the electrical components to be installed by buyer weakened the structure of the tables so as to submit seller to potential liability if they were sold on the market.

On the other hand, Ronald Baker, who had been involved with the manufacturing and marketing of pool tables for 25 years, testified on behalf of the buyer that the notches, holes, and routings made in the frame to accommodate electrical wiring would not adversely affect the quality or marketability of the 100 pool tables. According to Baker, the tables could have been sold at full value or at a discounted price. In addition to this testimony, the trial court had the opportunity to view the experimental table developed by buyer and his associates and observe the holes, notches, and routings necessary for the electrical components.

The trial court found that seller's action in dismantling the tables and using the materials for salvage and firewood, rather than attempting to sell or market the tables at full or a discounted price, was not commercially reasonable. The court then concluded that seller had a duty to mitigate its damages and failed to do so. The finding is supported by...