Michiana Mack, Inc. v. Allendale Rural Fire Protection Dist.

Decision Date15 December 1981
Docket NumberNo. 3-781A172,3-781A172
Citation428 N.E.2d 1367
Parties33 UCC Rep.Serv. 269 MICHIANA MACK, INC., Appellant-Defendant, v. ALLENDALE RURAL FIRE PROTECTION DISTRICT, Appellee-Plaintiff.
CourtIndiana Appellate Court

Richard D. Bonewitz, Hammerschmidt, Bonewitz & Miller, South Bend, for appellant-defendant.

James J. Olson, Mishawaka, for appellee-plaintiff.

STATON, Judge.

Allendale Rural Fire Protection District (Allendale) instituted this cause in the court below to recover damages pertaining to the purchase of a used fire truck from Michiana Mack, Inc. (Michiana). The court found for Allendale and Michiana presents the following issues for our review:

Under IC 26-1-2-714, 1 where the buyer has not rejected or revoked acceptance of the goods, may the court:

(1) Order the seller to repair the goods or refund the price of the goods; or,

(2) Award damages to the buyer for insurance and interest payments made with respect to those goods.

We conclude that the court may not do either. Therefore, pursuant to Ind. Rules of Procedure, Appellate Rule 15(N) 2, we hereby order the trial court's final order and judgment to be reversed and vacated in part, and modified in part in accordance with this opinion.

Michiana advertised a used fire truck for sale. Five members of Allendale test drove the truck in April of 1978. Although the truck was experiencing overheating problems, Allendale offered to pay $9,500 for the truck, with a $1,000 downpayment and the balance upon acceptance. The offer expressly noted the overheating problem was to be repaired.

On May 8, 1978, having been assured the overheating was repaired, Allendale paid the balance and accepted the truck. From that date to the date of the trial, December 17, 1980, the truck experienced overheating problems. During that period of time, Allendale attempted to repair the truck itself and with the aid of paid mechanics. All attempts were unsuccessful.

Allendale never attempted to rescind the contract or return the truck. In fact, the complaint filed by Allendale only sought damages. 3 The trial court concluded Allendale had "accepted" the truck in that there had been no "effective rejection." 4 The trial court, finding Allendale's remedy under the provisions of 2-714 (see footnote 1, supra ), ordered Michiana to: (1) repair the truck or refund the purchase price; and (2) pay damages including Allendale's expenses regarding interest and insurance on the truck. 5

I. Repair or Refund of the Price

Michiana first challenges whether the trial court's alternative order to repair the truck or refund the price is within the purview of 2-714 6, which provides:

"(1) Where the buyer has accepted goods and given notification (subsection (3) of section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.

"(2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

"(3) In a proper case any incidental and consequential damages under the next section may also be recovered." (footnote omitted)

The trial court, under the apparent misapprehension that subsections (1) and (2) delimit mutually exclusive remedies, stated:

"The Court feels that this is more of a non-conformity case than a breach of warranty case so attention will be focused chiefly on Subsections (1) and (3)...."

As a whole, 2-714 addresses the allowable damages where the buyer has accepted goods and there is "any non-conformity of tender." Non-conformity of tender refers both to goods and conduct under the contract. As defined under 2-106(2):

"Goods or conduct including any part of a performance are 'Conforming' or conform to the contract when they are in accordance with the obligations under the contract."

The Comment to 2-714 states in part that:

"The 'non-conformity' referred to in subsection (1) includes not only breaches of warranties but also any failure of the seller to perform according to his obligations under the contract...."

2-714, Uniform Commercial Code Comment, 2. Therefore, "non-conformity" is a term of art used to describe two broad categories of breaches, in goods or in conduct. "Non-conformity" is not a separate remedy.

This distinction, however, does not negate the trial court's finding that there was a breach of contract. In fact, Michiana does not dispute that there was such a breach. The trial court clearly found that the fire truck was "non-conforming." Under the facts of this case and the law of warranties, such finding of the trial court was equivalent to finding that a breach of warranty had occurred. 7

Subsection 2-714(1) provides that the buyer may recover damages "determined in any manner which is reasonable." Subsection 2-714(2) limits the manner, however, to a determination of the difference in value of the goods as accepted and as delivered at the time and place of acceptance. As noted in 2-714, Uniform Commercial Code Comment, 3:

"Subsection (2) describes the usual, standard and reasonable method of ascertaining damages in the case of breach of warranty but it is not intended as an exclusive measure...."

Following the tenor of this Comment, one leading authority suggests three alternative methods for determining the buyer's damages under 2-714: (1) cost of repair; 8 (2) the fair market value of the goods as warranted less the salvage value of the goods; 9 and, (3) the fair market value of the goods as warranted at the time of acceptance less the fair market value of the goods as received at the time of acceptance. 10 White & Summers, Uniform Commercial Code, pp. 377-81 (1980).

The only damages which might reasonably be considered within the scope of 2-714(2) were those expenditures made by Allendale in the attempted repair of the truck. The trial court ordered recovery of those expenditures denominating them as "incidental and consequential." Whether those damages are properly within the scope of 2-714(2) (breach of warranty) or 2-714(3) (incidental or consequential) is not pertinent to this appeal. Michiana has not challenged that portion of the court's order and judgment. Michiana does challenge the validity of the court's order to either repair the truck or refund the price. Both portions of that alternative order are outside the purview of 2-714(2).

The trial court's order to repair was one emanating from the court's equitable powers. We are unwilling under the limited facts of this case to state that the court's equitable powers may never be invoked under 2-714(2). However, before such powers are invoked, the court must assure itself that the party's legal remedies are inadequate. See, Indiana & Michigan Electric Co. v. Whitley County Rural Electric Membership Corp. (1974), 160 Ind.App. 446, 312 N.E.2d 503; Craig v. School City of Gary (1965), 138 Ind.App. 261, 211 N.E.2d 616.

In the present case, the legal remedies under 2-714(2) clearly may have been adequate. Allendale, however, failed to prove either those damages or why such damages would be inadequate. In fact, the court stated that:

"Since no evidence was offered as to the cost of installing a larger radiator, the Court cannot include that cost in the damage award. The only alternative available is to order the defendant, at its expense, to make arrangements for the installation of an appropriate sized radiator...." 11

It is the plaintiff's burden to establish the amount of damages under 2-714. Charlie Stuart Oldsmobile, Inc. v. Smith (1976), 171 Ind.App. 315, 357 N.E.2d 247, modified on other grounds on rehearing, 369 N.E.2d 947; Bob Anderson Pontiac, Inc. v. Davidson (1973), 155 Ind.App. 395, 293 N.E.2d 232. It is not the function of the trial court to fashion equitable remedies to relieve the plaintiff of that burden. The judgment of the trial court to repair was in error.

The trial court's order to refund the price as an alternative to repair of the truck was also in error. There may be the occasional case wherein the measure of damages under 2-714(2) is in fact the purchase price. See, e.g., W & W Livestock Enterprises, Inc. v. Dennler (1970), Iowa, 179 N.W.2d 484 (pigs delivered so infected with disease as to be worthless). But, as a general rule, defective goods will normally have at least scrap value. See, Ertel v. Radio Corporation of America (1976), 171 Ind.App. 51, 354 N.E.2d 783.

Only 2-711 provides for recovery of the purchase price:

"(1) Where ... the buyer rightfully rejects or justifiably revokes acceptance ... the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid ...;"

with the Comment to that subsection stating:

"The remedies listed here are those available to a buyer who has not accepted the goods or who has justifiably revoked his acceptance. The remedies available to a buyer with regard to goods finally accepted appear in the section dealing with breach in regard to accepted goods...."

2-711, Uniform Commercial Code Comment, 1.

The remedy of recapture of the purchase price is clearly dependent upon the buyer's rejection or revocation of the goods. 12 Jacobs v. Metro Chrysler-Plymouth, Inc. (1972), 125 Ga.App. 462, 188 S.E.2d 250; Stream v. Sportscar Salon, LTD. (1977), 397 N.Y.S.2d 677, 91 Misc.2d 99; Rose v. Epley Motor Sales (1975), 288 N.C. 53, 215 S.E.2d 573. Allendale did not reject or revoke acceptance of the goods. Therefore, the trial court erred in ordering, in the alternative, the truck price be refunded. 13

II. Insurance and Interest Payments

In purchasing the truck, Allendale obtained financing and insurance. To the date of the trial, Allendale had made $2,040 in interest payments 14 and $1,348 in insurance...

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