Midwest Precision Services, Inc. v. PTM Industries Corp., s. 89-1084

• Decision Date: 06 June 1989
• Docket Number: Nos. 89-1084,89-1176,s. 89-1084
• Citation: 887 F.2d 1128
• Parties: , 9 UCC Rep.Serv.2d 1169 MIDWEST PRECISION SERVICES, INC., Plaintiff, Appellant, v. PTM INDUSTRIES CORPORATION, et al., Defendants, Appellees. MIDWEST PRECISION SERVICES, INC., Plaintiff, Appellee, v. PTM INDUSTRIES CORPORATION, Defendant, Appellee. Appeal of SHAWMUT BANK OF BOSTON, N.A., Defendant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1128

887 F.2d 1128

58 USLW 2256, 9 UCC Rep.Serv.2d 1169

MIDWEST PRECISION SERVICES, INC., Plaintiff, Appellant, v. PTM INDUSTRIES CORPORATION, et al., Defendants, Appellees.

MIDWEST PRECISION SERVICES, INC., Plaintiff, Appellee, v. PTM INDUSTRIES CORPORATION, Defendant, Appellee.

Appeal of SHAWMUT BANK OF BOSTON, N.A., Defendant.

Nos. 89-1084, 89-1176.

United States Court of Appeals First Circuit.

Heard June 6, 1989.

Decided Oct. 18, 1989.

Philip W. Mueller with whom Toni G. Wolfman, Annemarie Hassett and Foley, Hoag & Eliot, Boston, Mass., were on brief, for plaintiff, appellant.

Robert D. Canty with whom Jaclyn McKenney and Csaplar & Bok, Boston, Mass., were on brief, for Shawmut Bank of Boston, N.A.

Before CAMPBELL, Chief Judge, SELYA, Circuit Judge, and CAFFREY, ^* Senior District Judge.

LEVIN H. CAMPBELL, Chief Judge.

A federal district court jury found that Shawmut Bank of Boston, N.A. (Shawmut), the lessor in a tripartite leasing transaction, broke its contract with a supplier when Shawmut's lessee wrongfully rejected the supplier's goods. Shawmut appeals, arguing that its minimal role in the three-party transaction, as well as the express language of its contract with the supplier, absolves it of any liability. Midwest Precision Services, Inc. (Midwest), the supplier, also appeals, claiming that the district court erroneously instructed the jury against duplicating damages and requesting, among other things, that this court quadruple the damages awarded below against Shawmut. Midwest further contests the district court's dismissal of its claims under Mass.Gen.Laws Ann. ch. 93A. We affirm in part, reverse in part, and order a new trial on the issue of breach of contract damages only.

I.

In October of 1982, a salesman representing Midwest, an industrial machinery distributor based in Illinois, met with employees of PTM Industries Corporation (PTM), a machine shop business located in Westfield, Massachusetts. They discussed PTM's possible purchase of Midwest's crush and creep feed grinder (the machine), a computer-driven industrial grinder utilized for sophisticated metal grinding tasks. During these early discussions, Midwest tentatively offered to customize the machine to suit PTM's needs in exchange for $345,500.

PTM then turned to Shawmut for assistance. Shawmut and PTM discussed four financing options: (1) a short term loan; (2) a long term loan; (3) a fair market value lease; or (4) a dollar option lease. On November 8, 1982, PTM and Shawmut entered into a dollar option lease (the lease), in which Shawmut agreed to lease the machine to PTM for a period of 60 months, at the end of which PTM could buy the machine from Shawmut for one dollar.

On the next day Shawmut issued Midwest a purchase order for the machine. Shawmut's purchase order, the complete text of which is reproduced in the Appendix, included the following terms. First, the purchase order constituted the "complete and exclusive statement of the agreement" between Shawmut and Midwest. Second, Shawmut promised to pay Midwest $345,500 for the machine. Third, Midwest agreed to ship the machine directly to PTM. Fourth, Midwest expressly warranted the machine, providing both Shawmut and PTM with the right to enforce all applicable warranties. Finally, Shawmut indicated that it would have no liability and could cancel the purchase order unless within 90 days Midwest had delivered the machine and Shawmut had received from PTM a "signed acceptance certificate" acknowledging receipt of the machine in good condition and requesting payment of Midwest's invoice.

Midwest received and read Shawmut's purchase order, but it never received nor was it ever aware of the terms of the lease between Shawmut and PTM. After modifying the machine to meet PTM's requirements, Midwest shipped the machine to PTM. On January 25, 1983, the machine arrived at PTM's Westfield plant. Upon inspection, however, PTM immediately complained to Midwest that the machine was damaged and declared that it would not accept delivery. Midwest made repeated offers to cure any damage, irrespective of its nature or cause, but PTM steadfastly rejected Midwest's proposals.

During this time, Midwest kept Shawmut informed of the situation. On February 17, 1983, 101 days after Shawmut's issuance of the purchase order, Shawmut notified Midwest that it was cancelling their agreement.

On May 23, 1983, Midwest brought suit against PTM in the United States District for the Northern District of Illinois, alleging claims in contract and tort. PTM filed a motion to dismiss, or in the alternative, to transfer the case to Massachusetts, asserting that Shawmut, not PTM, was the "real party in interest" because Shawmut had issued the purchase order. On November 30, 1983, the case was transferred to the District of Massachusetts pursuant to 28 U.S.C. Sec. 1404(a).

On February 22, 1984, Midwest amended its complaint to include Shawmut as a defendant. The amended complaint included the following claims: (1) breach of contract against PTM; (2) breach of contract against Shawmut; (3) tortious interference in Midwest's contractual relations with Shawmut against PTM; and (4) unfair and deceptive conduct under Mass.Gen.Laws Ann. ch. 93A against both defendants. PTM brought counterclaims against Midwest for (5) breach of contract and (6) misrepresentation.

At the end of the eight day jury trial, the district court dismissed Midwest's claims under 93A and instructed the jury on claims (1), (2), (3), (5) and (6). With regard to Midwest's breach of contract claim against Shawmut (claim two), the court told the jury that Shawmut's purchase order constituted a contract between Shawmut and Midwest, and that in that contract Shawmut had delegated to PTM its duty to accept the machine or permit cure. The court further told the jury that if it found that PTM acted unlawfully or unreasonably in rejecting the machine or refusing to permit cure, it could find that Shawmut breached its contract with Midwest.

On Midwest's breach of contract claim against PTM (claim one), and the latter's counterclaim (claim five), the court instructed the jury first to decide whether a separate contract existed between PTM and Midwest. If one existed, then the jury could find PTM liable for any unlawful or unreasonable rejection of the machine or, conversely, it could find Midwest liable for supplying defective goods and failing to make legally adequate offers to cure.

After also instructing the jury on Midwest's tortious interference claim against PTM (claim three), and PTM's counterclaim for misrepresentation against Midwest (claim six), the court turned to damages. The court cautioned the jury "to be sure not to duplicate any damages you feel should be awarded" to either party. The court then presented the jury with a special verdict form comprising fourteen questions.

The jury's responses were favorable to Midwest and adverse to Shawmut and PTM on every claim and counterclaim. On claim one, the jury found that Shawmut caused Midwest $52,339.50 in damages when it breached its purchase order contract. On claim two, it found that PTM caused Midwest $157,018.50 in damages (three times the amount awarded against Shawmut) when it breached its separate contract. The special verdict form further stated that each defendant's contract violation occurred on January 25, 1983, the day PTM rejected the machine. On claim three, the jury found that PTM caused Midwest $2,807.55 in damages when it tortiously interfered with Midwest's contractual relations with Shawmut.

The district court denied the parties' post-trial motions and entered judgment, from which both Midwest and Shawmut appeal. PTM, which is apparently insolvent, has not appealed. The appeals raise a number of issues, which we now address.

II.

The district court found that Shawmut was a "buyer" under Massachusetts law. See Mass.Gen.Laws Ann. ch. 106, Sec. 2-103(1)(a) (defining "buyer" as "a person who buys or contracts to buy goods."). Shawmut maintains that its role in the three-party transaction was that of a mere financing agent, not a buyer, and that therefore the district court erred in entering judgment against Shawmut for breach of contract. We reject Shawmut's argument.

The tripartite structure of the present transaction is not uncommon. Commercial leasing arrangements often involve three parties: (1) the supplier of the goods (Midwest); (2) the lessee (PTM), who chooses the supplier and selects the goods; and (3) the lessor (Shawmut), who supplies the money necessary to purchase the equipment. See Boss, Panacea or Nightmare? Leases in Article 2, 64 B.U.L.Rev. 39, 57-58 (1984); Mooney, True Lease or Lease "Intended as Security"--Treatment by the Courts, in 1C P. Coogan, W. Hogan, D. Vaghts & J. McDonnel, Secured Transactions Under the Uniform Commercial Code Sec. 29A.03. As in this case, the lessor is often a bank which performs a limited role in the transaction:

The bank performs no procurement functions. The [lessee] chooses the property he wishes to lease, selects a vendor and negotiates with him the terms of the purchase. Assuming the bank finds the [lessee] an acceptable credit risk, it then purchases the property and leases it to the consumer. Delivery by the seller is made directly to the customer-lessee who makes the lease payments to the bank.

M & M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d 1377, 1380-81 (9th Cir.1977), cert denied, 436 U.S. 956, 98 S.Ct. 3069, 57 L.Ed.2d 1121 (1978). Thus the standard tripartite transaction comprises two related exchanges. First, the bank purchases the equipment from the supplier. Second, the bank leases that equipment to the lessee, often through some form of "dollar option lease," in which the bank retains title to the equipment for the duration of the lease term but then transfers title to the lessee for nominal consideration at the end of the term.

The presence of three parties and two related...