National Controls, Inc. v. Commodore Bus. MacHines, Inc.

• Decision Date: 15 January 1985
• Citation: 209 Cal.Rptr. 636,163 Cal.App.3d 688
• Court: California Court of Appeals Court of Appeals
• Parties: , 40 UCC Rep.Serv. 12 NATIONAL CONTROLS, INC., Plaintiff and Respondent, v. COMMODORE BUSINESS MACHINES, INC., Defendant and Appellant. A022608.

Page 636

209 Cal.Rptr. 636

163 Cal.App.3d 688, 40 UCC Rep.Serv. 12

NATIONAL CONTROLS, INC., Plaintiff and Respondent, v. COMMODORE BUSINESS MACHINES, INC., Defendant and Appellant.

A022608.

Court of Appeal, First District, Division 3, California.

Jan. 15, 1985.

Hearing Denied April 4, 1985. ^*

Michael J. Korda, Clark & Korda, San Jose, for defendant and appellant.

Anderson, McDonald, Belden & Kelly, Richard W. Abbey, Roger J. Illsley, Santa Rosa, for plaintiff and respondent.

SCOTT, Associate Justice.

Respondent National Controls, Inc. (NCI) brought an action for breach of contract against appellant Commodore Business Machines, Inc. (Commodore). After a court trial, judgment was entered awarding NCI over $280,000 in damages, and Commodore has appealed.

I

NCI manufactures electronic weighing and measuring devices. Among its products is the model 3221 electronic microprocessor technology load cell scale (the 3221), which is designed to interface with a cash register for use at check-out stands. NCI sells the 3221 to cash register manufacturers, also termed original equipment manufacturers, or O.E.M.s. NCI does not maintain an inventory stock of the scales, but builds them to specific order by an O.E.M. The 3221 is a standard unit, which is modified by NCI to meet the specifications of each O.E.M. with respect to cash register compatability, paint, and logo.

In November 1980, Commodore had initial discussions with NCI about the possibility of Commodore becoming an O.E.M. customer. By telephone, Commodore purchased one 3221, which was sent by NCI to Commodore's Texas facility, along with NCI's standard specifications for the 3221 and its standard price schedule. In December 1980, Commodore ordered and paid for four more scales. Again, the orders were made by telephone. NCI did not receive a purchase order from Commodore; instead, Commodore merely gave NCI a Commodore purchase order number over the phone; that number was written on the sales order prepared by NCI and sent to Commodore.

In March 1981, Terry Rogers of Commodore ordered an additional 30 scales. The order was placed by telephone, and once again Commodore did not send NCI a purchase order. Instead, Rogers gave Wiggins of NCI a purchase order number by telephone; that number was entered by Wiggins on NCI's sales order.

On March 31, 1981, in a phone conversation with Wiggins, Rogers placed a firm order for 900 scales: 50 to be delivered in May, 150 in June, 300 in July, and 400 in August. Wiggins and Rogers agreed on quantity, price, and delivery schedule. As in the previous transactions, Rogers gave Wiggins a purchase order number over the telephone, Wiggins then prepared an NCI sales order, entered on it the Commodore purchase order number, and mailed a copy of that sales order to Commodore. NCI also sent a copy of its sales order to its Florida manufacturing facility, which began manufacture of the units.

In a departure from its previous practice, Commodore also mailed its purchase order to NCI. Paragraph 19 of the reverse side of that order contained a provision limiting the damages for which Commodore would be responsible in the event of a breach; in particular, the provision disclaimed liability for any incidental or consequential damages.

Wiggins of NCI testified that he does not recall ever seeing the Commodore purchase order. Both he and Rogers testified that during their phone conversations, there was no discussion of any terms and conditions on that purchase order other than price, quantity, and delivery schedule. According to Commodore's Rogers, the primary purpose of its purchase order was to confirm what had been discussed by telephone and to provide a written copy of the delivery schedule.

Delivery was made to Commodore of the first 200 units, and 300 units were ready to ship in June of 1981. As of that date, the remaining 400 units of the order were nearly complete. However, Commodore accepted only the first 50 scales, and did not accept or pay for the remaining 850 units. Thereafter, all of the 850 units were resold to National Semiconductor, an existing O.E.M. customer. NCI's vice president and general manager in charge of its Florida manufacturing facility testified that in 1980 and 1981, the plant had the production capacity to more than double its output of 3221's.

Among its findings and conclusions, the trial court concluded that the terms of the parties' contract were those established during their telephone discussions prior to and on March 31, 1981, and in the November 1980 letter from NCI to Commodore enclosing a price schedule, as well as "the terms" of NCI's prior sales orders. It then concluded that the provision on limitation of damages in Commodore's purchase order was a proposal for an additional term which did not become part of the contract because it was a material alteration thereof. The court also found that NCI was a "lost volume seller" who was entitled to recover the loss of profit it would have made on the sale of the 850 units to Commodore, notwithstanding its subsequent resale of those units to another customer.

II

First, Commodore contends that its purchase order was a prerequisite to the formation of a contract between the parties, and that its terms were therefore a part of that contract.

Although the parties appear to agree that the sales provisions of the California Uniform Commercial Code ¹ apply in this case, they disagree about the application of section 2207 of that code to the facts at hand.

Section 2207 provides: "(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

"(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

"(a) The offer expressly limits acceptance to the terms of the offer;

"(b) They materially alter it; or

"(c) Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

"(3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this code."

Under section 2207, parties may conclude a contract even though, after reaching accord, the forms which they exchange to memorialize their agreement differ because each has drafted its form to its own advantage. (Steiner v. Mobil Oil Corp. (1977) 20 Cal.3d 90, 99, 141 Cal.Rptr. 157, 569 P.2d 751.) Section 2207 recognizes that among the methods whereby a seller and buyer can enter into a contract is an oral agreement followed by confirmatory memoranda embodying the terms agreed upon. (See Leonard Pevar Co. v. Evans Products Co. (D.Del.1981) 524 F.Supp. 546, 550; § 2-207, U.Com.Code, com. 1.) If those memoranda add terms not discussed, these new terms are treated as proposals under subdivision (2) of section 2207, and will not become part of the agreement if they materially alter it. (See Leonard Pevar Co., supra, at pp. 550-551, § 2-207; U.Com.Code, coms. 2, 3.) In such a case, the provisions of the California Uniform Commercial Code will fill in the missing terms or gaps in the parties' contract. (Steiner v. Mobil Oil Corp., supra, 20 Cal.3d at p. 104, 141 Cal.Rptr. 157, 569 P.2d 751; see Leonard Pevar Co., supra, at p. 551.)

Section 2204, subdivision (1), provides: "A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." The parties' conduct, including their negotiating procedure, may indicate a consummated process of offer and acceptance, and thus an intent to contract. (See Steiner v. Mobil Oil Corp., supra, 20 Cal.3d at p. 106, fn. 8, 141 Cal.Rptr. 157, 569 P.2d 751.)

For example, in Harlow & Jones, Inc. v. Advance Steel Co. (E.D.Mich.1976) 424 F.Supp. 770, buyer informed seller during several phone conversations of its interest in purchasing 1,000 tons of steel. Later, seller sent a sales form to buyer, and buyer sent a purchase order to seller. Eventually, a dispute arose over whether delivery was timely, and each party sought to establish that its form set the terms of the agreement. However, the court relied on Uniform Commercial Code section 2-204 and found that the conduct of the parties indicated that a common understanding had been reached by telephone, and that their forms were no more than confirmatory memoranda of their oral contract. (Id., at pp. 773-775; see also Flight Systems, Inc. v. Elgood-Mayo Corp. (Colo.App.1982) 660 P.2d 909, 911 [evidence supports trial court's implied finding that purchase order was a confirmation of an oral contract rather than part of contract; purchase order proposed material alterations to contract, and did not become a part thereof].)

In this case, Commodore insists that its purchase order was a prerequisite to consummation of the contract between itself and NCI. However, the evidence is otherwise. Commodore had been sent a price list and other information about the 3221 in November 1980. Both Wiggins of NCI and Rogers of Commodore agreed that during their March 31, 1981, phone conversation, Rogers placed a firm order for the purchase of 900 scales, at a specific price and for delivery on a certain schedule. Rogers did not tell Wiggins that Commodore required any additional documentation to complete the contract; rather, according to Rogers, the purchase order was sent primarily to...