NEDERLANDSE, ETC. v. Grand Pre-Stressed Corp.

• Decision Date: 05 March 1979
• Docket Number: No. 76-C-1309.,76-C-1309.
• Citation: 466 F. Supp. 846
• Parties: NEDERLANDSE DRAADINDUSTRIE NDI B.V., Plaintiff, v. GRAND PRE-STRESSED CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of New York

466 F. Supp. 846

NEDERLANDSE DRAADINDUSTRIE NDI B.V., Plaintiff, v. GRAND PRE-STRESSED CORPORATION, Defendant.

No. 76-C-1309.

United States District Court, E. D. New York.

March 5, 1979.

Greenbaum, Wolff & Ernst, New York City, for plaintiff; James M. Brachman, New York City, of counsel.

Allen I. Sak, Deer Park, N. Y., for defendant.

BARTELS, District Judge.

Plaintiff, Nederlandse Draadindustrie NDI B.V. ("NDI"), is a Dutch manufacturer of steel strand ("strand"), and defendant, Grand Pre-Stressed Corporation ("Grand"), is a domestic manufacturer of pre-stressed concrete, of which strand is a component. In this diversity action, plaintiff seeks damages in the amount of $263,069.51 together with interest and costs for breach of a contract for the sale of approximately 1180 metric tons of steel strand to defendant. The sum claimed represents deficiencies allegedly due both for strand (a) delivered by plaintiff and accepted by defendant and (b) contracted for but which was rejected by defendant and was either sold to third parties or not produced at all. Defendant denies liability under either claim and asserts a counterclaim in the amount of $1,275.¹ The case was tried without a jury, two witnesses being called by plaintiff and none by defendant. After considering the testimony and numerous exhibits, the Court has reached the conclusions set forth in the following opinion which constitutes its findings of fact and conclusions of law.

I. FACTS

The Contract

On May 2, 1975, the parties executed a written agreement for the sale of 5,000,000 linear feet (U.S.) of one-half inch steel strand, amounting to approximately 1180 metric tons, at a cost to defendant of $159 per thousand feet, C.I.F. New York, excluding duty, and to be furnished by plaintiff according to the following schedule over a seven-month period:

¶ 3(e) Schedule of Arrival 1975

                  June        400,000 feet, about  94.4 tons
                  July        400,000 feet, about  94.4 tons
                  August      600,000 feet, about 141.6 tons
                  October   1,000,000 feet, about 236   tons
                  November  1,000,000 feet, about 236   tons
                  December  1,000,000 feet, about 236   tons2
                

As stated in the preamble to the agreement, defendant was intending to use the strand as a component of pre-stressed concrete piles required for the construction of a sewage treatment plant at Syracuse, New York. Paragraph 3(f) of the agreement specified that payment was to be made by defendant on the 15th day of the month preceding the month of each delivery, and paragraph five required plaintiff to furnish to defendant both a performance bond and a labor and materials bond, each in the amount of $800,000. Any amount paid as premiums for the bonds by plaintiff was to be reimbursed by defendant within 30 days after submittal of an invoice. Paragraph six provided that the agreement was to be construed according to the law of New York.

Between early June and mid-September of 1975, plaintiff made five shipments to defendant. The first delivery, invoiced on June 4, 1975 and composed of 400,000 linear feet of strand, was made upon receipt by plaintiff of advance payment in the amount of $61,056. When this shipment arrived at its destination in Syracuse, defendant found that eighteen of the 32 coils of strand shipped had unraveled, perhaps in transit after delivery by plaintiff to the shipper. Defendant notified plaintiff of the defect, whereupon plaintiff agreed, after inspecting the coils at Syracuse, to issue to defendant a credit for the cost of the coils, which it did in February 1976 upon receipt of the eighteen coils in Holland. At the same time, plaintiff agreed to ship sixteen replacement coils "on open account," but with the understanding that payment would be forthcoming after acceptance of the replacement coils by defendant. Though subsequently defendant accepted this second shipment which plaintiff invoiced on June 30, 1975, defendant never made payment.

Because of cash flow difficulties on the part of defendant which made infeasible the prepayment required by the contract, no shipments were made through mid-August 1975. Nevertheless, pursuant to telephone requests by defendant's general manager, Robert Curtis, to plaintiff's managing director, William Schwartz, seeking further shipments on open account waiving prepayment, plaintiff made two further deliveries—invoiced on August 25 and September 9—of six and eighteen coils respectively. Defendant accepted both without complaint, but has to date failed to pay plaintiff for either of them.

A fifth and final shipment was made in mid-September and invoiced on September 16, but only after plaintiff had insisted upon and received assurance of prompt payment of $40,000 for the 24 coils included in this last delivery, which payment was received by plaintiff on September 19. On September 22 plaintiff submitted its final invoice covering $8,000 representing premiums paid by it to secure the two bonds provided for under paragraph five of the agreement.

During October and November 1975, plaintiff's director Schwartz had several conversations with defendant's general manager both by telephone and in person during the course of which it became evident—and Curtis subsequently confirmed— that defendant had been purchasing strand from another supplier, American Spring Wire of Cleveland, Ohio, upon terms which permitted deferred payment at least 60 days after shipment, rather than in advance as required by defendant's contract with plaintiff. In consideration of the falling market price of strand generally and of the large amount of strand already produced by plaintiff pursuant to the contract, Schwartz offered to modify the agreement in two respects: first, by permitting deferred payment by letter of credit at 60 days, and second, by reducing the price per thousand feet from $159 to $149. This offer was reaffirmed in a mailgram to defendant in early December and again in a letter dated December 23. To this proposal plaintiff received no reply.

In April 1976, Schwartz made a final attempt to salvage the contractual relationship between plaintiff and defendant when, accompanied by his counsel, he met with Curtis and defendant's Vice President, Walter Conlon, at defendant's offices in Deer Park, Long Island. He was informed by Conlon, however, that Conlon had no authority to receive shipment of any further strand from plaintiff under the contract. Schwartz' attempts to contact defendant's President, Vincent DeLillo, or his father, Andrew DeLillo, were unsuccessful.

Thus, at the time of this first communication to plaintiff by defendant of its firm intention not to honor the terms of the May 1975 agreement, plaintiff had made five shipments, totalling 96 coils, and had submitted six invoices totalling $193,947.86, including the $8,000 in bond premiums.³ Defendant, on the other hand, had made only two payments, totalling $101,124, but it had received from plaintiff in February 1976 a credit in the amount of $34,890.83 for the eighteen defective coils returned from the initial shipment. These amounts subtracted from the six invoices submitted by plaintiff resulted in an unpaid balance on strand delivered by plaintiff and accepted by defendant—including the amount of unreimbursed bond premiums—of $57,960.03. Of the approximately 1180 metric tons of strand provided for by the contract, defendant had accepted only 221.113 tons and had repudiated the remaining 958.887 tons, of which 317.891 tons had already been produced by plaintiff in anticipation of its obligations under the agreement.

Plaintiff's Production Capacity and Third-Party Sales

For the year 1975, plaintiff's estimated production capacity for steel strand was 13,000 metric tons and its projected production was 12,500 metric tons. This estimate of projected production was based on amounts actually manufactured by plaintiff in 1974, which was a boom year for the strand industry generally. The demand and market price began to decrease in 1975, however, and plaintiff's actual production dropped from 8,788 metric tons in 1974 to 6,923 metric tons in 1975.

Faced with this declining trend, plaintiff's director Schwartz became concerned in late 1975 about the still undelivered strand which had been produced during the second and third quarters of 1975 in anticipation of shipments required pursuant to the schedule in ¶ 3(e) of the contract. Though continuing efforts to salvage the contract and to accommodate the defendant regarding its financial difficulties, Schwartz determined to sell to third parties—and beginning in December 1975 did sell—portions of the strand originally intended for delivery to defendant. These sales were made at prices below that specified in the contract with defendant, but at commercially reasonable amounts in accord with market levels generally at the time of the sales. Because plaintiff manufactures only to order and not to stock and in view of the condition of the strand market at the time, it would have been commercially inadvisable to retain the undelivered strand awaiting resolution by defendant of its cash flow difficulties in expectation that defendant would then decide to comply with its obligations under the contract. Accordingly, between December 12, 1975 and December 23, 1977, plaintiff sold to various third-party purchasers 317.891 metric tons of strand previously produced for defendant but for which defendant neither submitted payment nor requested delivery.

Estimated Costs of Production

Plaintiff's claim for lost profit damages on the undelivered 958.887 metric tons of strand covered by the contract requires that the Court determine plaintiff's costs of production which became unnecessary as a consequence of defendant's refusal to accept delivery. Accordingly, after examination of all costs, we find (i) that cost of production to plaintiff in 1975 of a metric ton of one-half inch strand (270K), excluding fixed costs, was $394.57⁴ and that the fixed cost of...