Perfecting Service Co. v. Product Development & Sales Co., 251

• Decision Date: 29 April 1964
• Docket Number: No. 251,251
• Citation: 136 S.E.2d 56,261 N.C. 660
• Parties: PERFECTING SERVICE COMPANY, a corporation, v. PRODUCT DEVELOPMENT AND SALES CO., a corporation, and Radiator Specialty Company, a corporation.
• Court: North Carolina Supreme Court

Page 56

136 S.E.2d 56

261 N.C. 660

PERFECTING SERVICE COMPANY, a corporation, v. PRODUCT DEVELOPMENT AND SALES CO., a corporation, and Radiator Specialty Company, a corporation.

No. 251

Supreme Court of North Carolina.

April 29, 1964

Pierce, Wardlow, Knox & Caudle, and Stuart R. Childs, Charlotte, for plaintiff.

Weinstein, Waggoner & Sturges, and T. LaFontine Odom, Charlotte, for defendants.

MOORE, Justice.

This is an action to recover damages for an alleged breach of a contract for the manufacture, sale and delivery of merchandise.

A former appeal in this cause was heard by us at the Spring Term 1963. Perfecting Service Co. v. Product Development & Sales Co., 259 N.C. 400, 131 S.E.2d 9. A new trial was ordered. The Court's opinion on that appeal sets out a comprehensive summary of the pleadings as they were then cast. Thereafter, on 14 November 1963, the superior court entered an order permitting defendants to amend their answers. The answers were amended so as to change somewhat the bases and nature of defendants' affirmative defenses. The questions posed by the present appeal relate only to the pleadings. It is therefore necessary that we summarize the pleadings as they now are.

The complaint alleges in substance: Defendant, Radiator Speciality Company (hereinafter Radiator), obtained license to manufacture and sell a patented device, a free-wheeling fan unit for automobiles, later called 'Fan-O-Matic.' Radiator conferred with plaintiff in late 1955 and early 1956 and proposed that plaintiff manufacture the parts for Fan-O-Matic. Drawings of the inventor's model were presented to plaintiff, and at Radiator's request plaintiff made drawings and designs and fabricated a model unit, for which service Radiator paid plaintiff $1700. Revisions in the design were made and Radiator authorized plaintiff, by purchase order dated 13 June 1956, to procure dies and molds for the manufacture of Fan-O-Matic parts, for which tools Radiator agreed to pay $8750. At the same time, by another purchase order, plaintiff was directed to manufacture and deliver parts for 10,000 units, Radiator to pay $6.86 per unit therefor. Thereafter, defendant Product Development and Sales Company (Product Development) was organized and incorporated, and with the consent of plaintiff assumed all liabilities of Radiator under the purchase order of 13 June 1956. Radiator guaranteed to plaintiff in writing the payment of the obligations assumed by Product Development. On 4 February 1957 Product Development paid plaintiff $8750 pursuant to the purchase order for dies and molds. Plaintiff purchased materials and manufactured 300 units and delivered them for testing and approval. Plaintiff was then requested to proceed with dispatch in manufacturing and delivering the remaining 9700 units. After a considerable number had been manufactured and delivered, Product Development, in breach of its contract, directed plaintiff to cease manufacturing operations, asked that the contract be rescinded, refused to accept further deliveries, and declined to make any further payments on account. Plaintiff is entitled to $58,126.61 damages from Product Development for breach of the purchase order, and Radiator is liable therefor under its guaranty.

Radiator and Product Development, in separate answers, deny that they are obligated to plaintiff in any amount, and allege in almost identical language facts, in substance except where set out verbatim, as follows (paragraphing and numbering ours):

(1). Radiator acquired license for the manufacture and sale of Fan-O-Matic, exhibited a model thereof to plaintiff, and plaintiff agreed to engineer and design 'a new and improved model' and construct a sample unit. On 10 April 1956 Radiator submitted to plaintiff purchase order No. 14888, agreeing to pay plaintiff $1700 for

'Necessary services and materials to engineer and design our 'Fan-O-Matic' unit. Drawing for dimensions furnished by you. Necessary dimensions furnished by us. Drawing and sample of the finished unit to be furnished by you and will be our property. Quotation on production unit. In quantities of 5,000 and 1,000 over 1 year period to be furnished with drawing and sample.'

(2). In submitting the foregoing purchase order Radiator 'completely relied on the skill and judgment of plaintiff in engineering and designing the new Fan-O-Matic unit; plaintiff knew this; Radiator had advised plaintiff that it would sell the units to jobbers and dealers for resale to car owners; and Radiator paid plaintiff $1700 for the engineering and designing service and the making of the sample model.

(3). Later, plaintiff advised that, in preparation for manufacture of the units, tools, dies and molds would have to be acquired at a cost of $8750, and on 13 June 1956 Radiator delivered to plaintiff purchase order No. 15067, as follows:

'Necessary services and materials for the making of tools covering various dies and molds for the manufacture of our Fan-O-Matic Unit.

$8,750.00

The above due and payable immediately upon approval by us of sample units made from the dies and molds.'

(4). On 13 June 1956 Radiator also delivered to plaintiff purchase order No. 15068 (accepted and approved by plaintiff) whereby Radiator ordered 10,000 units at the price of $6.86 per unit. The order contained the following provisions:

'10M Fan-O-Matic Units, completely assembled, ready for shipment, packed bulk. Units to be made in accordance with drawing 1222-100-RS with proposed and discussed changes per your letter June 8, 1956. Drive plate aluminum metallized, cast iron free-wheeling hub covered with a light coat of blue rust-preventive paint.

Deliveries as follows:

300 on or before Sep. 10, 1956.

2M Per month thereafter.

Perfecting Service Co. guarantees that the Fan-O-Matic Unit will be manufactured in accordance with the approved design, and will be functioning correctly in accordance with the data supplied by Radiator Specialty Company. * * *

All material and workmanship shall be guaranteed for a period of 18 months after shipment of first production lot.'

(5). Radiator proceeded to advertise Fan-O-Matic nationally, and printed circulars for distribution by its salesmen and outlets. In due time Radiator received 4000 orders and others were coming in.

(6). Product Development was chartered for the purpose of purchasing the units from plaintiff. With the consent of plaintiff, Radiator 'cancelled its purchase orders, Nos. 15067 and 15068, * * * and * * *Product Development * * * issued its purchase orders numbered 101 and 102, both dated November 30, 1956. ' Radiator thereafter guaranteed the credit of Product Development. It was 'with the understanding of all parties concerned' that Product Development would purchase the units from plaintiff and sell and deliver them to Radiator for resale to the trade. Product Development agreed to sell the units to Radiator at the price of $8.58 per unit, and plaintiff knew this; Product Development 'agreed to sell such units to * * * Radiator * * * with all express and implied warranties theretofore made by plaintiff.'

(7). The first deliveries were made after 1 January 1957 and as soon as they were received by the trade complaints began to come in 'that the units were flying apart and that the bolt on the center bearing seat was breaking off; the defendants immediately complained to plaintiff. ' Plaintiff made certain changes and assured defendants the units were in perfect operating order and would cause no more trouble. In reliance upon these assurances, defendants accepted further deliveries.

(8). On 1 February 1957 Product Development paid plaintiff $8750 on account of purchase order No. 102 (for tools, dies and molds), and in the letter of transmittal of payment said, '* * * we want it understood this payment does not constitute an acceptance or approval of the performance of the Fan-O-Matic unit in accordance with your guarantee * * *.'

(9). Plaintiff actually delivered 2877 units to Product Development; it delivered 2334 units to Radiator, which in turn shipped them to their customers; 'that within due time thereafter, the defendant Radiator Speciality Company began receiving complaints from all over the United States from jobbers, dealers, and customers, to the effect that the Fan-O-Matic unit, upon installation upon various models of automobiles, was flying apart, and that the parts of the Fan-O-Matic were striking fans, motors, radiators, batteries, and causing all kinds of damage to the motor vehicles upon which they were installed; that the defendant Radiator Specialty Company was called upon to pay damages to owners of motor vehicles for damage caused to such motor vehicles by the Fan-O-Matic unit; that because of the mounting complaints and inherent dangers involved, it became necessary for the defendant Radiator Specialty Company to advise all of its jobbers to return all of the Fan-O-Matic units theretofore shipped out; that, accordingly, 2,161 Fan-O-Matic units were returned to the defendant Radiator Specialty Company by the purchasers thereof, many of same being in broken condition resulting from failure to properly operate.'

(10). Immediately thereafter Radiator refused to accept any further deliveries from Product Development, and the latter advised plaintiff it would refuse to accept any more units because of defective engineering, designing, materials and workmanship, and demanded that the purchase order be rescinded.

(11). In addition to the express warranties, plaintiff impliedly warranted that the units were fit for the purposes for which they were sold; all warranties were breached. The units were not merchantable 'in that they were improperly designed and engineered by plaintiff,' and materials and workmanship were defective. Defects could not be detected by inspection and became apparent only in use. The units were worthless and there was a complete failure of consideration.

(12). 'That if the said fan...