Plastic Moldings Corp. v. Park Sherman Co., s. 77-1387
| Decision Date | 28 September 1979 |
| Docket Number | 77-1388,Nos. 77-1387,s. 77-1387 |
| Parties | 27 UCC Rep.Serv. 407 The PLASTIC MOLDINGS CORPORATION, Plaintiff-Appellant, v. PARK SHERMAN COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Richard F. LaRoche, Sr., Murfreesboro, Tenn., Louis F. Gilligan, Richard Creighton, Keating, Muething & Klekamp, Cincinnati, Ohio, for plaintiff-appellant.
Stanley M. Chernau, Denney, Lackey & Chernau, Stephen M. Miller, Nashville, Tenn., for defendant-appellee.
Before ENGEL and MERRITT, Circuit Judges, and PECK, Senior Circuit Judge.
Park Sherman Company manufactures disposable cigarette lighters at its plant in Murfreesboro, Tennessee. In October 1973, Park Sherman contracted to purchase from Plastic Moldings Corp., an Ohio concern, plastic parts for the lighters. The components supplied by Plastic Moldings never conformed to Park Sherman's specifications, despite year-long efforts to rectify the problem and salvage the deal. In this diversity action, the District Court awarded Park Sherman consequential damages for breach of express warranties and ordered restitution of monies Park Sherman had paid for the molds that produced the defective plastic parts. On appeal, Plastic Moldings does not contest its liability but raises various objections to the relief granted. We affirm as to all but one item of the District Court's award.
The basic terms of the contract are not in dispute. Plastic Moldings agreed to produce, and Park Sherman agreed to buy, 5,000,000 units of each of four different plastic parts that could be assembled into finished lighters. The four parts were the lighter tank, the fluid plug, the tank bottom, and the thumb lift. The District Court found that Plastic Moldings had expressly warranted that all of the parts ordered would conform to specifications submitted by Park Sherman. The parts were to be manufactured from molds, precisely tooled so that each part produced would match every other part of the same kind and so that all four kinds of parts could be easily assembled and machine-welded into lighters ready for sale to Park Sherman's customers. Under the agreement, Plastic Moldings assumed the responsibility for obtaining molds capable of producing parts up to specifications, and Park Sherman agreed to purchase the molds at a price equal to Plastic Moldings' cost of obtaining them.
In June 1974, approximately six months behind schedule, Park Sherman finally received samples of the four parts for approval. The samples were unsatisfactory, and Park Sherman so informed Plastic Moldings. Modifications of the molds were requested and made. The first shipment under the contract came in August 1974. Some of the parts were undersized, the bottoms did not fit the tanks, the threads by which the plugs were supposed to fit into the lighters were not uniform, and there were numerous other defects. In the words of the District Court, "the production was a disaster."
Park Sherman immediately notified Plastic Moldings of these problems, and the parties collaborated on possible solutions in a series of meetings. During the course of these negotiations, shipments under the contract continued. As Plastic Moldings knew from the outset of the transaction, Park Sherman faced a demanding production schedule of its own, having accepted orders for several thousand lighters from various distributors. Hoping to make the best out of a bad situation, Park Sherman thus resolved to continue accepting deliveries, to use whatever portion of each shipment could be salvaged, and to reject the rest. Throughout this period, Plastic Moldings promised that the defects could be, and would be, corrected and actually made several changes in the molds to that end. Plastic Moldings was at all times on notice that its performance was unsatisfactory and that, as a result, Park Sherman was incurring additional production costs. The defects were never significantly corrected, and, in April 1975, Park Sherman refused to take any more deliveries. In the meantime, it had made arrangements with another molding company for an alternative supply of plastic lighter components.
This litigation began when Plastic Moldings brought suit in Tennessee state court for the price of all parts that had been accepted but not paid for by Park Sherman. Park Sherman removed the case to Federal Court 1 and counterclaimed for damages and other relief alleging breach of warranty. After a bench trial, the District Court awarded Plastic Moldings $33,218.97, representing the total unpaid price of parts Park Sherman had accepted under the contract. Park Sherman has not appealed that ruling. On Park Sherman's breach of warranty counterclaim, the District Court entered a judgment against Plastic Moldings totaling $144,309.72, from which Plastic Moldings now appeals. 2
The District Court's award of consequential damages included the following items:
1) $5,275.68 for increased production costs caused when Park Sherman was forced to use hand labor to assemble the usable parts rather than machines;
2) $18,147.05 for the cost of hand sorting and matching usable lighter tanks and bottoms which would not have been incurred had the tanks and bottoms conformed to specifications;
3) $17,783.49 for the purchase of certain substitute parts necessitated by the fact that valve openings in the parts provided by Plastic Moldings were undersized; and,
4) $14,447.15 lost on the return of numerous finished lighters to Park Sherman by its customers because the lighters were defective.
1. Plastic Moldings' principal claim is that Park Sherman was not entitled to recover consequential damages of any sort on its breach of warranty claim, because the loss sustained by Park Sherman was occasioned by its own decision to accept and use the defective parts. Framed in the language of Tennessee's version of Article II of the Uniform Commercial Code, 3 which governs the rights and liabilities of the parties. The argument is that Park Sherman has been wrongfully compensated for a "loss . . . which could (have) reasonably (been) prevented by cover or otherwise." 4
We agree with the District Court that this was an appropriate case for consequential damages 5 and reject Plastic Moldings' claim. It was commercially reasonable for Park Sherman to continue accepting deliveries under the contract and to attempt to salvage the usable portion of Plastic Moldings' non-conforming tender while awaiting the outcome of Plastic Moldings' efforts to cure the defects. Indeed, any other course of action would have been perilous.
Under a contract to be performed in installments such as this one, a buyer may cancel the contract only upon a "nonconformity or default with respect to one (1) or more installments (which) substantially impairs the value of the whole contract." 6 In view of Plastic Moldings' assurances that it could cure the defects and that later shipments would eventually conform to specifications, Park Sherman could not safely have concluded that the nonconformity of the early installments would substantially impair the value of the whole contract and thus might have found itself in breach of the contract had it followed the advice Plastic Moldings now offers. It is not surprising that, facing a $144,000 judgment, Plastic Moldings now wishes that Park Sherman had breached the contract at the outset so that Plastic Moldings could have escaped the consequences of its own breach of warranty. But that is hardly a valid criticism of Park Sherman's decision not to risk breach and to continue in the contractual relationship until Plastic Moldings' inability to produce parts as warranted had become apparent.
Moreover, even assuming that Park Sherman could have backed out of the deal at some earlier time without breaching the contract, that course certainly was not required. Upon discovery of the defects in the early shipments, Park Sherman was entitled to insist that shipments continue on schedule and that the defects be cured, I. e., that Plastic Moldings perform as agreed. And, by timely notifying Plastic Moldings of the defects in the parts shipped, Park Sherman preserved all of its remedies under the Code, including its right to consequential damages under § 2-715 for breach of warranty as to any parts accepted. 7 Plastic Moldings did not present any evidence at trial to suggest that Park Sherman failed to "cover" with an immediately available alternative source of plastic lighter components or that Park Sherman unreasonably delayed in seeking the alternative supplier it ultimately found. 8 Nor is there anything in the record to indicate that Park Sherman otherwise failed to mitigate its loss. 9 In these circumstances, Plastic Moldings' attack upon the award of consequential damages is unpersuasive.
2. Plastic Moldings specifically challenges only one item of the consequential damages award. Plastic Moldings argues that, even assuming Park Sherman is entitled to recover some measure of consequential damages, the District Court should not have included in the award the $18,147.05 Park Sherman was forced to spend sorting and matching lighter tanks and bottoms, designated as item # 2 above. The claim is that a buyer should not be entitled to any allowance for the time and labor spent in separating conforming goods from nonconforming goods and rejecting the latter. In other words, Plastic Moldings asserts that a buyer should ordinarily bear the expense of inspecting goods tendered by a seller to determine whether the goods are conforming and to decide what portion of them, if any, will be rejected. 10
We have no quarrel with that general proposition, but we think it beside the point in this case, because it is clear that the award of sorting and matching costs did not operate to compensate Park Sherman for such ordinary inspection expenses. If Plastic Moldings...
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