Servbest Foods, Inc. v. Emessee Industries, Inc.

• Decision Date: 17 March 1980
• Docket Number: No. 78-1144,78-1144
• Citation: 403 N.E.2d 1,82 Ill.App.3d 662,37 Ill.Dec. 945
• Parties: , 37 Ill.Dec. 945, 29 UCC Rep.Serv. 518 SERVBEST FOODS, INC., Plaintiff-Appellee, v. EMESSEE INDUSTRIES, INC., Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1

403 N.E.2d 1

82 Ill.App.3d 662, 37 Ill.Dec. 945,

29 UCC Rep.Serv. 518

SERVBEST FOODS, INC., Plaintiff-Appellee, v. EMESSEE INDUSTRIES, INC., Defendant-Appellant.

No. 78-1144.

Appellate Court of Illinois, First District, First Division.

March 17, 1980.

Robert J. Peters, Patrick F. Bradley, Harold S. Horwich, Chicago, for defendant-appellant.

Michael J. Smith, Martin P. Greene, Chicago, for plaintiff-appellee.

CAMPBELL, Justice:

Emessee Industries, Inc. (hereinafter Emessee) brings this appeal from a $76,478.96 judgment in favor of Servbest Foods, Inc. (hereinafter Servbest) by the circuit court of Cook County and from various orders of the trial court ordering production and imposing discovery sanctions upon Emessee. On appeal, Emessee contends that the trial court erred: (1) in granting Servbest contract damages as provided by Section 2-706 of the Uniform Commercial Code (hereinafter Code) (Ill.Rev.Stat.1973, ch. 26, par. 2-706); (2) in granting storage costs and prejudgment interest; and (3) in striking Emessee's affirmative defenses as a sanction for its noncompliance with certain discovery orders. We affirm.

The principal facts in this suit are undisputed. Servbest (as seller) and Emessee (as buyer) entered into a contract on January 23, 1974, for the sale of 200,000 pounds of 50% lean navel trimmings ¹ to be delivered by Servbest to Emessee on February 22, 1974. Under the terms of the contract, delivery of the meat to Emessee would be effected by the transmission of invoices and warehouse receipts. On a practical basis such a transfer required that meat held in cold storage in Servbest's account would be transferred on paper to Emessee's account. The contract further provided that payment of the $105,000 contract price, calculated at a rate of 521/2 cents per pound, was due on February 22, 1974, upon delivery of the meat as indicated above.

It is undisputed that on February 22, 1974, Servbest had 200,000 pounds of navel trimmings in cold storage in lot 19700 ² which conformed to the contract, and that the appropriate invoices and warehouse receipts representing such meat were delivered to Emessee on that date. It is also undisputed that Emessee made no payment of the contract price, or any portion thereof, on February 22, 1974, as required by the terms of the contract. Moreover, attempts by representatives of Servbest to contact Emessee's president, Martin Skolnik (hereinafter Skolnik), subsequent to that date in order to demand payment were futile. Such demand was made, however, to David Lanski, a representative of Emessee. On May 3, 1974, the meat was redelivered to Servbest. A letter acknowledging the redelivery was sent by Emessee to Servbest. In the letter Emessee stated that it considered the Servbest-Emessee contract and Servbest's invoice cancelled.

On July 17, 1974, Servbest filed suit against Emessee, alleging a breach of contract by nonpayment of the contract price. The complaint further alleged a mitigating resale of 200,000 pounds of navel trimmings on June 12, 1974, to a bona fide purchaser at 201/4 cents per pound. Emessee's answer denied the breach and alleged two alternative affirmative defenses: (1) that Servbest cancelled the contract relieving Emessee of any further obligations thereunder, including payment (Ill.Rev.Stat.1973, ch. 26, par. 2-703); and (2) that Servbest accepted a contract with a Silver Skillet Foods Company (hereinafter Silver Skillet) in accord and satisfaction of Emessee's obligations under the Servbest-Emessee contract.

On January 24, 1975, Servbest made a number of production requests of Emessee pursuant to Supreme Court Rule. (Ill.Rev.Stat.1973, ch. 110A, par. 214.) When Emessee failed to comply with these requests for approximately one year, Servbest moved to compel production and for attorney's fees and costs. (Ill.Rev.Stat.1973, ch. 110A, par. 219(a).) The court ordered Emessee to produce the requested documents or file an objection to the production requests. Emessee responded by generally objecting to all of Servbest's requests. It should be noted that our review is limited to a request, by Servbest, for the production of all documents reflecting loans "made, secured, received or guaranteed by Emessee during 1974." On August 27, 1976, after hearing full argument on the issues, the trial court ordered Emessee to produce the loan documents by September 15, 1976. The court reserved ruling upon Servbest's motion for costs and attorney's fees.

Subsequently, Emessee moved to vacate the August 27, 1976 order, asserting that the relevancy of the documents had not been established. Emessee filed a memorandum in support of its motion, to which it attached the affidavit of Martin Skolnik, Emessee's president. In the affidavit, Skolnik described his fear that disclosure of the requested loan documents would endanger Emessee's business. On October 5, 1976, the trial court, after a full hearing, denied Emessee's motion to vacate and set a November 1, 1976 compliance date.

In the next few months Emessee apparently made several offers to Servbest for partial compliance. ³ These offers were rejected and on December 6, 1976, when Emessee had still failed to comply, Servbest moved for an order holding Emessee in contempt and for attorney's fees and costs. In the December 20, 1976 hearing on Servbest's motion for contempt, Emessee sought to introduce the testimony of Skolnik as to the damage which could be suffered by Emessee if the loan documents were produced, but was denied leave to do so by the court. However, the trial court did offer to review the loan documents in camera and thereafter determine whether they should be turned over to Servbest. Emessee rejected this offer. The court orally cited Emessee for contempt but reserved ruling on the sanction to be imposed.

In the December 23, 1976 hearing on the issue of sanctions, Emessee was allowed to file an affidavit by Skolnik relating an incident in which Servbest's president, Kentor, made disparaging and derogatory remarks about Skolnik to an official of a bank where Emessee had a business relationship. In the affidavit, Skolnik went on to express the fear that disclosure of Emessee's loan documents would result in Kentor further damaging its reputation in the business community, which would consequently undermine its ability to obtain future financing. The trial court awarded attorney's fees but rejected Servbest's suggestion that a fine or imprisonment might be a feasible sanction in this case. Rather, the court determined that it would impose a sanction against the pleadings. This ruling, the court explained, was the result of Emessee's refusal to produce the pertinent documents for in camera inspection. The court further noted that Emessee could have sought a protective order to avoid impairment of its status and reputation within the business community.

On January 3, 1977, in a last attempt to avoid contempt, Emessee offered to unconditionally produce all of its loan documents reflecting the period from the date of the purchase order to the date of redelivery. As this offer did not reflect full compliance the trial court refused it on January 5, 1977 and ordered that both of Emessee's affirmative defenses should be stricken. Emessee appeals from the August 27, 1976, October 5, 1976, December 20, 1976, December 23, 1976, and January 5, 1977 orders of the trial court.

Because Emessee's affirmative defenses had been stricken, the sole issue at the trial was Servbest's entitlement to damages. Servbest introduced alternative methods ⁴ of valuing its contract damages. Servbest sought either the deficiency between the contract price and the amount recovered upon the sale of the meat identified to the contract or the deficiency between the contract price and the amount recovered upon the sale of the first 200,000 pounds of navel trimmings meeting the contract specifications which were sold after the redelivery of the meat by Emessee on May 3, 1974.

Servbest alleged the second alternative as a possible basis for calculating damages because navel trimmings are a fungible good as defined by the Code. (Ill.Rev.Stat.1973, ch. 26, par. 1-201(17).) In further support for this alternative, Kentor testified that it was Servbest's standard practice to ship meat on the basis of its storage expiration date. Consequently, Kentor concluded, it was only natural that the first 200,000 pounds of navel trimmings sold subsequent to the breach was meat which had the nearest expiration date rather than the meat from lot 19700. Emessee objected to the admissibility of any resale other than those asserted in the complaint or in Servbest's answer to Emessee's interrogatories.

In order to prove incidental damages, Servbest introduced a storage invoice for the storage of 287,550 pounds of meat in lot number 19700. It also claimed prejudgment interest on the total contract price from the date of the breach until the first mitigating resale and then pro rata until the entry of judgment.

Lanski and Kentor testified at trial as to whether Servbest gave Emessee notice of its intent to mitigate its damages after the breach by the resale of the 200,000 pounds of navel trimmings. Kentor and Lanski both testified as to a May 3, 1974 conversation that they had; however, the substance of that conversation was disputed. Lanski's version was that he informed Kentor of the impending redelivery of the navel trimmings and suggested that a requirements contract between Silver Skillet, a corporation in which Lanski was president, and Servbest at the same 521/2 cents per pound rate allowed Emessee would help remedy Servbest's profit loss from the Servbest-Emessee contract.

Kentor, while acknowledging the Silver Skillet contract, denied that the Silver Skillet contract in any way affected Emessee's obligations to Servbest. Rather, Kentor stated he informed Lanski that Servbest would take whatever recourse was available under the...