Shepherd v. Aaron Rents, Inc., A92A2040

Decision Date09 March 1993
Docket NumberNo. A92A2040,A92A2040
Citation208 Ga.App. 139,430 S.E.2d 67
PartiesSHEPHERD et al. v. AARON RENTS, INC.
CourtGeorgia Court of Appeals

Rogers & Hardin, C.B. Rogers, John J. Almond, Alston & Bird, G. Conley Ingram, Robert D. McCallum, Jr., James C. Grant, Atlanta, for appellants.

Long, Aldridge & Norman, James J. Thomas, II, Paula R. Miller, Atlanta, for appellee.

BLACKBURN, Judge.

On October 1, 1987, Aaron Rents, Inc., purchased an office furniture company called Ball Stalker Company from the appellants, James M. Shepherd, Jr., and Ball Stalker Holding Company (the sellers). The purchase price was $2,500,000 cash, plus assumption of approximately $5,500,000 in liabilities, and the sales contract contained purported warranties by the sellers regarding the saleability and value of certain company inventory. That inventory eventually sold for much less than its value represented in the contract, andAaron Rents subsequently commenced this action against the sellers for a breach of those warranties. A jury returned a verdict for Aaron Rents in the amount of $398,000 damages, $11,144 prejudgment interest, and $150,000 attorney fees due to the sellers' bad faith in the underlying transaction. This appeal followed the denial of the sellers' motion for judgment n.o.v. and, alternatively, for new trial.

Ball Stalker Company sold two basic types of office furniture: "case goods," which consisted of assembled, stand-alone items such as tables, chairs, desks, and credenzas; and custom "systems," which consisted of furniture created by assembling many components and parts designed for a particular office. These custom systems involved combinations of up to 1,000 parts, 30 to 40 different fabrics, and approximately 100 colors. The components and parts made by one manufacturer were not compatible with those of another manufacturer, and even components of one line of furniture made by a manufacturer could not be interchanged with those of another line by the same manufacturer.

The company inventory that became the subject matter of this lawsuit consisted of miscellaneous components and parts (from various manufacturers) left over from installations of custom systems. This systems inventory, some of it in boxes and some not, was stored in a dusty concrete basement with no air conditioning. Use of these leftover components and parts in creating new systems proved difficult because of the variation in size, color, fabric, finish, and number of different manufacturers of the products, and the lack of any perpetual inventory tracking system.

Charles Harper was the chief operating officer of Ball Stalker Company from September 1985 until Aaron Rents' acquisition of the company in October 1987, when he was given primary responsibility over the company's warehouse, delivery, and installation operations. At trial, Harper testified that no more than five percent of the systems inventory had been sold during the two years preceding the acquisition. He did not recall any sales or dispositions of that inventory having occurred from June 1, 1987, to October 1, 1987. After Aaron Rents' acquisition of the company, Harper intensified the efforts to sell the systems inventory, such as by increasing commission incentives on that inventory, but over the course of the next two years he was able to sell off the inventory for a total of only $200,000. In retrospect, Harper was of the opinion that the systems inventory could not be sold in the ordinary course of the business.

An expert on "systems" furniture also testified that, without a remanufacturing division (which Ball Stalker Company did not have), the prospects for using leftover components and parts were "slim to none." He stated that in the furniture industry, such leftovers are considered to be "scrap," and generally are not saleable in the ordinary course of a dealer's business. He estimated the value of leftover systems components and parts to be five percent of the dealer cost.

The company's book value assigned to that systems inventory as of May 31, 1987, however, had been $1,117,446.95. There were no other inventory counts and valuations between the time of the May 1987 inventory count and Aaron Rents' acquisition of the company. In October 1987, the current cost of the systems inventory was assessed at $1,352,000.

1. The sales contract executed on October 1, 1987, provided that "[a]s an inducement to purchaser to enter into this agreement," the sellers warranted that the systems inventory (a) was "of a quality and quantity usable and saleable in the ordinary course of the company's business," and (b) was "carried on the company's books of account at the lower of cost or market, with the exception that certain items of inventory ... may have a realizable market value which is less than the values at which such items are carried on the company's books. Such difference should not exceed approximately $250,000." On appeal, the sellers contend that this contract provision merely constituted a nonactionable expression of opinion as to value, and was not a warranty.

" 'The decisive test, in determining whether language used is a mere expression of opinion or a warranty, is whether it purported to state a fact upon which it may fairly be presumed the seller expected the buyer to rely and upon which a buyer would ordinarily rely. If the language used is of that character, the fact of reliance on the part of the buyer and the presumption of intent on the part of the seller which the law would raise in such a case would operate to create a warranty.' " Smith v. Frazer, 144 Ga. 85, 88, 86 S.E. 225 (1915). " 'No particular form of words is necessary to constitute a warranty.... To make an affirmation at the time of sale a warranty, it must appear to have been so intended, and not to have been a mere expression of opinion.... [W]hether the words used amount to a warranty or not, is a question for the jury. ...' " Bell v. Menzies, 110 Ga.App. 436, 438, 138 S.E.2d 731 (1964).

In the instant case, the contract prefaces the purported warranty regarding the value of the systems inventory by stating that it was given as an inducement to enter the agreement. The purported warranty assigned a specific value to the inventory, i.e., that carried on the company's books, and indicated that the valuation was a conservative one. It certainly could be found that the terms of this purported warranty were intended to cause the purchaser's reliance upon the valuation, and that the assigned valuation was so definite and factual, that it would not be mere opinion. The fact that the sellers reserved a "cushion" of $250,000 regarding the valuation of some of the inventory further suggests that the sellers intended to give a warranty, inasmuch as such a cushion to avoid liability would be unnecessary if merely an opinion were expressed. Under these circumstances at least a jury question existed as to whether a warranty was made, and the trial court properly denied the sellers' motion for directed verdict and motion for judgment n.o.v. on this ground.

2. The sellers also contend that the...

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