Southern Illinois Stone Co. v. Universal Engineering Corp., 78-1225

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Citation592 F.2d 446
Docket NumberNo. 78-1225,78-1225
Parties25 UCC Rep.Serv. 1336 SOUTHERN ILLINOIS STONE COMPANY, a corporation, Appellee, v. UNIVERSAL ENGINEERING CORPORATION, a corporation, and Machinery, Inc., a corporation, Appellants.
Decision Date05 March 1979

Page 446

592 F.2d 446
25 UCC Rep.Serv. 1336
Machinery, Inc., a corporation, Appellants.
No. 78-1225.
United States Court of Appeals,
Eighth Circuit.
Submitted Nov. 14, 1978.
Decided Feb. 12, 1979.
Rehearing Denied March 5, 1979.

Page 448

Victor G. Savikas (on brief), of Karon, Morrison & Savikas, Chicago, Ill., argued, for appellants; John F. Newell, Chicago, Ill., Forrest M. Hemker of Greensfelder, Hemker, Wiese, Gale & Chappelow, and Tyree C. Derrick, St. Louis, Mo., on brief.

Richard G. Steele (on brief), of Finch, Bradshaw, Strom & Steele, Cape Girardeau, Mo., argued, for appellee; Lehman Finch and Stephen E. Strom, Cape Girardeau, Mo., on brief.

Before STEPHENSON, HENLEY and McMILLIAN, Circuit Judges.

HENLEY, Circuit Judge.

In this diversity action Universal Engineering Corporation and Machinery, Inc., the Sellers, appeal the decision of the district court 1 awarding Southern Illinois Stone Company, the Buyer, damages totalling $311,115.00 for the Sellers' breach of warranty of production capacity on rock crushing equipment manufactured and sold by them to the Buyer. We affirm the district court's decision holding the Sellers liable for breach of warranty but determine that the court erred in refusing to grant the Sellers' counterclaim pursuant to Illinois law for prejudgment interest on the unpaid balance of the purchase price.

The Buyer operates limestone quarries in Illinois and Missouri and sells crushed limestone to various local purchasers, including highway construction companies. In the early 1970's several interstate highways were being constructed in the Buyer's Illinois trade area and its Buncombe, Illinois plant could not meet the increased demand for crushed limestone. Consequently, it sought to increase the plant's production capacity and entered into negotiations with the Sellers for the design, manufacture and sale of new rock crushing equipment. 2 The Buyer signed purchase orders from both Sellers which provided for a purchase price

Page 449

of slightly over $400,000.00. These documents indicated that the purchased equipment was designed to create a "1,000 ton per hour plant."

The Buncombe plant, as modified by the purchased equipment, is divided into primary and secondary sections. In the primary section truck loads of limestone taken from the quarry are dumped into a "rock box" and are carried by a vibrating "grizzly feeder" to the primary rock crusher. The vibration of this feeder allows smaller stones to fall through a grate in the bottom of the rock box and onto a conveyor belt. Larger stones proceed through a rotary crusher that breaks them into smaller pieces which then fall on the same conveyor belt. This combined product is carried by the belt to a storage or "surge" pile at the end of the primary system. The secondary system is fed from the surge pile and consists of additional belts, feeders and crushers which sort and further reduce the size of the rock.

In designing the plant the parties determined the Buyer's existing equipment would suffice for the secondary system. Production was to be increased by adding a new primary system which consisted of a 5165 Impact Master rock crusher with a production capacity rated by the Sellers at 750 t. p. h., a vibrating grizzly feeder with a capacity of 780 t. p. h., a conveyor belt, and other related equipment. The Sellers recommended and sold this somewhat undersized primary system to the Buyer, apparently thinking it would give rise to a 1,000 t. p. h. plant because of the relatively soft nature of limestone. Such was not the case.

Problems with the primary system developed immediately. The Buyer, which was primarily responsible for installing the new equipment, discovered numerous missing and ill-designed parts. These problems were corrected and the plant became operational in August of 1972, but shortly thereafter a leg on the primary system conveyor belt buckled. The leg was repaired and strengthened by the Sellers and production continued until serious problems developed with the primary crusher. The crusher could not accept the heavy flow of rock carried to it by the grizzly feeder. This caused the rock to jam in the crusher and in turn necessitated a shutdown of the feeder. The Buyer cleared these rock jams by setting off small dynamite charges in the mouth of the crusher, causing the rock to break loose and fall into the crusher. Eventually, under the strain of the heavy crushing load and perhaps in part because of such dynamiting, the steel crusher rotor began to crack and had to be replaced on three separate occasions, each time causing a complete shutdown of the primary system. The parties worked together to solve this problem, with the Sellers providing new rotors and the Buyer providing the labor to install them. Repeated replacement of the rotor proved unsatisfactory, however, and in January of 1973 the Sellers agreed to install a larger crusher rated at a capacity of 1400 t. p. h. This replacement was completed in May of that year with the Sellers providing the new crusher and the Buyer providing the labor for installation. And, since the installation of the larger crusher, the plant has functioned satisfactorily.

The Buyer later brought this suit alleging the Sellers had breached their express and implied warranties that the primary system initially designed by them would produce an Average of 1,000 t. p. h. of crushed limestone. It sought damages for lost profits, excessive production costs and labor expenses. The Sellers contended they had warranted only that the primary system had a Capacity to produce 1,000 t. p. h. over short periods of time and under optimal operating conditions and that this warranty had not been breached. They counterclaimed for the unpaid balance of the purchase price and for prejudgment interest on that amount.

The case was tried before the district court without a jury, and the parties stipulated that the contractual issues were governed by Illinois law. The district court determined the rock box and conveyor for the primary system were properly designed

Page 450

and fit for the purpose for which they were sold. It also found the Sellers had not warranted that the 5165 crusher would produce an average of 1,000 t. p. h. of crushed limestone on a sustained, continuing basis but only that the crusher had the capacity to produce 1,000 t. p. h. "at any given period of time and under the most favorable operating conditions." Nevertheless, the court held that the Buyer's evidence of the inadequate performance of the 5165 crusher was sufficient to establish that it had not performed at the warranted capacity. This breach was, of course, terminated in May of 1973 when the 1,400 t. p. h. crusher was installed.

The court rejected the Buyer's claim for lost profits as too speculative and characterized its estimate of $800,000.00 excessive production cost damages as inherently unfair. But, after reviewing the Buyer's evidence of production cost damages, the court determined the Buyer had incurred "some" excessive production costs and evaluated this item of damages at the reduced figure of $300,000.00. In addition it awarded $10,000.00 for labor costs incurred by the Buyer in repairing the improperly designed primary system and $1,115.00 for miscellaneous expenses incurred in replacing missing or ill-designed parts. The Sellers were granted judgment on their counterclaim for the unpaid balance due on the purchase price but were denied prejudgment interest on this debt.

On appeal the Sellers contend the district court erred in finding them liable for breach of warranty because (1) the Buyer's evidence of breach of an average production warranty did not establish a breach of the 1,000 t. p. h. production capacity warranty; (2) the Buyer, in any event, was barred from recovery for the alleged breach because it failed to notify the Sellers of that breach as required by Illinois law; and (3) the Buyer's practice of dynamiting in the crusher constituted misuse of the purchased equipment which also bars recovery for breach of warranty as a matter of Illinois law. Additionally, the Sellers assert the Buyer's evidence of production cost damages was insufficient to support the district court's judgment. And, finally, they allege that the court erred in denying their claim for prejudgment interest on the unpaid balance of the purchase price.

The Warranty of Capacity.

The Sellers freely admit, as found by the district court, that they warranted the Buncombe plant's new primary system at a production capacity of 1,000 t. p. h. But they contend the court erred in finding a breach of this warranty.

Under the Uniform Commercial Code, which has been adopted in Illinois, the buyer has the burden of proving a breach of warranty with respect to accepted goods. Ill.Rev.Stat. ch. 26, § 2-607(4); Gillespie v. Werner Co.,43 Ill.App.3d 947, 2 Ill.Dec. 760, 357 N.E.2d 1203 (1976). Here the Buyer apparently conceded acceptance of the goods and instead argued the Sellers had breached their implied and express warranties that the plant's primary system, and in particular the 5165 crusher, would produce an average of 1,000 t. p. h. of crushed limestone. In support of this argument, the Buyer introduced numerous witnesses who testified to the repeated problems experienced in installing and operating the primary system.

After reviewing this testimony, the district court determined that (1) the conveyor belt leg had buckled because it had been improperly designed or because the Sellers had failed to instruct the Buyer on the necessity of "back-filling" around the legs to provide added support and (2) that the grizzly feeder and the 5165 crusher did not have the capacity to produce 1,000 t. p. h. of crushed limestone as warranted. This latter determination was based in part on the court's...

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