Sprague v. Sumitomo Forestry Co., Ltd.

• Decision Date: 27 November 1985
• Docket Number: No. 51116-1,51116-1
• Citation: 709 P.2d 1200,104 Wn.2d 751
• Court: Washington Supreme Court
• Parties: , 42 UCC Rep.Serv. 202 Clyde SPRAGUE and Charmalee Sprague, husband and wife, and the marital community composed thereof, Respondents, v. SUMITOMO FORESTRY COMPANY, LIMITED, a Washington Corporation, Appellant.

Page 751

104 Wn.2d 751

709 P.2d 1200, 42 UCC Rep.Serv. 202

Clyde SPRAGUE and Charmalee Sprague, husband and wife, and the marital community composed thereof, Respondents, v. SUMITOMO FORESTRY COMPANY, LIMITED, a Washington Corporation, Appellant.

No. 51116-1.

Supreme Court of Washington En Banc.

Nov. 27, 1985.

Watson & Longley, Ken Longley, Seattle, for appellant.

Perey & Smith, Ron J. Perey, James A. Smith, Jr. and Michael B. Tierney, Seattle, for respondents.

DORE, Justice.

This action involves a claim by Clyde Sprague against Sumitomo Forestry Company, Ltd. for breach of contract arising from Sumitomo's unconditional cancellation of a log purchase contract. A jury trial resulted in a judgment of $280,693.03 for Sprague. Except for one element of damages that we hold should have been excluded, we affirm.

FACTS

Sprague is a logger located in Enumclaw, Washington who has been active in buying, selling, harvesting and milling timber in various capacities. As it relates to the issues involved in this lawsuit, Sprague's business has two distinct aspects: the harvesting of timber on a contract basis for various timberland owners, and the purchase of United States Forest Service timber sales from which Sprague harvests and sells logs.

Sprague purchased a tract of timber, known as the Flip Blowdown from the United States Forest Service (USFS) in June 1979. This purchase consisted of approximately 850,000 board feet of old growth, high quality timber, primarily consisting of Douglas fir and western hemlock. Although the USFS contract originally required completion of the harvest by June 30, 1980, Sprague succeeded in obtaining a 1-year extension when a previous buyer defaulted on a purchase contract with Sprague.

In the summer of 1980, after the prior breach, representatives of Sumitomo contacted Sprague and expressed a strong interest in the Flip Blowdown timber. Sumitomo is a subsidiary of a large Japanese company engaged in the purchase and export of logs and lumber to Japan. Sumitomo functions in the Pacific Northwest as a division of the larger corporation, with all major decisions made by its board acting in Tokyo. Hiro Munakata, Sumitomo's log buyer, engaged in a detailed series of conferences with Sprague during July and August 1980. In these discussions, Sprague specifically explained the following to Munakata: (1) because of the earlier breach, Sprague was in precarious financial circumstances and could not withstand a similar breach of contract by Sumitomo; (2) Sprague wanted to perform the contract, as soon as possible, in 1980 so that he could return to other logging commitments which previously had been delayed.

Sprague and Sumitomo signed the contract on August 27, 1980. It is a 2-page document, drafted by Sumitomo, with one exception--Sprague insisted on the year "1980" being inserted as the time for delivery, emphasizing his need to promptly complete harvesting in order to meet scheduled logging commitments to another buyer, Mt. Baker Plywood.

Sprague performed under the contract and as of early October 1980 had felled approximately 100,000 board feet of logs on the Flip Blowdown site to Sumitomo's specifications. In mid-October 1980, Munakata advised Sprague that there were problems with Sumitomo's sawmill, and that Sumitomo might not be able to purchase the logs. Munakata apologized when Sprague reminded Munakata of his earlier assurances of performance.

On October 20, 1980, Sumitomo sent Sprague a letter unequivocally canceling the contract. This was followed by a meeting at Sumitomo's offices during which Sumitomo's general manager asked Sprague to sign an agreed letter of cancellation. Sprague refused. During a subsequent meeting, Munakata again requested Sprague to sign the cancellation letter but again Sprague declined. Ultimately Munakata apologized for Sumitomo's conduct and stated that Sprague had been very honest with him, and he told Sprague he had done nothing wrong, and informed him that he was quitting the company because of what it had done to Sprague.

Subsequent to receiving Sumitomo's unequivocal cancellation of the log purchase contract, Sprague promptly filed a complaint against Sumitomo for breach of contract. Sumitomo served its answer alleging that Sprague had an affirmative duty to mitigate damages.

After receiving Sumitomo's answer, Sprague mitigated his damages by reselling the timber to five different purchasers at private sales.

At trial Sprague sought to recover the difference between the contract price and resale price of the timber, together with incidental damages arising from Sumitomo's unequivocal cancellation. Sumitomo claimed mutual rescission and asserted affirmative defenses, including that Sprague "failed to proceed as required by RCW 62A.2-702 et seq."

At the end of Sprague's case, Sumitomo moved for a directed verdict. The court denied the motion except as to misrepresentation claims which had been introduced by amendment.

Via a special verdict form, the jury found (1) that there was no mutual rescission; (2) that there was a breach and no waiver; (3) that the contract price was $197,204 and the resale price was $144,924 with net contractual damages of $52,280; (4) that Sprague sustained incidental damages of $216,498 for the following items: (a) cost of refinancing, $39,674; (b) extra transportation cost, $5,612; (c) loss of revenue on Flip Blowdown not covered by contract, $9,121; (d) loss of logging time, 11 weeks, $171,200; and (e) cost of moving tower, $2,115.

The major thrust of Sumitomo's appellate argument here is that Sprague did not give the requisite notice of intention to resell the canceled goods as required by RCW 62A.2-706(3) and, therefore, Sprague is not entitled to recover the difference between the contract price and the resale price.

RESALE PRICE DIFFERENTIAL

The catalogue of a seller's remedies in a breach of contract case governed by the sale of goods provisions of the Uniform Commercial Code is found in RCW 62A.2-703. In the present case, the catalogue of available remedies can quickly be reduced to two; these are:

(1) resale and recovery under RCW 62A.2-706, or

(2) recovery of the difference between the contract price and the market price under RCW 62A.2-708(1).

At trial Sprague apparently proceeded, pursuant to RCW 62A.2-706, to recover as damages the difference between the resale price and contract price. RCW 62A.2-706(1) provides that if the seller acts in good faith and in a commercially reasonable manner, he may recover the difference between the resale price and the contract price, together with any incidental damages allowed under RCW 62A.2-710, less expenses saved.

RCW 62A.2-706(2) goes on to permit resale at public or private sale. Of critical importance here is the requirement of RCW 62A.2-706(3) which provides that where an aggrieved seller resells goods which are the subject of a breach at a private sale, he must give the buyer "reasonable notification of his intention to resell."

In response to his failure to give specific notice of intention to resell, and in support of his judgment, Sprague argues: that the lack of notice was an affirmative defense which the buyer failed to plead, or that the buyer, from all the surrounding facts and circumstances, knew or should have known that the seller was going to resell the logs.

We deal first with whether the buyer needed to plead affirmatively as a defense the admitted lack of actual notice. This issue has not been previously addressed in Washington and only a few courts have reached this issue. Notice has been termed a "prerequisite" and a "condition precedent" to section 2-706 damage claims. 3 A. Squillante & J. Fonseca, Williston on Sales § 24-7, at 417 (4th ed. 1974); Twin Bridges Truck City, Inc. v. Halling, 205 N.W.2d 736 (Iowa 1973). The burden of showing compliance with the notice requirement has been placed on the seller. Anheuser v. Oswald Refractories Co., 541 S.W.2d 706 (Mo.Ct.App.1976); Nipkow & Kobelt, Inc. v. Slifka, 18 U.C.C.Rep.Serv. 1213 (N.Y.1976); and Twin Bridges Truck City, Inc. v. Halling, supra.

Williston has analyzed the issue as follows:

Assuming that the seller has an affirmative duty to meet the requirements of § 2-706, a showing by the seller of compliance with this section would make it unnecessary for the buyer to raise a defense of lack of notice. All the buyer need do is show contradictory evidence of the seller's statement that he gave notice of his intention to resell.

3 A. Squillante & J. Fonseca, Williston on Sales § 24-7, at 418 (4th ed. 1974). This analysis, which finds notice as a prerequisite to bringing the claim, fits well with Washington law on affirmative defenses. CR 8(c) enumerates certain specific affirmative defenses which must be pleaded, but includes a general clause "and any other matter constituting an avoidance or affirmative defense." While this language is very general, it clearly contemplates matters which are in avoidance or are a specific affirmative defense. It would follow, therefore, that if notice of intent to resell is part of the seller's prima facie case, then lack of such notice would not have to be affirmatively denied.

To recover under RCW 62A.2-706, Sprague was required to give notice of intent to resell. This is an element of the seller's right to invoke the remedies of RCW 62A.2-706. Therefore, the buyer need not plead as an affirmative defense those elements which seller must prove.

Next, can the notice requirement be satisfied by the fact that the buyer knew or should have known that the seller intended to resell? From the plain language of RCW 62A.2-706, the giving by the seller of notice of intention to resell is a specific requirement to entitle seller to claim as damages the difference between resale price and the contract price. The words of subsection (3) are precise: "the seller must give the buyer reasonable notification of his intention to resell." (Italics...