SPS Industries, Inc. v. Atlantic Steel Co.

• Decision Date: 26 February 1988
• Docket Number: No. 75143,75143
• Citation: 366 S.E.2d 410,186 Ga.App. 94
• Parties: , 6 UCC Rep.Serv.2d 122 SPS INDUSTRIES, INC. v. ATLANTIC STEEL COMPANY.
• Court: Georgia Court of Appeals

Page 410

366 S.E.2d 410

186 Ga.App. 94, 6 UCC Rep.Serv.2d 122

SPS INDUSTRIES, INC. v. ATLANTIC STEEL COMPANY.

No. 75143.

Court of Appeals of Georgia.

Feb. 26, 1988.

James T. Perry, Atlanta, for appellant.

Walter G. Elliott II, Atlanta, for appellee.

McMURRAY, Presiding Judge.

On February 6, 1979, defendant Atlantic Steel Company sent to plaintiff SPS Industries, Inc., a "quotation request" seeking information regarding price, terms and delivery for six (three pairs) cast tooth mill pinions. The pinions were to be manufactured in accordance with defendant's specifications for use in a Blooming mill which defendant operated. Replying to defendant's request, plaintiff submitted a price quotation of $4,795 for each pinion; delivery was proposed to be made in "20-24 weeks." Thereafter, on March 5, 1979, defendant issued to plaintiff a "purchase order" which called for the delivery of six cast tooth mill pinions (at the price quoted by plaintiff) as follows: one pair to be delivered by July 25, 1979; a second pair to be delivered by November 1, 1979; a third pair to be delivered by January 5, 1980. In response to defendant's purchase order, plaintiff sent defendant an "order acknowledgement" which confirmed the delivery dates.

Plaintiff encountered numerous problems manufacturing the pinions and it did not meet the delivery dates. On August 6, 1979, defendant's purchasing agent sent the following letter to plaintiff: "It is imperative that you provide me with the information I requested on the subject orders during our telephone conversation last week. It would appear that the elapse of time since these orders were placed with your company would enable you to respond to delivery requests and to our need for your report on the defective pinions. Your immediate response is expected." Charles J. Wentz, plaintiff's president, deposed that ordinarily such a letter was referred to the appropriate personnel for a response. He did not know, however, whether plaintiff in fact responded to the letter.

Nearly 18 months after the delivery date specified in the contract, on January 14, 1981, plaintiff shipped the first pair of pinions to defendant. By that time, unbeknownst to plaintiff, defendant abandoned the operation of its Blooming mill (it was replaced by a "continuous caster") and it had no use for the pinions.

Several weeks after the delivery of the first pair of pinions, defendant notified plaintiff that it was cancelling the "remaining part" of the order. The cancellation took the form of a "change order" which was sent by defendant to plaintiff on February 16, 1981.

On February 18, 1981, plaintiff mailed a letter to defendant confirming a telephone conversation which took place on the previous day. Therein, plaintiff informed defendant that the charges for the cancellation of the four remaining pinions would be $13,840. In this regard, plaintiff advised defendant that of the four remaining pinions, two had been drawn to specifications and two were "in the as cast condition." Plaintiff concluded: "Per your telephone instructions all work on this order has been stopped until you advise [plaintiff] if we are to continue to finish these four (4) pinions or are to ship in present condition to your plant." Thereafter, on March 17, 1981, plaintiff sent defendant an invoice which acknowledged defendant's February 16, 1981, change order and set forth cancellation charges of $13,840.

On April 24, 1981, plaintiff received a letter from defendant stating, in pertinent part: "We received delivery of the first pair of ... pinions on January 14, 1981, nearly 18 months late, and we have yet to receive the second and third pairs of ... pinions. Thus, neither of the three deliveries meets the corresponding delivery dates which we agreed upon and the pinions ... are thus not acceptable to us.... [Defendant] thereby [sic] rejects the first delivery of ... pinions and [defendant] also rejects and cancels the two remaining deliveries. As stated in our Change Order dated February 16, 1981, we cancel the remaining two deliveries of the last four pinions ... and will not accept delivery of these. Due to our rejection of the subject pinions because of late delivery, it is the position of [defendant] that we are not responsible for payment of the first two pinions as detailed in your invoice # 1323 dated January 14, 1981, nor for the cancellation charges as detailed in your invoice # 1341 dated March 17, 1981."

In view of defendant's refusal to make payment, plaintiff brought this action in the State Court of Fulton County seeking to recover $23,940 (the price of the delivered pinions plus the cancellation charges). Defendant answered the complaint, alleging, inter alia, that plaintiff was not entitled to a recovery because it breached the parties' contract. Additionally, defendant counterclaimed, alleging it incurred damages as a result of plaintiff's purported breach. Following discovery, defendant moved for summary judgment. Its motion was accompanied by a statement of undisputed material facts (in accordance with Rule 6.5 of the Uniform State Court Rules). Paragraphs 6 and 7 of the statement read: "On August 6, 1979, [defendant] sent and [plaintiff] received a letter demanding immediate assurance that the first pair of pinions would be promptly delivered. ... Plaintiff did not respond to defendant's letter ..." In Paragraph 11 of the statement, defendant asserted: "On February 6, 1981 [defendant] notified [plaintiff] that it had no use for the pinions and that it did not want them."

Opposing defendant's summary judgment motion, plaintiff submitted the affidavit of Charles J. Wentz, its president. In the affidavit, Wentz deposed that the letter which plaintiff received from defendant on April 24, 1981, was "the first statement of any kind, by [defendant] that it was rejecting delivery of the first two mill pinions ... [and] the first indication that [defendant] would not pay the CANCELLATION charges as detailed in [plaintiff's] prior invoice." Plaintiff did not file a formal response to defendant's statement of undisputed material facts.

Following a hearing upon defendant's summary judgment motion, the trial court entered summary judgment in favor of defendant with regard to the main claim. In pertinent part, the trial court's order read as follows: "The parties contracted in March, 1979 for Plaintiff to deliver six pinions to Defendant, one pair on each of the following dates: July 25, 1979, November 1, 1979, and January 5, 1980. The first pair of pinions was not delivered on July 25, 1979. On August 6, 1979, Defendant demanded in writing assurances of due performance. Plaintiff, by making no response to that request and by not making any delivery until on or after January 14, 1981, approximately 18 months late, repudiated the contract. OCGA § 11-2-609. Delivery of the first pair of pinions was rejected within a reasonable time on February 6, 1981, plaintiff having failed to timely dispute Defendant's statement of undisputed material fact that Defendant notified Plaintiff on February 6, 1981, that Defendant had no use for the pinions and that it did not want them since the mill for which they were ordered had been closed. Moreover, Defendant cancelled the contract and remaining four pinions within a reasonable time."

Plaintiff appeals, asserting the existence of genuine issues of material fact and the inappropriateness of summary judgment. Held:

1. Defendant contends it is entitled to summary judgment because plaintiff repudiated the contract as a matter of law. In this regard, defendant argues that it demanded adequate assurance of due performance and that plaintiff failed to respond to the demand, thereby repudiating the contract. We disagree. Viewing the evidence favorably to plaintiff, as we are bound to do, Blount v. Seckinger Realty Co., 167 Ga.App. 778, 779, 307 S.E.2d 683, we find genuine issues of material fact with respect to the repudiation issue. Specifically, factual questions exist concerning (a) whether defendant had reasonable grounds for insecurity, (b) whether defendant demanded adequate assurance of due performance, (c) whether plaintiff failed to respond to the demand and (d) whether defendant proceeded as if a repudiation never took place.

(a) OCGA § 11-2-609(1) provides: "A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return." The Code section makes it clear that in order for a party to demand adequate assurance, he must first have "reasonable grounds for insecurity." As observed in Cole v. Melvin, 441 F.Supp. 193, 203 (D.S.D.1977), "the drafters of the code did not intend that one party to a contract can go about demanding security for the performance of the other whenever he gets nervous about a contract. Some reason for the demand for assurance must precede the demand."

"Whether in a specific case a buyer has reasonable grounds for insecurity is a question of fact." AMF, Inc. v. McDonald's Corp., 536 F.2d 1167, 1170 (7th Cir.1976). Do the facts show that defendant had reasonable grounds for insecurity when it sent its letter of August 6, 1979? We think not. "Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards." OCGA § 11-2-609(2). Reviewing the record, we can find no evidence showing the reasonableness of grounds for insecurity on August 6, 1979, by any objective standard. Cole v. Melvin, 441 F.Supp. 193, 203, supra. Compare AMF, Inc. v. McDonald's Corp., 536 F.2d 1167, 1170, supra.

(b) OCGA §...