Stratton Industries, Inc. v. Northwest Georgia Bank

• Decision Date: 25 May 1989
• Docket Number: A89A0547,Nos. A89A0546,s. A89A0546
• Citation: 191 Ga.App. 683,382 S.E.2d 721
• Parties: , 10 UCC Rep.Serv.2d 387 STRATTON INDUSTRIES, INC. v. NORTHWEST GEORGIA BANK. NORTHWEST GEORGIA BANK v. STRATTON INDUSTRIES, INC.
• Court: Georgia Court of Appeals

Page 721

382 S.E.2d 721

191 Ga.App. 683, 10 UCC Rep.Serv.2d 387

STRATTON INDUSTRIES, INC. v. NORTHWEST GEORGIA BANK.

NORTHWEST GEORGIA BANK v. STRATTON INDUSTRIES, INC.

Nos. A89A0546, A89A0547.

Court of Appeals of Georgia.

May 25, 1989.

Alston & Bird, W. Terence Walsh, Donna P. Bergeson, Atlanta, for appellant.

Hansell & Post, R. Matthew Martin, Atlanta, Clifton M. Patty, Jr., Ringgold, for appellee.

SOGNIER, Judge.

Northwest Georgia Bank (the Bank) brought suit against Printaire Systems, Inc., to obtain a writ of possession for certain carpet dyeing equipment pledged by Printaire as collateral for a loan obtained from the Bank to fund development and manufacture of the equipment. The system had been ordered from Printaire by Stratton Industries, Inc., a carpet manufacturer, and installed at Stratton's facilities. Stratton moved to intervene in the action filed by the Bank, and its motion was granted. The Bank then asserted claims against Stratton for the unpaid balance of the purchase price, and for damages under various theories. After the close of the evidence at trial, the trial court denied the Bank's motion for a directed verdict on the issue of Stratton's liability for the full amount of the purchase price based on its acceptance of the equipment. The jury returned a verdict for the Bank for $191,000 plus prejudgment interest as damages for the decline in value attributable to Stratton's delay in returning, disposing of, and dismantling the equipment. Judgment was entered thereon, and Stratton appeals. The Bank cross-appeals from the trial court's denial of its motion for directed verdict.

The record reveals that the equipment was the machinery and parts for an innovative method of dyeing carpet using air pressure to force dye foam into the carpet's pile. It was hoped that the new process would result in dramatic savings in dyes, chemicals, and energy costs. The system consisted of a twelve foot dye head and vertical and horizontal steamers, as well as various other parts and related accessories. The purchase price for the entire system was $581,500. Stratton made a downpayment of $181,000 with its purchase order, which was executed on April 18, 1980 with the balance due in installments, the final installment being due on or before January 2, 1981, when the equipment was to have been fully installed and functional. In connection with the purchase order, Printaire also executed a performance agreement, signed by Herman Caldwell, its president, which provided that if the equipment failed to perform as agreed Printaire would refund the downpayment and remove the equipment. On July 15, 1980, three months after Stratton executed the purchase order, the Bank made the first of its loans to Printaire, which in turn executed the first of two security agreements to the Bank, granting the Bank a security interest in the equipment it was developing. In March 1981 Printaire also assigned to the Bank all its accounts receivable, including that of Stratton, and Caldwell personally guaranteed Printaire's notes to the Bank.

The equipment was installed late and testing began in July 1981 and continued for some months thereafter. Because they were unable to resolve certain persistent problems in the operation of the system, by various letters of agreement Stratton and Printaire repeatedly extended the deadline they had set for proper performance of the equipment, with the final extended deadline being June 15, 1982. However, before reaching that final deadline, in May 1982, Printaire ceased operations and Cherokee Machinery, the company actually constructing the machinery for Printaire, filed for protection from its creditors under the bankruptcy laws. The Bank then commenced efforts to gain possession of the collateral or otherwise secure payment of the Printaire loans.

After complex negotiations among Stratton, the Bank, and Caldwell fell through, Burton M. Gold, Stratton's chief executive officer, sent separate but identical letters to Carl Griggs and Caldwell, two of the three principals in Printaire (the third had left the country), dated February 15, 1983, in which Stratton unequivocally rejected the equipment and demanded a refund of all monies paid. In the letter, Gold alleged that Stratton had paid $193,698.35 under the purchase order and was thus owed that sum by Printaire under the performance agreement. The letter stated that "[a]s this equipment has not proven to be satisfactory, Stratton hereby requests a prompt full refund ... and the subsequent removal of the equipment from its Main Plant...." No response was received to the letter, and the equipment remained at Stratton's facility for the next nine months in virtually the same condition.

In November 1983, Stratton began efforts to modify the Printaire equipment, other than the dye head, so that at least portions of it, including the steamers, might be made to work with a dye head ordered from another manufacturer. Finally, Stratton dismantled the equipment, using neither the dye head nor the steamers manufactured by Cherokee for Printaire, but incorporating certain other minor portions of the equipment into a new dyeing system. The remainder of the equipment was stored. In 1987, long after Stratton had intervened in this action, Stratton advised the Bank that it would no longer store the remaining unused portions of the original equipment, and after advising the Bank that it would do so, removed and retained some other parts of the system and returned the rest to the Bank. After storing the returned equipment briefly, the Bank sold it for $5,000.

1. We first consider the cross-appeal, in which the Bank asserts that as a matter of law Stratton accepted the equipment because Stratton's actions in modifying the equipment, dismantling it improperly, and using parts of it constituted acts inconsistent with Printaire's ownership, and thus the trial court erred by denying its motion for a directed verdict on that issue. Noting that OCGA § 11-2-606(1)(c) provides that despite an attempt at rejection "[a]cceptance of goods occurs when the buyer ... [d]oes any act inconsistent with the seller's ownership," the Bank argues that retention and use or modification of goods have been held to be such acts as are inconsistent with the seller's ownership, citing W.M. Hobbs, Ltd. v. Accusystems of Ga., 177 Ga.App. 432, 339 S.E.2d 646 (1986), and Fiat Auto U.S.A. v. Hollums, 185 Ga.App. 113, 363 S.E.2d 312 (1987). These abstract principles of law, although otherwise correct, are inapplicable here. In both W.M. Hobbs and Hollums the purchasers were dealing with already manufactured goods bought from dealers who remained in business and could have been contacted had the purchasers actually desired to return the goods. Instead, those purchasers, while notifying the sellers of their desire to reject the goods, also continued to use the goods.

In the case sub judice, the record reveals that the equipment was not in existence when ordered by Stratton. There is no dispute that the equipment being developed was new and revolutionary in the field of carpet dyeing. It is also uncontroverted that Stratton had paid some $193,000 toward the purchase of the equipment, that the equipment did not function satisfactorily, and that Stratton waited 9 months for Printaire (or the Bank) to respond appropriately to its letters of rejection before attempting to take some action to salvage its investment.

Although the Bank argues that it sought to recover the equipment and was refused by Stratton, and although the record reveals that negotiations took place between Stratton and the Bank with a view toward returning at least portions of the equipment and crediting Stratton with the amount it had paid for the nonfunctioning equipment as part payment for some other parts, the record reveals no offer by the Bank, as Printaire's assignee, to refund Stratton's downpayment. On the contrary, the evidence shows that in February 1983, Stratton made an absolutely unequivocal demand that Printaire remove the equipment and refund Stratton's money, to which the Bank, although aware of Stratton's February 1983 letter, made no response.

" 'In reviewing the overruling of a motion for a directed verdict, the proper standard to be utilized by the appellate court is the "any evidence" test. (Cits.)' [Cit.]" Summerour v. St. Joseph's Infirmary, 160 Ga.App. 187, 188, 286 S.E.2d 508 (1981). Under the circumstances presented here, viewing the evidence in the light most favorable to Stratton, as required, see Concrete Constr. Co. v. Atlanta, 176 Ga.App. 873, 874(2), 339 S.E.2d 266 (1985), we find some evidence existed that Stratton's actions after its unequivocal rejection (i.e., modifying, altering, and using parts of the equipment) were undertaken to protect the investment it had made which, in view of Printaire having ceased operations and the lack of response to its letters, Stratton felt it...