SULLIVAN-WALDRON PROD. CO. v. Indiana Limestone Co., 11004.

• Citation: 216 F.2d 70
• Decision Date: 15 October 1954
• Docket Number: No. 11004.,11004.
• Parties: SULLIVAN-WALDRON PRODUCTS COMPANY, Plaintiff-Appellant, v. INDIANA LIMESTONE COMPANY, Inc., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

216 F.2d 70 (1954)

SULLIVAN-WALDRON PRODUCTS COMPANY, Plaintiff-Appellant, v. INDIANA LIMESTONE COMPANY, Inc., Defendant-Appellee.

No. 11004.

United States Court of Appeals Seventh Circuit.

October 15, 1954.

Eugene M. Fife, Jr., Indianapolis, Ind., William K. Bachelder, Chicago, Ill., for appellant.

Alan W. Boyd and Herbert E. Wilson, Indianapolis, Ind., Jerry P. Belknap, Indianapolis, Ind., for defendant-appellee, Barnes, Hickam, Pantzer & Boyd, Indianapolis, Ind., of counsel.

Before MAJOR, FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Plaintiff, Sullivan-Waldron Products Company, brought this action for breach of a contract whereby defendant undertook, for a stated consideration, to manufacture for plaintiff 200,000 "Whipsters", semi-mechanical devices for whipping cream. The complaint averred that defendant sub-contracted with the Stone City Machine & Tool Company, hereinafter referred to as Stone City, to do the actual manufacture; that because of faulty manufacture, the finished products failed to conform to the contractual specifications; and that, by reason of these allegedly faulty products reaching the market, and ultimately the consumer, plaintiff's market for them was ruined, causing it extensive losses in repairs of defective products, restitution of purchase price to customers and waste of its extensive investment in advertising and other promotional schemes on behalf of the device.

Defendant answered, admitting execution of the contract in suit and the subcontract with Stone City, but denying all allegations of any breach on its part. Defendant also filed a counterclaim based on the contract for an amount allegedly due and unpaid to defendant for devices manufactured by it and delivered to plaintiff's order pursuant to the contractual terms.

The cause was referred to a special master, who, after hearing the testimony and receiving voluminous documentary evidence, entered findings of fact and conclusions of law favorable to defendant on both the complaint and counterclaim. The District Court rejected the master's report in part, and, as thus modified, adopted it as the basis for judgment in favor of defendant from which plaintiff takes this appeal. Plaintiff's position on appeal can be best understood after narration of pertinent contents of the master's report.

In his conclusions of law, the master adopted an erroneous theory of liability, namely, that a condition in the contract that defendant "replace without charge all defective parts, which are due to faulty workmanship or materials" limited plaintiff's right to recover to the reasonable cost to it of replacing such defective parts, and that defendant's liability was contingent upon a showing by plaintiff that it had made such a demand which had been refused. This theory was embodied in the master's Conclusion of Law Number 1. Conclusion Number 2 applied the same conception to preclude plaintiff's recovery of certain special damages claimed. These conclusions were ultimately rejected by the trial court as erroneous.

Notwithstanding his determination, however, the master entered findings of fact addressed to the true issues raised by the pleadings. The contractual relationship between the parties and that between defendant and Stone City were found to be as previously stated. Pursuant thereto, retooling of Stone City's plant for Whipster production was completed and ten initial models were manufactured and shipped to plaintiff for its inspection, by early September, 1946. Plaintiff submitted to defendant numerous criticisms of the models, based on inspection conducted by plaintiff's agent, Northwest Research. Although many of the objections were based on claimed structural defects and departures from the contractual specifications, several were addressed to defects in design requiring changes in plaintiff's specifications. Numerous changes were made in Stone City's tooling and manufacturing procedures in order to eliminate or alleviate these objectionable features. In September, 1946, at plaintiff's request, Northwest sent one Burns to Stone City's plant located in Bedford, Indiana, to oversee the entire Whipster program. Burns remained at Bedford in that capacity, first as a representative of Northwest and later as an employee of plaintiff, throughout the period of time pertinent to this cause.

Shortly after Burns' arrival at the plant, actual production of the device was begun in late September, 1946. During all pertinent times, Burns was the active overseer for all manufacturing and shipping operations connected with Whipster production. The devices and all component parts thereof were subjected to strict inspection by inspectors employed by defendant and Stone City. Burns established all final inspection procedures and the standards of acceptability of the completed devices. As manufacturing progressed, many difficulties of the type usually associated with initial production of any new product were encountered, and changes in design and manufacturing procedures were worked out by Burns and representatives of defendant in attempts to eliminate these undesirable factors as they presented themselves from time to time.

The devices manufactured and passed through final inspection substantially complied with plaintiff's drawings and specifications. Relative to this, plaintiff employed a special inspection crew, under Burns' supervision, which worked from January, 1947, to the end of March, 1947, inspecting all Whipsters warehoused at defendant's plant and consigned to plaintiff, and more than 20,000 units were accepted and set...