Waukesha Foundry, Inc. v. Industrial Engineering, Inc.
| Decision Date | 01 August 1996 |
| Docket Number | No. 95-3648,95-3648 |
| Citation | 91 F.3d 1002 |
| Parties | 30 UCC Rep.Serv.2d 12 WAUKESHA FOUNDRY, INCORPORATED, Plaintiff-Appellee, v. INDUSTRIAL ENGINEERING, INCORPORATED, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Dean P. Laing (argued), O'Neil, Cannon & Hollman, Milwaukee, WI, for Waukesha Foundry, Inc.
Allan D. Krezminski (argued), Elm Grove, WI, Paul B. McNellis, Wyss, McNellis, Riebenack & Myers, Fort Wayne, IN, for Industrial Engineering, Inc.
Before CUMMINGS, BAUER, and KANNE, Circuit Judges.
Article 2 of the Uniform Commercial Code reflects an effort to harmonize the law of contract with the complexities incidental to the purchase and sale of goods in today's world of sophisticated commercial relationships. Several provisions of the UCC guide a determination of the specific terms and conditions contained in a contract for sale between two parties. In particular, section 2-207 addresses the inclusion of proposed additional terms to a contract absent the express written agreement of the parties.
This appeal from a diversity case in the Eastern District of Wisconsin requires that we determine whether a course of dealing between parties to a contract operated to include proposed additional terms in that contract under Wisconsin's adopted version of the UCC. 1 We agree with the district court that the additional terms were incorporated into the parties' contract and affirm.
During the time relevant to this lawsuit, Industrial Engineering, Inc., which is located in Indiana, machined steel castings into molds for use by Corning Asahi Video Products, a subsidiary of Corning, Inc., in the manufacture of glass television picture tubes. In 1989, Industrial began to order steel castings from Waukesha Foundry, Inc., which is located in Wisconsin. In light of Corning's specifications, Industrial was concerned that the castings supplied by Waukesha be of high quality, particularly with respect to the surface of the castings that was to come in contact with the molten glass during Corning's production of the picture tubes. This contact surface had to be free of the imperfections or pronounced porosity caused by inclusions or gas bubbles. According to Industrial, such defects were fatal, for Corning's specifications did not allow for the repair of these defects by welding because the repaired defect would manifest itself on the surface of the picture tube.
Industrial and Waukesha commenced their relationship and entered into a series of contracts for the sale of metal castings. The typical deal was fairly straightforward. Industrial would telephone Waukesha and place an order for a particular number of castings and then fax a confirming purchase order. The parties disagree over whether Waukesha would then send an acknowledgment form confirming the order. 2 After manufacturing the castings, Waukesha would ship the order to Industrial. It is undisputed that Waukesha enclosed with each order a packing slip and followed each shipment with an invoice. Printed on each packing slip and invoice was a list of terms and conditions of sale, which included the following:
Buyer agrees he has full knowledge of the conditions printed below, and that the same shall be the sole terms and conditions of the agreement between Buyer and Seller and shall be binding if either (1) the goods referred to herein are delivered to and accepted by Buyer, or (2) if Buyer does not within ten days from date of the Seller's acknowledgment deliver to Seller written objections to said conditions or any part thereof.
Paragraph eight of the conditions of sale, entitled "Warranty," reads as follows:
If the products sold hereunder are defective at the time of delivery in material and workmanship and written notice thereof is given to Seller no later than one (1) year (in case of pumps) or ninety (90) days (in case of foam generators and all other products) after shipment to Buyer, Seller, reserving the right to either inspect such defective products in the field or request their prepaid return to Seller will at its option repair or replace or give equitable credit or refund for such products determined by Seller to be defective provided that the products shall not have been altered or repaired by anyone except Seller's authorized representatives or operated contrary to Seller's instructions or subjected to misuse, operator negligence or accident.... IT IS EXPRESSLY AGREED THAT NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE, NOR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, IS MADE BY SELLER HEREUNDER. THE FOREGOING STATES SELLER'S ENTIRE AND EXCLUSIVE LIABILITY AND BUYER'S EXCLUSIVE AND SOLE REMEDY FOR ANY CLAIM OF DAMAGES IN CONNECTION WITH THE SALE OF THE PRODUCTS HEREUNDER. SELLER WILL IN NO EVENT BE LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES WHATSOEVER. 3
Industrial placed sixty orders with Waukesha between 1989 and 1993, and Waukesha claims that it sent Industrial a total of sixty acknowledgement forms, 234 packing slips, and 234 invoices during this four-year period.
There is evidence that some of the castings contained imperfections requiring repair and that Industrial weld repaired many of these defective castings with Corning's permission. Mr. Laffkas, Industrial's president, testified at his deposition that the parties negotiated an arrangement in these cases whereby Industrial would notify Waukesha of the defect and subsequent repair and Waukesha would then give Industrial an equitable credit of 10 percent of the casting's cost. Mr. Laffkas also testified that if the repairs were unsuccessful, Industrial would return the defective casting to Waukesha for replacement at no additional cost. He noted, however, that Industrial would absorb the costs of its failed repair attempt and of the missed deadlines for delivery to Corning. In any event, it appears from Mr. Laffkas's testimony that Industrial availed itself of the remedy provisions contained in Waukesha's transmitted documents on several occasions.
Neither party has offered a precise assessment of how many defective castings Waukesha delivered to Industrial. It appears that Industrial began to track the incidence of faulty castings and to submit documentation to Waukesha identifying faulty castings and seeking credit sometime in 1992. Both parties agree that according to Industrial's records, 31 percent of the castings inspected between April and December 1992 were defective. Industrial claims that it requested $30,407.94 in credit but received only $6,050.81 from Waukesha. The last shipment of castings was delivered sometime around early March 1993.
The evidence suggests that the parties operated under an agreement of net payment thirty days after delivery of the castings. However, in August 1992, Waukesha determined that it would no longer extend thirty-day credit to Industrial and notified Industrial that payment would henceforth be "COD." Mr. Kerwin, Waukesha's president, stated in an affidavit that Waukesha decided to change the payment terms because of Industrial's delayed payments and outstanding invoices in the summer of 1992 totaling more than $250,000. Industrial did not agree to this change of payment terms, and thus ended the relationship. At the time the parties terminated their dealings, Waukesha had manufactured ninety-one castings pursuant to Industrial's last order, but Waukesha never shipped these castings.
Waukesha filed a lawsuit against Industrial in Wisconsin state court on May 12, 1993, alleging that Industrial owed it $256,304.99 on outstanding invoices. Industrial removed the case to the Eastern District of Wisconsin on June 7, 1993, and filed a counterclaim on February 18, 1994, alleging that it had suffered cumulative losses of $1.2 million as a result of Waukesha's failure to deliver conforming castings in a breach of the parties' contract.
Waukesha filed a motion in limine to preclude Industrial from seeking any damages or adducing any evidence based upon its counterclaim. Waukesha characterized Industrial's counterclaim as "an afterthought attempt to reduce its undisputed liability to Waukesha Foundry on the unpaid invoices" and argued that under the UCC, it had properly limited remedies available to Industrial in the event of a breach by virtue of the express language contained in the acknowledgement forms, packing slips, and invoices. Waukesha stated that Industrial had accepted all the castings after being advised of these terms and had never objected to the terms. Waukesha also claimed that Industrial's return of castings for replacement and requests for credit constituted express acknowledgement and acceptance of these terms.
In opposition to Waukesha's motion, Industrial highlighted what remains an important factual dispute; it claimed that Industrial personnel "did not generally receive any written acknowledgment from [Waukesha] prior to receipt of the castings." Based on this fact, Industrial claimed that its telephone orders were acceptances of Waukesha's offers to sell and that its written purchase orders sealed the deals pursuant to the writing requirement of the statute of frauds contained in UCC § 2-201(1). It also stated that even if the limitation of remedies clause were enforceable, it failed of its essential purpose according to UCC § 2-719(2).
The district court granted Waukesha's motion on September 13, 1995, treating it as a motion for summary judgment on Industrial's counterclaim. The district court found that the course of dealing between the parties operated to add the additional terms containing the remedy limitations and warranty disclaimers to the contract. It then found that these terms did not fail of their essential purpose under UCC § 2-719. The district court subsequently indicated that it viewed its ruling on the motion in limine effectively to have eliminated any issue of fact deserving of a trial and scheduled a hearing on ...
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