Wells v. 10-X Mfg. Co.
| Decision Date | 30 October 1979 |
| Docket Number | 77-1411,Nos. 77-1410,s. 77-1410 |
| Citation | 609 F.2d 248 |
| Parties | 27 UCC Rep.Serv. 612 William P. WELLS d/b/a Recmart, Plaintiff-Appellee, Cross-Appellant, v. 10-X MANUFACTURING COMPANY, Defendant-Appellant, Cross-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Timothy Wittlinger Hill, Lewis, Adams, Goodrich & Tait, Detroit, Mich., for defendant-appellant, cross-appellee.
James J. Harrington, III, Fitzgerald, Young, Peters, Bruno & Bunn, Neill T. Peters, Lisa Sewell DeMoss, Detroit, Mich., for plaintiff-appellee, cross-appellant.
Before CELEBREZZE, Circuit Judge, PHILLIPS, Senior Circuit Judge, and THOMAS, District Judge. *
10-X Manufacturing Company (10-X) appeals from a judgment of the district court finding it liable for breach of contract in this diversity action brought by William P. Wells d/b/a Recmart (Wells) for breach of contract, negligence, and fraud. Wells cross-appeals from a separate judgment of the district court in which he was awarded money damages for the breach. The contract in question concerned the manufacture by 10-X of chamois cloth hunting shirts for Wells.
The issues of liability and damages were tried separately before the district court. In its memorandum opinion of January 6, 1977, the district court found 10-X liable solely on the ground of breach of contract. The court found the subject matter of the contract to be within the scope of the Uniform Commercial Code (the Code or U.C.C.), as it has been adopted in Michigan, 1 concluding that the contract was for the special manufacture of goods and was a transaction in goods, rather than a contract for services as 10-X had urged.
After a hearing on the issue of damages, the district court filed a memorandum opinion on February 22, 1977, awarding damages to Wells in the amount of $40,292.15. The district court relied on § 2-713 of the U.C.C. as the measure of damages for the breach, allowing the difference between the market price of the shirts at the time of the breach and the contract price, together with incidental damages, but less the expenses saved by Wells in consequence of 10-X's breach. The court found that Wells was not entitled to damages for precontractual expenses incurred by him in the development of the shirt.
The principal issue raised on this appeal is whether the Code, as it has been applied in Michigan, governs the contract between Wells and 10-X. We conclude that the Michigan Supreme Court would not view the contract in this case as coming within the purview of the Code. However, it is the opinion of this court that under the common law of Michigan 10-X was in breach of its contract with Wells, for which Wells is entitled to damages.
On May 9, 1973, Wells contacted C. R. Blume, the president of 10-X, by telephone concerning the possibility of 10-X manufacturing a chamois cloth hunting shirt. Wells had developed the design for the hunting shirt and hoped to take advantage of a perceived marketing opportunity in the area of recreational apparel. However, Wells was principally marketing oriented and preferred not to become directly involved in manufacturing.
With respect to the development of the shirt, Wells had consulted an apparel manufacturer and department store buyers for the purpose of determining design and price. Other preliminary steps included the development of a pattern and prototype shirt, a style preference study, and a mail order advertising marketing study, all of which were completed by early 1973. Wells followed his initial contact with a letter to Blume on May 10, 1973, in which Wells suggested a contract for the manufacture of 550 dozen shirts. The shirts were to be of various sizes, made from two different colors of chamois cloth according to Wells' sample and specifications, with shipments from 10-X to begin on or before August 1, 1973.
Blume wrote Wells on May 23, 1973, quoting a price of $3.30 per unit to "cut, make, and finish (the shirts) including thread and freight," and proposed to start delivery of the shirts in August, with completion of the 550 dozen shirts over a 60 to 90 day period. Blume estimated that "seconds" could be kept within two percent. On May 29, 1973, Wells wrote Blume and informed him that the $3.30 cost per unit and two percent allowance for seconds were acceptable. Wells stated that delivery had to begin by August 1, 1973, and earlier if possible, with the entire order completed by mid-October. In a telephone conversation between Wells and Blume on June 4, 1973, Blume agreed to Wells' delivery requirements. During the course of these negotiations it was agreed by the parties that Wells would furnish fabric, buttons, labels, patterns for the samples, graded patterns, cutting dies, and packaging materials for the shirts.
By June 13, 1973, Wells had sent 10-X the materials necessary for making a production sample, including a sample shirt, fabric, buttons, labels, patterns, and pattern notes. A production sample of the shirt was made by 10-X so that any potential design or manufacturing problems could be corrected before starting the actual production run. On July 16, 1973, Wells went to the 10-X plant in Des Moines, Iowa, to inspect the production sample. Although the sample had not been completed because the buttonhole machine was not working, Wells approved the sample with only minor changes. 2 Wells discussed with 10-X officials the shirt's manufacturing tolerances, which were more restrictive than those recognized in the trade for heavy-weight shirts. However, officials of 10-X agreed to manufacture the shirts in accordance with the specifications required by Wells. At no time was Wells advised that there would be any difficulty in meeting these tolerances. The parties further agreed to begin production immediately with a 200 unit sample cut.
On August 1, 1973, Wells went to Des Moines to check on the progress of the shirt. No shirts had been completed at that time and the buttonhole machine was still malfunctioning. On August 6, 1973, Wells wrote Blume concerning the delay in the manufacture of the shirts. Wells detailed a revised production and delivery schedule for the shirt that had been formulated by Mark Eliot, the 10-X vice-president in charge of operations. Wells further stressed that, for Recmart to be successful with the shirt, time was of the essence and the shirts had to be uniformly of the high quality that had been discussed previously by the two men.
On August 13, 1973, Wells returned to Des Moines. The buttonhole machine was still not working properly and no shirts had been completed. By August 15, 1973, some shirts had been finished, but they contained numerous defects in workmanship and did not conform to the tolerances agreed to by the parties. Wells and Michael Anderson, chief operating officer of 10-X, agreed that further cutting on the shirt would be discontinued and that 10-X would complete only the 1,616 shirts that had already been cut.
Wells received the first 25 shirts completed by 10-X on August 31, 1973. The shirts were individually inspected and did not meet the tolerances the parties had agreed upon. Moreover, the shirts contained numerous defects in workmanship, including uneven stitching, crooked collars, and inexact placement of the buttons and buttonholes. A similarly defective shipment of approximately two dozen shirts was received by Wells from 10-X on September 4, 1973. A third shipment of approximately two dozen shirts arrived from 10-X the following day and was returned by Wells unopened.
Wells ordered complete termination of production on September 7, 1973. A decision to stop all work on the chamois cloth shirts had been made by 10-X the previous day.
In its memorandum opinion finding 10-X liable to Wells for breach of contract, the district court first considered whether the agreement between the parties was governed by the Code. The court noted that the Code defines the parameters of its application in U.C.C. § 2-102 generally to include "transactions in goods," unless the context of a particular section requires otherwise. The court further pointed out that the primary definition of "goods" in U.C.C. § 2-105 specifically includes "specially manufactured goods." The court found that "10-X agreed to manufacture for Wells a specially designed chamois cloth shirt for which Wells was to provide all materials except thread," and concluded the contract for manufacture of the shirts was covered by the Code. The court discounted, for purposes of application of the Code to contracts for sales, the fact that Wells supplied substantially all the materials for the production of the shirt.
The court next noted that the negotiations between Wells and Blume were "consummated by a contract for the sale of goods," pursuant to U.C.C. § 2-204, which contract was modified a number of times by the parties in accordance with U.C.C. § 2-209. The court further stated, with respect to the stringent tolerances Wells had required in the manufacture of the shirts, that U.C.C. § 1-205 dictates that the express terms of a contract control over both "course of dealing" and "usage of trade" in an industry. Finally, the court observed that U.C.C. § 2-314 implies into every contract for the sale of goods a warranty of merchantability.
The district court then stated, on the issue of breach of contract, as follows:
First, the evidence is clear that 10-X produced only 78 shirts under its contract with Wells. Even when the contract was mutually rescinded on August 15, the parties agreed to continue production on the 1,616 units already cut; the number of shirts actually produced under this contract is less than 11/2% Of the number originally agreed upon.
Second, no shirts were delivered until August 31, three weeks later than the modified agreement required and far too late for Wells to meet the demand precipitated by his magazine advertising.
Third, the...
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