Opinion
Nos. 33895 and 33896
Decided January 12, 1955.
Sales — Written contract containing exclusive remedies of purchaser — Defects in goods sold — Purchaser limited to specific remedies — Sale of machinery by detailed description — Machinery delivered to and used by purchaser — Purchaser not entitled to recoupment or damages, when.
1. Where a sale of goods is made by a written contract which contains exclusive remedies available to the purchaser in the event of any defect in the design, construction, material or workmanship of such goods, the purchaser is bound by and limited to such remedies in the event of any defect in such design, construction, material or workmanship.
2. Where a sale of machinery is made as a result of a written purchase order submitted by the purchaser, describing the machinery to be delivered by the seller and containing a detailed description of the machinery and provisions that verbal instructions or agreements relative to or altering the order will not be recognized, that no changes will be made except upon written instruction, that defective machinery will be returned at the seller's expense, that no machinery returned as defective may be replaced without a formal replacement order, and that all machinery will be subject to the purchaser's inspection and rejection, and where the machinery is delivered to the purchaser by the seller and the purchaser keeps and uses the same until the completion of a contract with a third party, for the performance of which contract the purchaser ordered the machinery, and where thereafter the purchaser sells the machinery and retains the proceeds therefrom, such purchaser may not either claim recoupment as against a demand for the purchase price or claim special damages because of alleged defects in the design, construction, material or workmanship of such machinery.
APPEALS from the Court of Appeals for Hamilton County.
These two appeals are in an action originally instituted in the Court of Common Pleas of Hamilton County by the Marion Machine, Foundry Supply Company, hereinafter designated plaintiff, a corporation under the laws of Indiana and with its principal place of business in the city of Marion, Indiana, against The Cincinnati Coffin Company, a corporation under the laws of Ohio and hereinafter designated defendant. The United States of America appears as a defendant, its interest in the controversy arising by reason of an alleged assignment to it of a part of any recovery secured by defendant against plaintiff, and it asserts no claim other than the derivative one.
In plaintiff's petition, filed December 8, 1947, it is alleged that plaintiff entered into a contract with defendant whereby plaintiff agreed to manufacture for defendant one double-action 100-ton hydraulic press, in accordance with the requirements and specifications agreed to between plaintiff, defendant and one J.N. Leake, a resident of Monroe, Michigan; that plaintiff agreed in the contract to sell and deliver the press to defendant, and defendant agreed to purchase the press for the sum of $38,000, of which sum defendant paid $19,000 at the time of the contract and agreed to pay the balance of $19,000 on completion of the press; that the press was manufactured and completed in accordance with the requirements and specifications; that plaintiff performed all the conditions required by the contract; that on March 5, 1947, it made demand on defendant for payment of the balance due; and that at all times since such date defendant has refused and still refuses to pay the balance of $19,000 or any part thereof.
Plaintiff prays for judgment in the sum of $19,000, with interest at six per cent per annum from March 5, 1947, and costs.
Defendant filed an amended answer and cross-petition in which it admits the contract; alleges that the press was to receive the approval of Leake upon completion, and that the press was not completed, did not have the approval of Leake and was not received by defendant; admits that the purchase price was to be $38,000, of which $19,000 has been paid by it; denies that plaintiff manufactured and completed the press in accordance with the agreed requirements and specifications, and that plaintiff performed all the conditions required by the contract; and alleges that the contract provided for delivery of the press on or before December 15, 1946, and that plaintiff breached the contract, in that the press was not installed until March 5, 1947.
Defendant's amended answer alleges further that the press, after delivery, was defective in design, construction, material and workmanship; that it failed to comply with the speeds specified; that it failed to operate a great part of the time from March 5, 1947, to the date of the filing of the amended answer, which was June 17, 1948; that the press and its parts repeatedly blew out and leaked oil excessively; that the electrical wiring was defective and had to be replaced; that the electric motors were inadequate and secondhand and had to be replaced with new and higher-horsepower motors; that plaintiff, until September 10, 1947, made repeated repairs in attempting to make the press operate properly; and that thereafter the press broke down repeatedly so that defendant was required to employ others to repair it.
Defendant's amended answer alleges further that the contract of purchase between it and plaintiff incorporated by reference, and made it subject to, terms and conditions of quartermaster's contract No. W12-036-QM-19710 by and between defendant and the United States through the War Department; that pursuant to such government contract the press was to produce stampings and drawings as component parts of caskets for the United States' repatriation-of-war-dead program; that such government contract included a delivery schedule of stampings from defendant's subcontractor, The Leake Stamping Company of Monroe, Michigan, of which company J.N. Leake was president, and in whose plant this press was installed by plaintiff; that these stampings were to be assembled and built into caskets by defendant at its plant in Cincinnati; that the schedule provided for the delivery of 50,000 completed caskets by December 28, 1948, but, due to the defective condition of the press installed by plaintiff and its frequent breakdowns, The Leake Stamping Company was prevented from producing more than 33,000 completed sets of stampings; that defendant was delinquent in its contract in the amount of approximately 21,000 finished caskets; and that if the contract was not completed by August 15, 1948, defendant would be liable to the United States in the sum of approximately $3,500 per day.
Defendant's amended answer alleges further that on or about June 4, 1947, defendant notified plaintiff that the press continued in a defective condition; that damages due thereto were increasing daily; that in order to mitigate such damages defendant was required to and would purchase a press which would operate properly and enable it to comply with the terms of its government contract; and that thereafter it purchased another press for a sum of approximately $180,956.48, in which sum the United States, by assignment, had an interest in the amount of $42,826.41.
Defendant's amended answer alleges further that due to the defective press it was necessary for defendant to maintain its plants at Cincinnati with a force of employees who were idle and partly idle during periods of the breakdowns, resulting in damages in the approximate sum of $208,120.41; and that plaintiff had been notified it would be held responsible for all such costs, expenses and damages resulting from the failure of the press to operate efficiently and continuously.
Defendant's amended answer alleges additional damages in smaller amounts due to repairs to the press by defendant, and that plaintiff owes defendant large sums of money in excess of the sums claimed to be due plaintiff, because of damages resulting from the condition of the press.
Defendant's amended cross-petition substantially adopts and restates all the facts set forth in the answer and prays for judgment against plaintiff in the sum of $408,563.17, plus interest.
The intervening petition of the United States alleges that it and defendant are the owners of the cause of action set forth in the amended cross-petition; that they have agreed that judgment on the amended cross-petition may and should be rendered jointly in favor of them; that the proceeds of such judgment will thereafter be divided between them in such a manner as they shall agree; that the cost of the purchase and installation of the second press totaled $180,956.48; and that defendant has assigned to the intervenor a portion of that obligation, in the sum of $42,826.41. The intervenor prays that the petition of plaintiff be dismissed, and that judgment be rendered in favor of defendant and the intervenor jointly for all the relief prayed for in the amended answer and cross-petition of defendant, plus the sum of $42,826.41 on intervenor's cross-petition.
Amendments of and supplements to the amended answer and cross-petition were filed September 21, 1951, claiming additional damages for delays between the dates of the filing of the amended answer and cross-petition and the completion of the contract, to which supplements the United States, joining with the defendant, filed an answer.
Plaintiff filed a second amended reply which denies generally the allegations in the defendant's amended answer and amendments and supplements thereto and incorporates a second amended answer to defendant's amended cross-petition and the supplements thereto. This second amended answer incorporates and adopts the allegations in the second amended reply and admits that plaintiff had received an order for the press in accordance with the terms alleged by defendant in its cross-petition; that it had accepted this order on October 15, 1946; that the press failed to operate part of the time between the date of its installation and December 18, 1947; that certain repairs and alterations were made on the press by both plaintiff and defendant after its installation at the plant of the Leake company in Monroe, Michigan; and that there existed quartermaster's contract No. W12-036-QM-19710 and a contract between defendant and the Leake company, pursuant to which the company agreed to manufacture casket parts. Such answer denies each and every other allegation contained in defendant's cross-petition.
Defendant filed a reply to plaintiff's second amended answer, denying that the government contract was made on October 18, 1946, and alleging that the award thereon was made August 2, 1946.
The cause was tried to a judge and jury.
As part of plaintiff's cause it introduced the purchase order submitted to it by defendant. This document is as follows:
"Purchase Order No. 1072-10
Marion Machine Foundry Company
Marion, Indiana.
"Quantity Description Unit Price Total 1 Double action hydraulic press, As specified below: 60 x 120 — 1000 ton-press 750 ton on press 250 ton on blank holder Blank holder cylinder 2-12" dia. Punch cylinder 3-16" dia. Pull-back cylinder 4-5" dia. Max stroke of blank head 30" Max stroke of punch 42" Blank holder size 60 x 120 Blank holder opening 40 x 100 Plunges slide size 38 x 98 300" closing speed max 70" draw speed max
"Press to be made in accordance with requirements and specifications agreed upon between your company and Mr. J.N. Leake, and to receive his approval upon completion of the press.
"Shipping data to be issued by Leake Stamping Co. Price _____ $38,000.
"Invoice The Cincinnati Coffin Co.
"Delivery — on or before Dec. 15, 1946
"Terms: 50% with order — 50% when press is completed
"FOB Marion, Indiana
"MM priority.
"* * *
"Acceptance of this order shall constitute acceptance of the terms and conditions on the face and reverse side hereof."
Upon the reverse side of defendant's purchase order No. 1072-10, among the printed conditions, the following appears:
"Verbal instructions or agreements relative to or altering this order are unauthorized and will not be recognized; no changes shall be made except upon written instruction.
"* * *
"Defective goods will be returned at your expense including incoming freight, and credit taken on vouchers. No goods returned as defective may be replaced without our formal replacement order. All goods shall be subject to our inspection and rejection."
The formal acceptance of the order of defendant and correspondence relative to the specifications, details and drawings of the press were also introduced by plaintiff. Counsel for plaintiff then read to the jury the portions of the petition relative to the contract, the purchase price, and the claim that there was $19,000 unpaid on the purchase price (which defendant had refused to pay), all of which was admitted in defendant's amended answer. Plaintiff then rested its case.
Defendant introduced numerous exhibits and extensive testimony of its experience with the press manufactured by plaintiff. It introduced the contract between defendant and the United States and the production schedule which it established. The evidence introduced by defendant may be summarized as follows:
Prior to October 7, 1946, conferences were held among J.N. Leake and the president and superintendent of plaintiff and the engineer employed by defendant, relative to the plans of defendant to manufacture 50,000 metal caskets for the United States, to be delivered over a period of one year commencing February 1947, and to have the Leake company manufacture all the stampings shortly after December 15, 1946.
The Leake company did not have a double-action hydraulic press in its plant to produce these parts, and it was necessary to purchase a new press for that purpose.
During the discussions Leake informed plaintiff concerning the size and use of the various dies, tonnage pressures and speed cycles required for the work. Following these discussions, defendant forwarded to plaintiff the purchase order for the hydraulic press which plaintiff was thereafter to manufacture. The press was to be manufactured and then delivered at Monroe, Michigan, and Leake was to have an opportunity to see it operate and to approve it before acceptance thereof.
The press was assembled on the premises of the Leake company.
Defendant employed a machinery company to hoist by a crane the heavy parts of the press onto the concrete foundation defendant had built to receive the press.
Plaintiff assembled the parts and prepared the press for operation. When it was tested, imperfections were discovered and plaintiff corrected such defects and then authorized the Leake company to use the press for production. The first use was on March 5, 1947.
Testimony was adduced to show the nature of the alleged defects and to support the claim that the press was defective in design, materials and workmanship; that it was powered with two inadequate used electric motors of 100 horsepower, each of which plaintiff replaced after March 5 with new 150-horsepower motors; and that, at the time of installation, the press had no filter to keep the oil clean and no air cooler, although these were added later.
The record shows also that on April 26, 1947, defendant gave written notice to plaintiff that the press was not in accordance with the provisions of the contract, and that if it was not remedied within one week defendant would be required to go to the open market and purchase bases, shells and another 1,000-ton double-action hydraulic press. Following this notice, defendant did purchase metal casket parts from others and also purchased a used Clearing press, which it erected and assembled during September, October and November and which began operating about the close of the year 1947.
Defendant, however, kept the press furnished by plaintiff, used the same, and on April 26, 1949, after the completion of the government contract, sold the press to the Leake company for $17,500.
Evidence was profered by defendant to show the amount of damages which it claimed resulted from the failure of plaintiff to deliver its press on time and failure of the press to operate properly. The trial court excluded this evidence. The profered evidence is as to the amount defendant paid for metal stampings from other companies and as to administrative and general manufacturing expenses of defendant for the periods of August 15, to September 15, 1948, and September 15, to September 24, 1948, during which periods it is claimed that defendant's plant at Cincinnati was closed.
Plaintiff, upon cross-examination of defendant's witnesses, elicited evidence that contract No. W-12-036-QM-19710 was signed on October 18, 1946, which was subsequent to the purchase order delivered by defendant to plaintiff; and that plaintiff had never seen a copy of this contract and did not know the details thereof, although defendant claims it notified plaintiff concerning the delivery schedule. It was also disclosed upon cross-examination that the United States had paid for the Clearing press, that it had not invoked any of the authorized remedies in its contract because of delay in delivery of the caskets, and that when part of the order for caskets was completed it had renegotiated its contract with defendant and supplemented such contract with additional agreements, so that the total contract price was increased almost 50 per cent, all of which had been paid to defendant.
At the conclusion of all the evidence the trial court instructed a verdict for plaintiff in the full amount prayed for in its petition and for plaintiff on the cross-petition of defendant, as well as on the intervening petition of the United States.
Judgment was entered upon these instructed verdicts.
Upon appeal to the Court of Appeals, that court reversed the judgment of the Court of Common Pleas and remanded the cause for further proceedings.
The judgment entry of reversal states that "the trial court erred in instructing the jury to return a verdict for plaintiff upon plaintiff's petition, and also erred in instructing the jury to return a verdict in favor of plaintiff upon the cross-petition of defendant-appellant, The Cincinnati Coffin Company, and in failing to submit the evidence in this case relating to recoupment to the jury for its consideration."
Upon applications for rehearing in the Court of Appeals, that court wrote a supplemental opinion in which it stated, "we need not discuss the extent of the damage, if any, resulting from plaintiff's alleged breach of the aforesaid warranties, other than to say that whatever the amount, it can be recouped or deducted under the provisions of Section 8395, General Code."
Both plaintiff and defendant appealed to this court from the judgment of the Court of Appeals.
In case No. 33895 the appellant is the defendant, which is contending that the Court of Appeals erred in limiting recovery to recoupment.
In case No. 33896 the appellant is the plaintiff, which is contending that the Court of Appeals erred in reversing the judgment of the Court of Common Pleas.
The cause is before this court upon the allowance of motions to certify the record of the Court of Appeals.
Messrs. Taft, Stettinius Hollister, Mr. J. Mack Swigert and Mr. Robert T. Keeler, for appellee in case No. 33895 and appellant in case No. 33896.
Messrs. Waite, Schindel Bayless, Mr. Herbert Shaffer and Mr. Philip J. Schneider, for appellant in case No. 33895 and appellee in case No. 33896.
Mr. Hugh K. Martin, United States attorney, Mr. Thomas Stueve and Mr. Richard H. Pennington, for appellee The United States of America.
Numerous questions of law were ably argued to this court in these appeals.
Plaintiff strenuously maintains that the contract, under which it manufactured the hydraulic press for defendant, set forth exclusive remedies which defendant was bound to exercise in the event of any defect in the design, construction, material or workmanship of the press; that plaintiff has not waived its right to hold defendant to such exclusive remedies; and that, therefore, the Court of Appeals was in error in reversing the judgment of the Court of Common Pleas.
Defendant, on the other hand, strenuously argues that it not only had a right by cross-petition to seek damages by way of recoupment, under Section 8449, General Code, but also had a right to set forth all special damages which it suffered by reason of defects in such design, construction, material and workmanship, and that, therefore, the Court of Appeals was in error in restricting defendant to a claim for damages only by way of recoupment.
The purchase order was prepared and sent to plaintiff by defendant and contains on its face a statement that acceptance of the order would be an acceptance of the terms and conditions on both its face and reverse side.
The most pertinent provisions on the reverse side are the ones excluding verbal instructions or agreements altering or changing the order, and the one, relating to defective goods, which provides: " Defective goods will be returned at your expense, including incoming freight and credit taken on vouchers. No goods returned as defective may be replaced without our formal replacement order. All goods shall be subject to our inspection and rejection." (Emphasis ours.)
Plaintiff served notice in September 1947 that as of September 15, 1947, it would consider the press as having been accepted by defendant and would press for payment of its claim, and argues that defendant had a duty to accept or reject the press.
Defendant argues that, because the purchase was a large piece of machinery installed on a semipermanent foundation, the provisions of the contract were clearly not applicable to the present situation.
Defendant sought to introduce evidence, the effect of which would be to vary some of the provisions of the contract which was prepared by it, but the Court of Common Pleas refused to permit such evidence to be introduced.
Defendant urges that the express remedial provision in the contract did not destroy the warranties created by Sections 8392, 8394 and 8395, General Code (Sections 1315.13, 1315.15 and 1315.16, Revised Code).
Section 8395 provides in part:
"Subject to the provisions of this chapter and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract to sell or a sale, except as follows:
"(1) When the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, and it appears that the buyer relies on the seller's skill or judgment, whether he is the grower or manufacturer or not, there is an implied warranty that the goods shall be reasonably fit for such purpose."
Plaintiff urges that under the Uniform Sales Act defendant was under obligation to promptly return the press or give notice that it did not intend to purchase the press.
Section 8399, General Code, a part of the sales act, provides in part:
"Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer:
"* * *
"Rule 3. (1) When goods are delivered to the buyer `on sale or return,' or on other terms indicating an intention to make a present sale, but to give the buyer an option to return the goods instead of paying the price, the property passes to the buyer on delivery, but he may revest the property in the seller by returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time.
"(2) When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the property therein passes to the buyer —
"(a) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction.
"(b) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact."
Even if it is conceded that under Section 8395, General Code, there was an implied warranty as to the quality and fitness of the press for the purposes for which it was purchased, nevertheless, under the great weight of authority, where a buyer, by contract in writing, makes return of machinery purchased or replacement of defective parts or rescission of the contract the exclusive remedy for failure of the machinery to work as warranted, such buyer can not have an offset or claim for damages to reduce the amount of the purchase price. Clark Implement Co. v. Priebe, 52 S.D. 606, 219 N.W. 475; Long v. Ideal Elec. Co., 120 Okla. 63, 250 P. 504; Thomas v. Schaad, 170 Ark. 797, 281 S.W. 10; J.I. Case Threshing Machine Co. v. Rose, 191 Ky. 433, 230 S.W. 545; Reed v. Rea-Patterson Milling Co., 186 Ark. 595, 54 S.W.2d 695. See, also, 3 Williston on Sales (Rev. Ed.), 358, Section 611 a.
As stated in Williston, the effect of provisions in a contract of sale as to the right to return articles purchased is often determined from the language used, and where such language is permissive in nature it has been held to state an alternative and not an exclusive remedy. However, it is recognized that, where the buyer's remedies for a breach of warranty are binding, such remedies are exclusive.
By the language used in the purchase order sent by defendant to plaintiff, there was no alternative to the provision for the return of defective goods, leaving no course to plaintiff but to accept such return. In contrast, it is a fair assumption that if claimed defective goods are retained the sale becomes final.
It is difficult to construe, as otherwise than affording an exclusive remedy as to any rights or warranties in favor of the buyer, a provision to the effect that, at the expense of the seller, defective goods will be returned, that no goods returned as defective may be replaced without a formal replacement order from the buyer, and that all goods shall be subject to the inspection and rejection of the buyer, although there is an absence of a specified time limit for the acceptance of the goods by the buyer. The defendant had only a reasonable time to decide, and, since it kept and used the press during the entire period of its contract with the United States and then sold it for a large sum of money, it could assuredly raise no question as to a reasonable time limit.
Plaintiff strenuously urges that, even if there were warranties which were breached in the sale of the press, the record contains no evidence that defendant was damaged thereby.
There was no testimony offered showing any difference between the value of the press as delivered, due to its alleged defective condition, and the sales price; and the testimony which it is alleged showed loss of profits because of delay in delivery of the press and inefficient operation thereof was more than counter-balanced by the fact that all defendant's claimed additional costs were included in the award made by the United States to defendant upon renegotiation of their contract, in which the prices paid defendant by the United States were increased about 50 per cent above the original contract price, and by the fact that the United States paid for the additional press which was used to supplement or perform the work contemplated to be done by the press furnished by plaintiff. An examination of the record tends to support the contention of plaintiff in this respect.
However, we base the conclusion at which we have arrived upon the language used in the purchase order given to plaintiff by defendant, wherein it appears clear that the parties intended that the remedy set forth therein was to be controlling and exclusive, and that a failure to avail itself of such remedy cut off the right of defendant to any advantage of implied warranties under the sales act.
As quoted in Clark Implement Co. v. Priebe, supra, "the provisions of the order in question were valid and binding on both parties, and, as long as purchasers will sign these orders, they must abide by them."
In the present case the purchaser not only signed the order but prepared it.
It inevitably following, from what we have said, that the judgment of the Court of Appeals should be reversed, it hereby is reversed and the judgment of the Court of Common Pleas is affirmed.
Judgment reversed.
WEYGANDT, C.J., HART, ZIMMERMAN and TAFT, JJ., concur.
MATTHIAS and BELL., JJ, not participating.