Harrington Manufacturing Co. v. Logan Tontz Co. , 40 N.C. App. 496 ( 1979 )

253 S.E.2d 282 (1979) 40 N.C. App. 496

HARRINGTON MANUFACTURING CO., INC.
v.
LOGAN TONTZ COMPANY and Triad Metal Products Company.

No. 786SC377.

Court of Appeals of North Carolina.

April 3, 1979.

Pritchett, Cooke & Burch, by Stephen R. Burch and William W. Pritchett, Jr., Windsor, for plaintiff appellee.

Turner, Enochs, Foster & Burnley, by James R. Turner, Greensboro, and Allsbrook, Benton, Knott, Cranford & Whitaker, by Thomas I. Benton, Roanoke Rapids, for defendant appellant.

HEDRICK, Judge.

The issues submitted to and answered by the jury do not resolve the controversy between the parties disclosed by the evidence. While warranties are involved, the issues raised by the evidence are more complex and involve principles of law either not considered or incorrectly applied by the trial court. Since the error appearing in this record has been only indirectly raised and discussed by the defendant in its brief, it is unnecessary for us to discuss separately each of its several assignments of error in this opinion. We confine our discussion to what we perceive to be the issues raised by the evidence in this record and the correct application of the several principles of law thereto.

Once goods have been accepted by the buyer, he is thereafter precluded from rejecting them, G.S. § 25-2-607(2), and when he revokes his acceptance, the burden is on him to show that such revocation was justifiable before he will be allowed to recover. G.S. §§ 25-2-607(4), -2-711(1). In order for the buyer to show that his revocation was justifiable, the following four elements must be proved: (1) that the goods contained a nonconformity that substantially impaired their value to him, G.S. § 25-2-608(1); (2) that he either accepted the goods knowing of the nonconformity but reasonably assuming that it would be cured, G.S. § 25-2-608(1)(a), or that he accepted the goods not knowing of the nonconformity due to the difficulty of discovery or reasonable assurances from the seller that the goods were conforming, G.S. § 25-2-608(1)(b); (3) that revocation occurred within a reasonable time after he discovered or should have discovered the defect, G.S. § 25-2-608(2); and (4) that he has notified the seller of his revocation, G.S. § 25-2-608(2). See also Performance Motors, Inc. v. Allen, 280 N.C. 385, 186 S.E.2d 161 (1972); Davis v. Vintage Enterprises, Inc., 23 N.C.App. 581, 209 S.E.2d 824 (1974); 2 Anderson, Uniform Commercial Code § 2-608:4 (2d ed. 1971); 3 Williston on Sales, § 25-6 (4th ed. 1974); Annot., 65 A.L.R. 3d 388 (1975).

Under G.S. § 25-2-106(2), goods are "``conforming' or conform to the contract when they are in accordance with the obligations under the contract." Furthermore, the existence of any express or implied warranties would be relevant to show the standard to which the goods were supposed to conform. See G.S. § 25-2-313(1). In determining whether revocation was made within a reasonable time after the buyer discovered or should have discovered the nonconformity, it is proper to consider all the surrounding circumstances, including the nature of the defect, the complexity of the goods involved, the sophistication of the buyer, and the difficulty of its discovery. G.S. § 25-1-204(2); 2 Anderson, Uniform Commercial Code § 2-608:20 (2d ed. 1971); Annot., 65 A.L.R. 3d 354, 360-61 (1975). Indeed the reasonable time period may extend in certain cases beyond the time in which notice of the nonconformity has been given, as for example where the parties make attempts at adjustment. Dopieralla v. Arkansas Louisiana Gas Co., 255 Ark. 150, 499 S.W.2d 610 (1973); 2 Anderson, Uniform Commercial Code § 2-608:19 (2d ed. 1971); Comment 4 of the Official Commentary to G.S. § 25-2-608. What is a reasonable time for a buyer to revoke his acceptance is ordinarily a question of fact for the jury. See Four Sons Bakery, Inc. v. Dulman, 542 F.2d 829 (10th Cir.1976).

Plaintiff's evidence with regard to the nonconformity element in G.S. § 25-2-608(1) tended to show the following:

Plaintiff supplied defendant with one of the latches that it manufactured for its barns and with a drawing of the latch; that defendant represented that it could manufacture a better latch at a cheaper price; that defendant had knowledge of how the latch was to be used; and that plaintiff relied on the defendant's representations as to their ability to design and manufacture a latch suitable for use in the plaintiff's barns. Plaintiff's evidence also tended to show that defendant manufactured and submitted model latches to the plaintiff for testing; that plaintiff tested these models and found them to be satisfactory; that defendant offered to manufacture latches "made like the samples we submitted" and quoted a price to plaintiff; that plaintiff initially ordered 500,000 of the latches and later ordered an additional 250,000 latches; that the production latches were used by the plaintiff in manufacturing the barns and were found to be unsatisfactory because they did not hold the loaded racks; and that the production latches did not conform to the models submitted. With regard to the notice element, plaintiff's evidence tended to show that once it discovered that a problem existed with the latches not holding the racks, it notified the defendant of the problem within twenty-four hours.

This evidence raises the threshold issue whether the plaintiff justifiably revoked its acceptance of the latches purchased from the defendant. Before the plaintiff is entitled to recover any damages, it must first prevail on this issue. From the evidence introduced, a jury could find that the plaintiff did justifiably revoke its acceptance of the latches. If a jury did find such a revocation of acceptance, then, under G.S. § 25-2-711(1), plaintiff would be entitled to recover the amount of the contract price it has paid for the goods involved. In addition to allowing the recovery of so much of the purchase price as has been paid, G.S. § 25-2-711 provides additional remedies for the buyer upon a justifiable revocation of acceptance. Under G.S. § 25-2-711(1)(a) the buyer is entitled to "cover" by procuring substitute goods for those found to be nonconforming.

In order to employ the remedy of "cover," the buyer must meet the requirements set out in G.S. § 25-2-712(1). First, there must have been a breach of the contract, and the seller must have either repudiated the contract or failed to deliver the goods, or the buyer must have rightfully rejected or justifiably revoked his acceptance of the goods. Second, the buyer must have acted in good faith and without unreasonable delay in procuring the substitute goods. Finally, the replacement goods must be a reasonable substitute for those the buyer contracted to purchase. 3 Williston on Sales § 25-11 (4th ed. 1974); Annot., 64 A.L.R. 3d 246 (1975). With regard to the second element, a merchant buyer is held to a good faith standard of "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." G.S. § 25-2-103(1)(b).

Plaintiff's evidence in the present case tends to show that the latches used in the barns were specially designed and unique, that the plaintiff had previously manufactured the latches it needed, and that once the problem was discovered, it immediately ceased using the defendant's latches and resumed production of its own latches on an emergency basis since it needed them to continue production of the barns. Thus, the second issue raised by plaintiff's evidence is whether it properly "covered" by procuring substitute latches for those purchased from the defendant.

If the plaintiff can establish that it properly "covered" under G.S. § 25-2-712(1), then it is entitled to such damages as it can prove, measured by the difference between the cost of "cover" and the contract price, together with any incidental or consequential damages. G.S. § 25-2-712(2). Incidental damages are defined in G.S. § 25-2-715(1) as including "expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to delay or other breach." Consequential damages include losses resulting from the buyer's requirements which were reasonably foreseeable and which could not have been prevented by "cover." G.S. § 25-2-715(2). See also 2 Anderson, Uniform Commercial Code §§ 2-715:15, 16 (2d ed. 1971); 3 Williston on Sales § 25-12 (4th ed. 1974).

In the present case, the plaintiff's evidence would permit the jury to award it damages for the cost of effecting "cover" as well as incidental and consequential damages for expenses it incurred in shipping the latches back to the defendant, for amounts paid to farmers for replacement of the latches, for labor furnished so that the new latches could be installed in the barns, and for transportation of the replacement latches to the farmers and dealers.

If, on the other hand, the jury should conclude that the plaintiff did not justifiably revoke its acceptance, it would then consider the issue raised by the defendant's counterclaim and the evidence, i. e., whether the plaintiff is liable for the balance of the purchase price of the latches. Defendant alleged in its counterclaim that plaintiff was liable to it for the amount remaining on the contract price, and its evidence tended to show that it had regularly billed the plaintiff for this balance, which amounted to $32,722.40. Under G.S. § 25-2-607(1), the buyer is obligated to pay at the contract rate for any goods which it has accepted. If the jury should determine that the plaintiff accepted the latches and did not effectively revoke its acceptance, then the plaintiff would be liable for this balance.

For the reasons stated above, the entire verdict is set aside, and the Order awarding a new trial on the issue of damages is vacated, and the cause is remanded to the superior court for a new trial on all issues.

Vacated and remanded.

VAUGHN and CLARK, JJ., concur.