Hohmann and Barnard, Inc. v. Sciaky Bros., Inc. , 333 F.2d 5 ( 1964 )

ANDERSON, District Judge.

The defendant, Sciaky Bros., Inc., a manufacturer of construction equipment, in January of 1957 entered into two written contracts with the plaintiff, Hohmann and Barnard, Inc., to sell to the latter an electric welder and a tooling machine, to be used together by the plaintiff in the fabrication of masonry wall reinforcement assemblies made of heavy wire. This suit was brought by the plaintiff-buyer against the defendant-seller for damages arising out of breach of those contracts; and the defendant counterclaimed for an unpaid balance on the purchase price. The court below gave judgment for the plaintiff on its claim in the amount of $3,936.34 and dismissed the counterclaim. The defendant appeals from both parts of the judgment. We affirm.

The issue before us arises out of the defendant’s claimed error in the trial court’s award of $3,936.34 to the plaintiff as damages representing what the plaintiff had to pay over and above the contract price to put the machines in working order. One of the machines, the tooling apparatus, tardily delivered by the defendant, was defective and did not conform to the specifications of the contracts; the plaintiff had the machines put in operational condition by a third party, Combined Welder & Machine Corp. The purchase price of the machines was $14,747. The plaintiff made down payments to the defendant in the amount of $9,100 and had to pay $9,583.34 to Combined Welder & Machine Corp. to have the machines made workable. Thus the plaintiff paid $3,936.34 in excess of the purchase price for properly operational machines. The defendant contends, however, that a limitation of liability clause¹ contained in the contracts afforded the plaintiff the sole remedy of returning the machines for a refund of the purchase price and that, since the plaintiff kept the machines, it waived the breach and now owes the unpaid balance of the purchase price.

The court below discussed waiver but confined its consideration almost entirely to waiver of the limitation on consequential damages in connection with its dismissal of the plaintiff’s claim for lost profits and expenses. The plaintiff claimed $20,202.31 as damages incurred when it had to purchase in the open market reinforcing material at a cost greater than the cost at which the machines, promptly delivered and in good operating condition, could have manufactured it. The court below held that these damages were “consequential damages” as contemplated by the limitation of liability clause. It also held that the defendant had not waived, either expressly or impliedly, that portion of the limitation clause which barred such consequential damages and therefore, dismissed the claim. This part of the trial court’s ruling has not been appealed, and we mention it here only because of our affirmance of the judgment below which, in effect, concludes that by their conduct the parties altered their relative rights and duties under other portions of the limitation of liability clause.

By the terms of the contract the defendant had agreed to deliver the two machines by the end of June, 1957. The welder was delivered August 2,1957, but, by itself, was useless and constituted only half of the machinery necessary to do the job; the tooling apparatus, being manufactured by a sub-contractor, Imag-ineering Unlimited, Inc., in New Jersey, and not yet delivered, was the other half. The defendant was plainly in default under the terms of the agreement relating to delivery, and consequently the plaintiff could have insisted on its accepting return of the welder and refunding all payments. On September 24, 1957 the plaintiff sent the defendant a telegram ² offering to return the welder and accept a refund of the portion paid on the purchase price or take delivery of the tooling apparatus.

The trial court said of this proposal: “What plaintiff at first demanded by its nite letter, dated September 24, 1957, in which plaintiff expressed its dissatisfaction with the delivery of the tooling apparatus was in accord with the provisions of the contracts and defendant should then have accepted plaintiff’s offer to return the tooling apparatus and welder and should have refunded to plaintiff the $9,100 plaintiff had paid on account of their purchase price.”

But the defendant declined to make the refund required by the contract and, though still in default, took up plaintiff’s alternative proposal which we read as being that defendant have its New York City representative see to it that the tooling equipment was promptly secured from New Jersey and be made operational at plaintiff’s plant.

When the tooling equipment was finally delivered by Imagineering Unlimited on October 11, 1957, at the plaintiff’s plant, it proved to be defective and unable to perform the work for which it was designed. The defendant sent its engineers and new parts and over a period of weeks tried to make it operate satisfactorily but could not do so. The court below concluded that the equipment was too light and “unsuitable for the heavy work it was intended to do.” The plaintiff gave the defendant more than a reasonable period of time within which to effect the repairs and make the equipment work. On January 10,1958, the plaintiff notified the defendant that it could give the defendant no longer than February 1, 1958 to put the equipment in operating order. The defendant did not do so, but on February 6th demanded that the plaintiff return the equipment to the defendant’s Chicago plant so that the defendant could work on it further. After having warned the defendant on February 9th that it intended to do so, the plaintiff, on February 13, 1958, contracted with a third party, Combined Welder and Machine Corp., to make the necessary repairs to the equipment. The cost of these repairs added to the payments made by the plaintiff to the defendant on account of the purchase price exceeded the purchase price by $3,936.34, which is a proper measure of the damage and is the amount awarded the plaintiff in the judgment below.

The defendant on this appeal asserts that there was no basis on which the trial court could award any damages to the plaintiff because there had at no time taken place any change in the relative rights and duties of the parties under the limitation of liability clause of the contract. This is another way of claiming that, in spite of the defendant’s breach of the contract, the plaintiff on September 24, 1957 gave the defendant indefinite additional time, extended to upwards of four months, to try to make the equipment operational, that the plaintiff got nothing in return for this but continued bound by all of its duties under the contract with its rights to recover for the breach still restricted by the limitation of liability clause, so that at a time eight months after the contract was originally to have been performed by the defendant, and still not performed, plaintiff was required to give defendant a still further opportunity to fix the equipment, sending it to Chicago at plaintiff’s own expense and, if that failed, to get a refund. On the other hand, if the plaintiff retained the equipment, as it did, the defendant, as a seller in serious default, both as to the time of delivery and as to the quality of the goods, would have nevertheless recovered one hundred per cent of the purchase price of $14,747, although the buyer had been obliged to spend more than one-half that amount, $9,583.34, — which has never been claimed to be excessive — to make the equipment work.

The trial court did not find that the plaintiff was under any such duty or restricted to such limited recovery but, on the contrary, ruled that the plaintiff had the right to have the equipment made operational by a third party and to recover ordinary damages from the defendant. It held that, while the defendant had not waived the limitation of liability for consequential damages, and the very arrangement by which the defendant was afforded the time by the plaintiff to continue to work on the equipment from October 11,1957 to early February, 1958, prevented the accrual of consequential damage, the plaintiff could recover ordinary damage measured by such excess of its cost of repair; and that it was not limited to giving the defendant, now eight months in default in its obligation to furnish workable equipment, a chance to do still further work in Chicago, and, if this should prove ineffective, to obtain a refund. This is a just and fair conclusion in the circumstances of the case. The conduct of the parties from September 24, 1957, when the plaintiff sent its telegram to the defendant, through January, 1958, demonstrates that the terms of the limitation of liability clause as originally framed to cover ordinary damages, were no longer applicable.

After the defendant refused on September 24, 1957 to follow the breach of warranty provisions of the agreement, the parties embarked on a post-default course not specifically covered by the contract: the equipment remained at plaintiff’s plant and the defendant was afforded an extended opportunity to repair it there with no duty on the part of the plaintiff to return it to Chicago. By its judgment the lower court concluded that when the defendant again defaulted in early February, 1958, the defendant could not invoke the limitation of liability clause, as it applied to ordinary damages, and that the plaintiff could contract with a third person for the repairs and hold the defendant liable for the excess of their cost over the purchase price.

Indeed, defendant’s own conduct in February, 1958, shows it was not relying on the limitation of liability clause. The ninety days had expired in mid-January and if defendant thought the clause still applicable it had only to stand upon that portion which provided “the Company’s warranty herein expressed shall, in all events, expire ninety days after shipment.”

Although, following September 24, 1957, the parties entered into no formal agreement, their conduct from then to February, 1958, shows that in return for the plaintiff’s forbearing to exercise its rights upon the default by the defendant and for giving the defendant additional time to make repairs, the defendant gave up its right to insist on the clause relating to the return of the tooling equipment to Chicago. These were ample considerations for the modification of the written contract. See Corbin on Contracts, § 139; In Re Stafford’s Estate, 264 App.Div. 774, 34 N.Y.S.2d 946 (App.Div.2d Dept.1942), aff’d 289 N.Y. 790, 47 N.E.2d 47, (1943) ; and In Re All Star Feature Corp., 232 F. 1004 (D.C. S.D.N.Y.1916). Moreover, by the first of February, 1958, the course of conduct, which constituted a modification of the written contract, was fully executed so that the plaintiff’s right to recover is not barred by § 33-c of the Personal Property Law of the State of New York, McKinney’s Consol.Laws, c. 41 ³ which prohibits the change of a written agreement by an oral executory agreement, where the written agreement contains a provision against oral change- — even if we should assume that the provision here related to anything more than oral changes prior to the formation of a contract. Einzig v. Aulisio, 286 App.Div. 1127, 146 N.Y.S.2d 410 (3rd Dept.1955) ; Alcon v. Kinton Realty, 2 A.D.2d 454, 156 N.Y. S.2d 439 (3rd Dept.1956), app. dismissed 2 N.Y.2d 836, 159 N.Y.S.2d 974, 140 N.E. 2d 869 (1957); Young Foundation Corporation v. A. E. Ottaviano, Inc., 29 Misc. 2d 302, 216 N.Y.S.2d 448 (Sup.Ct.1961), aff’d 15 A.D.2d 517, 222 N.Y.S.2d 685 (2d Dept.1961).

The court below discussed at considerable length the facts and conclusions which related to the plaintiff’s claim for consequential damages and discussed its reason for denying plaintiff recovery on that claim. That issue is not before this court and we are not called upon to say anything about the correctness or incorrectness of that ruling, but what the trial court had to say in support of the position it took in denying consequential damages is not a reason for finding that it was in error in granting the plaintiff ordinary damages.

After the defendant defaulted a second time the plaintiff had the right to have the necessary repairs made by a third party and to invoke that portion of the New York Personal Property Law, § 150, subd. 1(b), which allows a buyer, at his election, to “accept or keep the goods and maintain an action against the seller for breach of warranty.” Prygelski v. Bloom & Knop, 136 N.Y.S.2d 503 (Sup. 1st Dept.1954); American Elastics, Inc. v. United States, 187 F.2d 109 (2 Cir. 1951), cert. den. 342 U.S. 829, 72 S.Ct. 53, 96 L.Ed. 627 (1951); John Fabrick Tractor Co. v. Lizza & Sons, Inc., 298 F.2d 63 (2 Cir. 1962).

The judgment below is affirmed.

1 . The following limitation of liability clause was contained in both the contracts:

“For a period of ninety days from the time of shipment of each item of the equipment, the Company warrants that such item shall be of the kind and quality described in the specifications and shall be suitable for performing the work therein described. There shall be no other warranty, express or implied. Within such ninety-day period the Purchaser shall give written notice to the Company of any failure of the equipment to comply with such warranty, specifying such failure in detail, and the Company will with reasonable promptness correct the defect or defects by repair or replacements, at the Company’s plant in Chicago, Illinois, of the defective part or parts. If a substantial defect is established which the Company is unable to correct after it has been given an opportunity to do so, the Company will, upon the Purchaser’s request and upon return of the equipment f. o. b. the Company’s plant, Chicago, Illinois, refund tbe price to tbe Purchaser. . . . Except as expressly provided in this paragraph, tbe Company shall not be liable for any defect in or failure or inadequacy of the equipment or any part or item thereof, and in no event shall the Company be liable for any consequential damages resulting directly or indirectly from any such defect, failure or inadequacy. It is expressly understood that the Company’s warranty herein expressed shall, in all events, expire ninety days after shipment.”

2 . The text of the telegram is:

“RIB9 NITE LETTER CHG SG PD SEPT. 24 SCIAKY BROS. 4915 WEST 67 ST CHICAGO ILL— EXTREMELY DISSATISFIED WITH DELIVERY OF TOOLING OUR ORDER 2304 CONTACT YOUR REPRESENTATIVE N Y C TO PROVIDE TOOLING OR REFUND DEPOSIT AND ACCEPT RETURN OF WELDER H F HOHMANN — HOHMANN AND BARNARD INC.”

3 . The Section, 33-e(l) of the Personal Property Law, has been redesignated as § 15-301(1) of the General Obligations Law, effective September 27, 1964.