Huntington Natl. Bank v. Findlay Machine & Tool, Inc.

[Cite as Huntington Natl. Bank v. Findlay Machine & Tool, Inc., 2012-Ohio-748.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
HANCOCK COUNTY
HUNTINGTON NATIONAL BANK,
PLAINTIFF-APPELLEE/
CROSS-APPELLANT, CASE NO. 5-11-27
v.
FINDLAY MACHINE & TOOL, INC.,
DEFENDANT-APPELLANT/ OPINION
CROSS-APPELLEE.
Appeal from Hancock County Common Pleas Court
Trial Court No. 2006 CV 460
Judgment Affirmed in Part, Reversed in Part and Cause Remanded
Date of Decision: February 27, 2012
APPEARANCES:
Ralph D. Russo for Appellant/Cross-Appellee
Thomas A. Yoder for Appellee/Cross-Appellant
Case No. 5-11-27
SHAW, P.J.
{¶1} Defendant-appellant/cross-appellee, Findlay Machine & Tool, Inc.
(“FMT”), appeals the May 5, 2011 judgment of the Common Pleas Court of
Hancock County, Ohio, overruling its objections to the magistrate’s decision,
adopting the magistrate’s decision, ordering FMT to pay $63,990.00 with interest
from the date of judgment to the plaintiff-appellee/cross-appellant, Automated
Handling & Metalfab, Inc. (“AHM”), granting judgment in favor of AHM on
FMT’s counterclaim, and overruling FMT’s motion for a new trial. AHM cross-
appeals this same judgment, wherein the trial court overruled its motion for
prejudgment interest.1
{¶2} The facts relevant to this appeal are as follows. AHM is a
manufacturer of conveyor systems. FMT is a designer and manufacturer of
cleaning systems for industrial parts. In the summer of 2005, FMT was the
successful bidder to design and manufacturer three separate industrial parts
cleaning systems for Caterpillar, Inc., in Joliet, Illinois, at a cost of approximately
$2,000,000.00. In October of 2005, William Owsley, who was the project
manager for this contract with Caterpillar, met with Jeffrey Miller, the owner of
AHM, and requested that AHM submit a proposal to design and manufacture two
1
On September 14, 2011, this Court granted the motion of Huntington National Bank to be substituted as
the plaintiff-appellee/cross-appellant because AHM ceased to exist after the filing of this appeal and
Huntington National Bank now has the right to receive payment of any amounts owed to AHM from FMT.
However, for ease of discussion, we will continue to refer to the plaintiff-appellee/cross-appellant as AHM.
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of the conveyor systems needed in two of these cleaning systems, the Lance
washer (“the Lance”) and the Rod and Housing washer (“the R&H”). AHM was
not involved in any way with the third cleaning system that FMT was building for
Caterpillar.
{¶3} Owsley informed Miller that FMT’s original plan for the Lance
washer system called for a less expensive walking beam conveyor to transport the
parts through the cleaning system. However, FMT later determined a walking
beam conveyor was not a feasible conveyor for the type of washer system
Caterpillar needed. Consequently, FMT realized that it had underbid the
Caterpillar contract and was going to lose money on the project.2 Owsley also
informed Miller that AHM would probably lose money if it built the conveyor for
the Lance system but that FMT would also pay AHM to build the conveyor system
for the R&H and that AHM would profit on the R&H system.
{¶4} During this initial meeting between Owsley and Miller, Owsley
showed him “concept drawings” of the Lance and R&H washing systems to give
him an idea of the plans FMT had for these two washing systems and the types of
conveyor systems FMT wanted to use in these washers. On October 5, 2005,
AHM submitted a quote for labor, material, and engineering of the two conveyor
2
Catepillar was FMT’s biggest customer, responsible for nearly half of all of FMT’s business. Thus,
although FMT stood to lose money on this particular project with Caterpillar, it was concerned with
maintaining its continuous business relationship with Caterpillar.
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systems, with the Lance conveyor priced at $90,000.00 and the R&H conveyor
priced at $96,000.00.
{¶5} For the Lance conveyor, the quote noted that the conveyor would be
designed to handle dedicated pallets 20” wide and 120” long with a conveyable
flat surface on the bottom of the pallets, that the product weight including the
pallets was 5,000 pounds, that pop-up stops would be utilized, that pallets would
be supplied by FMT, and that the quoted cost included set up and the test run of
individual pieces as necessary. For the R&H conveyor, the quote noted that caster
wheels would be utilized to handle 30” wide and 80” long conveyable flat bottom
pallets that had a product weight, including pallet, of 5,000 pounds, that a cylinder
“dog” system would be used to move the pallets, that FMT was to verify the
layout and pallet flow locations, that AHM would work with FMT engineering to
verify the designs met FMT customer specifications, and that the cost included set
up and the test run of individual pieces as necessary.
{¶6} A change in the height of the R&H conveyor system was later
requested, resulting in an additional charge of $3,756.00. After this change, the
price of the two conveyor systems totaled $189,756.00, which was to be paid in
increments: 30% due with the purchase order, 30% due with integration of the
conveyor into the washer system, 30% due with Caterpillar’s approval at FMT’s
facility, and the balance due after approval by Caterpillar at its Joliet facility.
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{¶7} On October 20, 2005, AHM sent some drawings to Owsley for his
review. Over the next few months, a number of drawings of the two systems were
prepared. In November of 2005, FMT approved the design of the Lance conveyor,
and AHM began fabricating the Lance conveyor. Although AHM requested that
pallets be provided to it by FMT in order to test the conveyor system, FMT did not
provide a pallet. According to Miller, AHM tested the Lance conveyor in sections
without using an FMT supplied pallet, and these sections each worked. However,
the conveyor system could not be tested as one complete unit because it first had
to be integrated into the Lance washer system, which was being designed and built
by FMT.
{¶8} FMT transported this conveyor system in parts on January 6, January
13, and January 18, 2006 from AHM’s facility to FMT’s. This conveyor then had
to be integrated into FMT’s washer system by FMT. Fabricators from AHM were
sent to FMT to assist in the integration of the conveyor into the washer system.
During this time, FMT instructed the AHM fabricators to change the position of
the three motors on the conveyor, which also required that all the guards for the
sprockets be changed. In addition, the stops in the conveyor system had to be
hardened because they were being damaged when hit by a pallet. There were also
problems with some of the rollers because they were not level. According to
Miller and Owsley, the system also needed some “debugging,” which they
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indicated was typical whenever one system is being integrated into another.
Miller testified that the Lance conveyor was functional and all changes/repairs
requested of AHM by FMT were completed by sometime in late March of 2006.
{¶9} However, according to George Hay, FMT’s chief executive officer,
the conveying equipment was poorly constructed. Among the problems testified
to by Hay were that a number of rollers were not parallel to one another because
the holes made for them in the frame were not the same elevation, causing the
pallets to go askew, a number of slides, glides, and pop-up stops were in the wrong
locations, and the pop-ups stops were and remain inadequate because they are
scored every time a pallet hits them, causing the stops to jam.
{¶10} Meanwhile, AHM was given permission by FMT to begin the
fabrication of the R&H conveyor system sometime in January of 2006. In
February of 2006, Owsley approved the plans for the R&H conveyor that were
submitted to him by AHM’s engineer. Once again, FMT did not send any pallets
to use in the testing of this system. AHM delivered this conveyor to FMT in late
March of 2006.
{¶11} This system also had some problems that had to be remedied.
Initially, FMT realized that the conveyor would not fit inside its washer, so AHM
had to re-engineer it. Also, some of the guide rails were not aligning properly and
AHM fabricators were sent to assist in fixing these problems. While integrating
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the conveyor system into the washer, FMT found that some of the casters were
welded flat, causing them not to be level when a pallet came to them, that some of
the “dogs” would not go back sufficiently to pick up the next pallet, and that there
was not a guide to prevent a pallet from falling due to its weight. Jeffrey Cable,
FMT’s project leader for the R&H system, testified that AHM fabricators assisted
FMT employees in assembling the R&H conveyor, but that most of the necessary
adjustments and repairs were made by FMT employees because FMT was under
time constraints to get the R&H washer delivered to Caterpillar and because FMT
did not permit AHM employees to use its major equipment.
{¶12} At different points in time, both the Lance and R&H washers were
run at FMT’s facility for representatives of Caterpillar. These runs were done to
demonstrate to Caterpillar that the washer systems were capable of satisfactorily
cleaning out various particles found in Caterpillar’s parts. After the successful run
of the Lance system, it was sent to Caterpillar’s facility in Joliet in August of
2006. Once the R&H system was successfully run for Caterpillar’s
representatives, it was also sent to Caterpillar’s Joliet facility in October of 2006.
However, both washer systems experienced operating difficulties after arriving at
Caterpillar, and FMT employees have made a number of trips to Joliet to attempt
to resolve the problems. The testimony from FMT’s employees was that the
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operating difficulties stemmed from problems with each system’s conveyors,
which were not operating properly.
{¶13} FMT made a number of payments to AHM, totaling $113,766.00,
between October 11, 2005 and May 3, 2006. However, FMT did not pay the
remaining amount owed of $75,990.00. When Miller contacted FMT about the
unpaid amount, he spoke with Andrew Rill, FMT’s controller. Rill informed
Miller that FMT had not paid the remaining balance to AHM because Caterpillar
had not yet paid its balance on its contract with FMT. Rill did not inform Miller
of any remaining problems with the conveyor systems nor did anyone at FMT
express any dissatisfaction with the conveyor systems to Miller. FMT never paid
AHM the remaining balance on the contract. In addition, Caterpillar did not
approve the Lance and R&H washer systems.
{¶14} On July 28, 2006, AHM filed a complaint for breach of contract
against FMT. FMT filed its answer to this complaint on October 1, 2006, and also
filed a counterclaim for breach of contract. FMT filed a supplemental
counterclaim for breach of contract on April 25, 2007. The matter proceeded to a
bench trial before a magistrate on September 5 and 7, 2007.
{¶15} On February 29, 2008, the magistrate issued her decision, finding
that FMT had breached its contract with AHM and that AHM had established that
it was owed $63,990.00 on this contract ($75,990.00 less $3,000.00 from the
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change order on the R&H system and less $9,000.00 due upon approval from
Caterpillar). The magistrate also found that FMT failed to establish that AHM
violated the terms of the contract based on the delivery dates, had failed to
establish that AHM violated any express or implied warranties, had conducted
itself in relation to the conveyor systems in a manner that demonstrated it had
accepted the conveyors, and had failed to establish the basis for any damages.
Based on these findings, the magistrate recommended that the trial court grant
judgment in favor of AHM and award damages in the amount of $63,990.00 with
interest at the legal rate of 8% from the date of judgment and that judgment on the
counterclaim be granted in favor of AHM.
{¶16} FMT filed objections to the magistrate’s decision on March 14, 2008.
After the transcript was filed, FMT filed supplemental and revised objections on
June 30, 2008, listing eight specific issues with the magistrate’s decision. AHM
filed its response to FMT’s objections and a motion for pre-judgment interest on
July 17, 2008. On July 9, 2009, FMT filed a motion for a new trial on the issue of
FMT’s damages, asserting that Caterpillar had now unequivocally rejected the
Lance and R&H washers, refused to pay the balance of its contract with FMT, and
would no longer discuss the matter with FMT.
{¶17} On May 5, 2011, the trial court overruled all of FMT’s objections,
adopted the magistrate’s decision, granted judgment in favor of AHM on its claim
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and awarded it $63,990.00 with interest at the legal rate from the date of judgment,
granted judgment in favor of AHM on FMT’s counterclaim, and overruled FMT’s
motion for a new trial.
{¶18} This appeal followed, and FMT now asserts seven assignments of
error for our review.
FMT’S ASSIGNMENT OF ERROR I
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR
BY OVERRULING FMT’S OBJECTIONS TO THE
MAGISTRATE’S DECISION, ADOPTING THE
MAGISTRATE’S DECISION AND ENTERING FINAL
JUDGMENT AGAINST FMT WITHOUT UNDERTAKING
AN INDEPENDENT REVIEW AS TO THE OBJECTED
MATTERS TO ASCERTAIN THAT THE MAGISTRATE
PROPERLY DETERMINED THE FACTUAL ISSUES AND
APPROPRIATELY APPLIED THE LAW.
FMT’S ASSIGNMENT OF ERROR II
THE TRIAL COURT COMMITTED ERROR PREJUDICIAL
TO FMT BY OVERRULING FMT’S OBJECTIONS B, C, AND
F AND THEREBY ADOPTING THE FINDING OF THE
MAGISTRATE THAT “FMT FAILED TO ESTABLISH THAT
AHM VIOLATED EXPRESS OR IMPLIED WARRANTIES.”
FMT’S ASSIGNMENT OF ERROR III
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR
IN OVERRULING FMT’S OBJECTION A THEREBY
ADOPTING THE MAGISTRATE’S DECISION THAT AHM,
DESPITE HAVING A DUTY TO TEST THE CONVEYOR
SYSTEMS, WAS NOT PROVIDED NOTICE OF DEFECTS IN
THE TWO CONVEYOR SYSTEMS WHICH PRECLUDED
FMT FROM ITS REMEDIES OF BREACH OF WARRANTY.
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FMT’S ASSIGNMENT OF ERROR IV
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR
BY OVERRULING FMT’S OBJECTIONS D AND G AND
CONSEQUENTLY ADOPTING THE MAGISTRATE’S
DECISION THAT FMT’S ACCEPTANCE OF THE
DELIVERY OF THE TWO CONVEYOR SYSTEMS AND
FMT’S APPROVAL OF AHM’S DESIGN OF THE PLANS
LEAVES FMT WITH NO LEGAL RECOURSE AGAINST
AHM’S CLAIM FOR PAYMENT.
FMT’S ASSIGNMENT OF ERROR V
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR
BY OVERRULING FMT’S OBJECTION H IN ITS
ENTIRETY AND CONSEQUENTLY ADOPTING THE
MAGISTRATE’S DECISION THAT FMT FAILED TO
ESTABLISH ANY BASIS FOR ANY DAMAGES EITHER ON
ITS COUNTERCLAIM OR AS A SET-OFF AGAINST THE
JUDGMENT AWARDED TO AHM.
FMT’S ASSIGNMENT OF ERROR VI
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR
AND ABUSED ITS DISCRETION BY OVERRULING FMT’S
MOTION FOR A NEW TRIAL BASED ON NEWLY
DISCOVERED EVIDENCE.
FMT’S ASSIGNMENT OF ERROR VII
THE TRIAL COURT’S JUDGMENT ADOPTING THE
MAGISTRATE’S DECISION IS CONTRARY TO LAW AND
AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE
AND JUDGMENT SHOULD HAVE BEEN ENTERED IN
FAVOR OF FMT DISMISSING AHM’S COMPLAINT AND
GRANTING FMT JUDGMENT ON ITS COUNTERCLAIM.
{¶19} In addition, FMT filed a cross-appeal and now asserts one
assignment of error for our review.
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AHM’S CROSS-ASSIGNMENT OF ERROR
THE TRIAL COURT COMMITTED ERROR IN NOT
GRANTING THE FORMER APPELLEE PRE-JUDGMENT
INTEREST PURSUANT TO OHIO REVISED CODE 1343.03
IN A BREACH OF CONTRACT CASE. THE COURT FOUND
THAT THE DISPUTE INVOLVED A CONTRACT DISPUTE
BETWEEN THE PARTIES AND FOUND LIABILITY ON
THE PART OF THE APPELLANT TO THE FORMER
APPELLEE IN THE AMOUNT OF $63,990 FOR BREACH OF
THAT CONTRACT, BUT FAILED TO AWARD
PREJUDGMENT INTEREST ON THAT AMOUNT FROM
APRIL OF 2006 WHICH WAS THE TIME OF THE BREACH.
AS SET FORTH HEREIN, OHIO REVISED CODE 1343.03
BESTOWS THE RIGHT OF AUTOMATIC PRE-JUDGMENT
IN A BREACH OF CONTRACT CASE.
First Assignment of Error of FMT
{¶20} In its first assignment of error, FMT asserts that the trial court erred
by overruling its objections to the magistrate’s decision because the judgment
entry does not contain any supporting evidence that the trial court conducted an
independent review of the magistrate’s decision. More specifically, FMT
contends that although the trial court’s entry states that it conducted an
independent review of the magistrate’s decision, the entry does not reflect in any
other manner that the trial court conducted an independent review, i.e. the entry
does not mention what evidence or exhibits it relied upon, does not refer to
specific transcript pages or particular witnesses, and does not cite any case law or
the Revised Code chapter that addresses the substantive merits of the case. FMT
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further requests that this Court conduct a de novo review of the magistrate’s
decision and objections.
{¶21} Pursuant to Rule 53(D)(4)(d) of the Ohio Rules of Civil Procedure,
when objections are filed to a magistrate’s decision, the trial court must
independently review the objected matters to decide if the magistrate properly
determined the factual issues and appropriately applied the law. Brandon v.
Brandon, 3d Dist. No. 10-08-13, 2009-Ohio-3818, ¶ 31; Davidson v. Davidson,
7th Dist. No. 07 BE 19, 2007-Ohio-6919, ¶ 9. Accordingly, the trial court is free
to adopt, reject, or modify the decision of the magistrate under its de novo review.
Goldfuss v. Traxler, 3d Dist. No. 16-08-12, 2008-Ohio-6186, ¶ 7, citing Stumpff v.
Harris, 2d Dist. No. 21407, 2006-Ohio-4796, ¶ 16; Civ.R. 53(D)(4)(b).
{¶22} When examining whether a trial court has conducted the required
independent review of a magistrate’s decision, appellate courts “generally presume
regularity in the proceedings below, and, therefore, we generally presume that the
trial court conducted its independent analysis in reviewing the magistrate’s
decision.” Mahlerwein v. Mahlerwein, 160 Ohio App.3d 564, 2005-Ohio-1835,
828 N.E.2d 153, ¶ 47 (4th Dist.). Therefore, the party who asserts that the trial
court did not conduct such a review bears the burden of affirmatively
demonstrating the trial court’s failure to perform its duty. Id.; Figel v. Figel, 3d
Dist. No. 10-08-14, 2009-Ohio-1659, ¶ 10.
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{¶23} Furthermore, a trial court’s decision will not be reversed on appeal as
being against the manifest weight of the evidence as long as there is some
competent, credible evidence to support the decision. Cichanowicz v.
Cichanowicz, 3d Dist. No. 3-08-04, 2008-Ohio-4779, ¶ 20, citing Duer v.
Moonshower, 3d Dist. No. 15-03-15, 2004-Ohio-4025, ¶ 15.
{¶24} In its entry, the trial court quoted the exact language of Civ.R.
53(D)(4)(d) in regards to ruling on objections to a magistrate’s decision. The
court also noted that it could adopt, reject, or modify the magistrate’s decision, in
whole or in part, because it was to conduct a de novo review of any determination
of fact or law made by the magistrate as it had the ultimate authority and
responsibility over the magistrate’s findings and rulings. The trial court further
noted that it was responsible for substituting its judgment for that of the
magistrate’s whenever the magistrate improperly determined the factual issues
and/or inappropriately applied the law.
{¶25} Additionally, the trial court’s entry detailed who testified, their
respective roles in the matter, and the number of exhibits submitted by both
parties. The court then stated that it reviewed the objections, the magistrate’s
decision, and the transcript filed in this case, including that it reviewed the
testimony of each witness (each of which the court named) and the exhibits that
were admitted into evidence.
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{¶26} After detailing what it had considered, the trial court stated that upon
its independent review it found that the magistrate properly determined the factual
issues and appropriately applied the law. Thus, the trial court elected to adopt the
magistrate’s decision in toto and overruled the objections filed by FMT.
{¶27} While the trial court’s judgment entry did not specifically quote
witnesses or otherwise cite to the substantive law upon which it relied, there is
nothing in the record to indicate that the trial court did not independently review
the objected matters. Furthermore, FMT has failed to affirmatively demonstrate
that the trial court did not perform its duty to conduct an independent review.
Accordingly, FMT’s first assignment of error is overruled.
FMT’s Second, Third, Fourth,
and Seventh Assignments of Error
{¶28} FMT’s second, third, fourth, and seventh assignments of error each
involve issues regarding the trial court’s findings as to which party breached the
contract and whether AHM breached any warranties it made, expressly or
impliedly, about the conveyor systems. More specifically, FMT maintains in its
second assignment of error that the trial court incorrectly found that AHM did not
breach any express warranties, that AHM did not breach the implied warranty of
fitness for a particular purpose, and that AHM did not breach the implied warranty
of merchantability. In its third assignment of error, FMT asserts that the trial court
incorrectly found that FMT was precluded from a remedy for a breach of any
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types of warranties by AHM because FMT failed to provide notice to AHM of
defects in the two conveyor systems. FMT contends in its fourth assignment of
error that the trial court incorrectly found that FMT had no legal recourse against
AHM’s claim for payment because it accepted delivery of the conveyor systems
and approved the design plans submitted by AHM. Lastly, in FMT’s seventh
assignment of error it maintains that the trial court’s judgment was against the
manifest weight of the evidence. In support of this assignment of error, FMT
relies upon the assertions outlined in its second, third, and fourth assignments of
error. Once again, FMT urges this Court to conduct its own review of the
evidence and rule accordingly.
{¶29} Contrary to FMT’s request that this Court conduct a de novo review
of the evidence, an appellate court is not permitted to reverse a trial court’s
judgment when it is supported by competent, credible evidence going to all of the
essential elements of the case. C.E. Morris Co. v. Foley Constr. Co., 54 Ohio
St.2d 279, 376 N.E.2d 578 (1978). “Under this highly deferential standard of
review, a reviewing court does not decide whether it would have come to the same
conclusion as the trial court. Rather, we are required to uphold the judgment so
long as the record, as a whole, contains some evidence from which the trier of fact
could have reached its ultimate factual conclusions.” Hooten Equip. Co. v.
Trimat, Inc., 4th Dist. No. 03CA16, 2004-Ohio-1128, ¶ 7. We are to defer to the
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findings of the trier of fact because in a bench trial, the trial judge “is best able to
view the witnesses and observe their demeanor, gestures and voice inflections, and
to use these observations in weighing the credibility of the proffered testimony.”
Seasons Coal Co., Inc. v. Cleveland, 10 Ohio St.3d 77, 80, 461 N.E.2d 1273(1984). Furthermore, a trial court’s decision involving R.C. 1302.01 et seq., that is
based on competent, credible evidence, will not be reversed on appeal. George v.
Fannin, 67 Ohio App.3d 703, 709, 588 N.E.2d 195 (12th Dist. 1990), citing
Konicki v. Salvaco, Inc., 16 Ohio App.3d 40, 42, 474 N.E.2d 347 (2d Dist. 1984).
{¶30} Initially, we note that the parties do not dispute that the merits of this
case are governed by R.C. 1302.01 et seq., Ohio’s codification of the U.C.C. for
the sale of goods. Ohio’s adoption of the U.C.C. provides multiple remedies for
buyers of alleged nonconforming goods, including the purchase and installation of
custom-made goods. Varavvas v. Mullet Cabinets, Inc., 185 Ohio App.3d 321,
2009-Ohio-6962, 923 N.E.2d 1221, ¶ 45. Further, the parties do not dispute that
the trial court correctly found that $63,990.00 was the remaining purchase price on
the contract and that FMT had not paid this amount. Rather, these assignments of
error center around two questions: (1) whether AHM failed to design and
fabricate two conveyor systems that performed as required, which would entitle
FMT to damages and if not, (2) whether FMT is precluded from recovering any
damages and must pay the remaining purchase price because it accepted and/or did
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not effectively revoke its acceptance of the conveyors and did not notify AHM of
the breach within a reasonable time after discovering the breach. We find the
second question to be dispositive of these assignments of error.
{¶31} FMT does not dispute that it accepted the conveyors at issue.
However, FMT maintains that its acceptance of the conveyors does not preclude it
from recovering damages for any breach of express or implied warranties by
AHM. The Revised Code establishes the remedies available to a buyer, such as
FMT, after the goods have been accepted and the time for revocation of
acceptance has passed. The relevant section of the Revised Code states: “Where
the buyer has accepted goods and given notification as provided in division (C) of
section 1302.65 of the Revised Code, he may recover as damages for any non-
conformity of tender the loss resulting in the ordinary course of events from the
seller’s breach as determined in any manner which is reasonable.” (Emphasis
added.) R.C. 1302.88(A).
{¶32} A buyer’s failure to notify the seller of the non-conformity in
accordance with R.C. 1302.65(C) operates to bar the buyer’s remedies under the
statute. Revised Code section 1302.65(C), in relevant part, states: “Where a tender
has been accepted: (1) the buyer must within a reasonable time after he discovers
or should have discovered any breach notify the seller of breach or be barred from
any remedy; * * *.” The Ohio Supreme Court has stressed that “the
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‘determination of a reasonable time and the adequacy of notice to the seller are
ordinarily questions of fact.’” Chemtrol Adhesives, Inc. v. American Mfrs. Mut.
Ins. Co., 42 Ohio St.3d 40, 537 N.E.2d 624 (1989), qutoing Kabco Equip.
Specialists v. Budgetel, Inc., 2 Ohio App.3d 58, 61, 440 N.E.2d 611 (10th Dist.
1981); Allen Food Products, Inc. v. Block Bros., Inc.. 507 F.Supp. 392, 394
(S.D.Ohio 1980); Agway, Inc. v. Teitscheid, 144 Vt. 76, 80, 472 A.2d 1250, 1253
(1984).
{¶33} In determining what constitutes adequate notice, the Ohio Supreme
Court has stated the following:
R.C. 1302.65 is a codification of UCC 2-607. Official Comment 4
to UCC 2-607 provides: “The content of the notification need
merely be sufficient to let the seller know that the transaction is
troublesome and must be watched. There is no reason to require
that the notification which saves the buyer's rights under this
section must include a clear statement of all the objections that
will be relied on by the buyer, as under the section covering
statements of defects upon rejection (Section 2-605 [R.C.
1302.63] ). Nor is there reason for requiring the notification to be
a claim for damages or of any threatened litigation or other
resort to a remedy. The notification which saves the buyer’s rights
under this Article [R.C. Chapter 1302] need only be such as
informs the seller that the transaction is claimed to involve a
breach, and thus opens the way for normal settlement through
negotiation.”
While the Official Comments to UCC 2-607 supply courts with
interpretative assistance, we have recently noted that “[t]he
Official Comment following R.C. 1302.65 [UCC 2-607] provides
somewhat contradictory guidance as to how the notice
requirement is to be construed.” Chemtrol Adhesives, Inc. v.
American Mfrs. Mut. Ins. Co. (1989), 42 Ohio St. 3d 40, 52, 537
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N.E.2d 624, 636. The debate as to whether a strict or liberal
approach should be applied to UCC 2-607 persists. * * *
This issue, however, has been decided by Chemtrol, supra,
wherein we stated: “We reject the strict reading of R.C.
1302.65(C)(1) [and UCC 2-607] * * * as we believe that notice
may be sufficient under the statute despite the fact that the
notice does not specifically allege a breach of the contract.
Moreover, in our view, the statute was not meant to exclude the
possibility that notice may be inferred. * * * Therefore, no
specific form or words are required in the notice of breach of
contract under R.C. 1302.65(C)(1).
(Emphasis added.) AFG, Inc. v. Great Lakes Heat Treating Co., 51 Ohio St.3d
177, 179-180, 555 N.E.2d 634 (1990).
{¶34} FMT maintains that the trial court erred in finding that FMT did not
provide notice of the defects in the conveyor systems within a reasonable time.
Rather, it asserts that when it notified AHM of the various problems with both
conveyor systems, that this was sufficient notice of the breach to let AHM know
that the transaction was troublesome and must be watched. FMT also asserts that
AHM failed to test the conveyors as required, and if it had done this testing, it
would have had notice that its conveyor systems were defective.
{¶35} We agree with FMT that the evidence before the trial court revealed
that AHM was on notice that the transaction was troublesome when FMT initially
informed AHM of a number of problems with both conveyor systems. However,
the evidence before the trial court also showed that each problem that was brought
to AHM’s attention by FMT was remedied. In fact, Miller testified that after April
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2006, he believed that AHM had taken care of every issue that FMT had with the
conveyors and that he believed that AHM had gone above and beyond what was
required of it to assist FMT in making its washer systems operational. He further
testified that after April of 2006, he was not informed of any more problems with
the conveyor systems and was told in May of 2006 that the reason his company
had not been paid the remaining balance on the contract was because FMT was
waiting to be paid by Caterpillar. He was never told that FMT was withholding
payment because of any problems with the conveyor system.
{¶36} As previously noted, the reason that the notification which saves the
buyer’s rights under R.C. Chapter 1302 need only be such as to inform the seller
that the transaction is claimed to involve a breach is so that the way for normal
settlement through negotiation is opened. Here, FMT notified AHM that the
conveyor systems had a number of problems. FMT then worked with AHM to
remedy these problems. By April of 2006, AHM believed that all the problems
had been remedied and that FMT was now satisfied with the conveyor systems.
Indeed, the project manager through April of 2006 for FMT, William Owsley,
who is the one who worked directly with AHM, testified that he was satisfied with
AHM’s work and cooperation in troubleshooting during the integration process.
Thus, AHM was not given notice that its transaction with FMT remained
problematic.
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{¶37} Moreover, the evidence before the trial court revealed that FMT
chose to no longer communicate with AHM about the problems with the
conveyors. In fact, when Miller contacted FMT in May about the remaining
balance due, he was not told of any dissatisfaction with the conveyors but was
simply told that FMT was waiting on payment from Caterpillar. Additionally,
FMT sent the washer systems, including the conveyors made by AHM, to Joliet,
and took it upon itself to make numerous changes to the conveyors without
involving AHM or even informing AHM that problems remained. The trial court
found that these actions demonstrated FMT’s acceptance and ownership of the
conveyors, served to prevent AHM from being notified that problems persisted,
and that FMT made the decision to use these conveyors and to perform work on
the conveyors itself due to its own time constraints in its contract with Caterpillar.
{¶38} As to FMT’s claims that AHM failed to test the conveyors as
required and that it would have been put on notice of the problems with the
conveyors if it had tested them, the contract for the conveyors stated, “[c]ost
includes set up and test run individual pieces as [n]ecessary.” Contrary to FMT’s
position, this language does not demonstrate that AHM had an affirmative duty to
test run the conveyor systems once completely integrated into the washer systems,
only that it would test the individual pieces of the conveyor systems as necessary.
Miller testified that the Lance system was tested in parts by AHM at its facility
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prior to being delivered to FMT but that no pallets were supplied to AHM for
either the Lance or R&H systems. The trial court found this testimony to be
credible. In addition, the trial court found, and the evidence supported that neither
conveyor could be fully tested, i.e. with a number of pallets weighing up to 5,000
lbs. in a continuous cycle through the washing stages, until they were integrated
into their respective washer systems. The contract did not require this type of
testing on the part of AHM. Therefore, FMT continued to have a duty to notify
AHM if it continued to experience problems with the conveyors, particularly after
AHM was led to believe by FMT that any problems with the conveyors had been
remedied.
{¶39} In short, the trial court found that FMT failed to provide a timely and
adequate notice of continuing problems with the conveyor systems. In fact, the
trial court also noted that FMT stopped calculating interest due from AHM for
delaying the project in July of 2006 because it acknowledged that the conveyors
were at “functional capacity.” These findings are supported by some, competent
credible evidence, and they support the trial court’s determination that FMT, by its
own decisions and actions, failed to properly notify AHM of the non-conforming
nature of the conveyors or to otherwise act in compliance with R.C. Chapter 1302.
Accordingly, the trial court did not err in finding that FMT breached its contract
with AHM, that FMT was responsible for the remaining balance on the contract
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(less the amounts deducted without objection by AHM), and that FMT was not
entitled to damages and/or an off-set of the balance for breach of contract by
AHM.
{¶40} For all of these reasons, FMT’s second, third, fourth, and seventh
assignments of error are each overruled.
FMT’s Fifth and Sixth Assignments of Error
{¶41} Both FMT’s fifth and sixth assignments of error involve issues
relating to the damages it sustained based on AHM’s breach of contract. Given
our decision as to FMT’s second, third, fourth, and seventh assignments of error
that the trial court did not err in finding in favor of AHM and against FMT, the
fifth and sixth assignments of error of FMT are moot, and, accordingly, both are
overruled.
AHM’s Assignment of Error
{¶42} In its sole assignment of error, AHM asserts that the trial court erred
in overruling its motion for pre-judgment interest that it filed on July 17, 2008.
AHM maintains that R.C. 1343.03(A) entitles it to prejudgment interest as a
matter of law. In response, FMT contends that the trial court correctly overruled
AHM’s motion for pre-judgment interest because AHM failed to file an objection
to the magistrate’s decision, which did not award pre-judgment interest to AHM.
{¶43} The award of pre-judgment interest as to claims arising out of breach
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of contract is governed by R.C. 1343.03(A). Dwyer Elec., Inc. v. Confederated
Builders, Inc., 3d Dist. No. 3-98-18 (1998). In pertinent part, this section provides
that: “ * * * [w]hen money becomes due and payable upon any bond, bill, note, or
other instrument of writing, * * * for the payment of money arising out of * * * a
contract or other transaction, the creditor is entitled to interest * * *.” (Emphasis
added.) R.C. 1343.03(A).
{¶44} “The language of R.C. 1343.03(A) is neither permissive nor
ambiguous. In a breach of contract case between private parties where liability is
established, the trial court does not have discretion in awarding prejudgment
interest.” Butterfield v. Moyer, 3d Dist. No. 8-04-04, 2004-Ohio-5891, ¶ 14.
“Specifically, in cases like this one where a party has been granted judgment on an
underlying contract claim, that party is entitled to prejudgment interest as a matter
of law.” W & W Roofing & Siding, Inc. v. H.P. Group, L.L.C., 3d Dist. No. 5-01-
11, 2001-Ohio-2248, citing Dwyer Elec., supra.
{¶45} The Supreme Court of Ohio has held that “in determining whether to
award prejudgment interest pursuant to R.C. 1343.03(A), ‘ * * *, a court need only
ask one question: Has the aggrieved party been fully compensated?’” Dwyer
Elec., supra; quoting Royal Elec. Constr. Corp. v. Ohio State Univ., 73 Ohio St.3d
110, 116, 652 N.E.2d 687 (1995). In order to be fully compensated, or made
whole, an aggrieved party should be compensated for the lapse of time between
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accrual of the claim and judgment. Id. at 117. This is the role and purpose of pre-
judgment interest. Accordingly, the only issue for resolution by a trial court in
claims made pursuant to R.C 1343.03(A) is how much interest is due the
aggrieved party. Id. In order to determine this, the trial court must make a factual
determination as to “when interest commences to run, i.e., when the claim
becomes ‘due and payable,’ and to determine what legal rate of interest should be
applied.” (Emphasis in original.) Id. at 115. Thus, while the right to pre-
judgment interest in a contract claim is a matter of law, the amount awarded is
based on the court's factual determination of an accrual date and interest rate.
{¶46} In the case sub judice, AHM’s claim for pre-judgment interest was
based upon a contract. Thus, the trial court was required to award pre-judgment
interest. The only question for the trial court was what date the pre-judgment
interest began to accrue. Nevertheless, the trial court found that AHM failed to
object to the magistrate’s decision, which did not include an award of pre-
judgment interest. Thus, the trial court overruled AHM’s motion for pre-judgment
interest.
{¶47} Civil Rule 53(D)(3)(b)(iv) provides that if a party fails to file a
timely objection to the magistrate’s decision, “[e]xcept for a claim of plain error, a
party shall not assign as error on appeal the court’s adoption of any factual finding
or legal conclusion, whether or not specifically designated as a finding of fact or
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conclusion of law under Civ.R. 53(D)(3)(a)(ii), unless the party has objected to
that finding or conclusion as required by Civ.R. 53(D)(3)(b).”
{¶48} The Ohio Supreme Court has discussed the application of the plain
error doctrine in civil cases, finding that, “[i]n appeals of civil cases, the plain
error doctrine is not favored and may be applied only in the extremely rare case
involving exceptional circumstances where error, to which no objection was made
at the trial court, seriously affects the basic fairness, integrity, or public reputation
of the judicial process, thereby challenging the legitimacy of the underlying
judicial process itself.” Goldfuss v. Davidson, 79 Ohio St.3d 116, syllabus, 679
N.E.2d 1099 (1997).
{¶49} “A ‘plain error’ is obvious and prejudicial although neither objected
to nor affirmatively waived which, if permitted, would have a material adverse
affect on the character and public confidence in judicial proceedings.” Schade v.
Carnegie Body Co., 70 Ohio St.2d 207, 209, 436 N.E.2d 1001. While conceding
that pre-judgment interest in this case was mandatory, FMT maintains that the
failure of the trial court to award pre-judgment interest because AHM did not file
an to the magistrate’s decision on this issue does not rise to the level of plain error.
{¶50} However, the Rules of Civil Procedure specifically state that in the
absence of an objection, a trial court may adopt a magistrate’s decision “unless it
determines that there is an error of law or other defect on [its] face.” Civ.R
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53(E)(4)(a). Review under the plain error standard is limited on appeal to review
of “the trial court's adoption for failure to correct an obvious error of law or other
such defect in the decision.” Timbercreek Village Apts. v. Myles, 2d Dist. No.
17422 (1999), citing Divens v. Divens, 2d Dist. No. 97 CA 0112. (1998).
{¶51} Although AHM filed a motion for pre-judgment interest, thereby
bringing the issue to the trial court’s attention, the trial court adopted the
magistrate’s decision and overruled AHM’s motion. The magistrate’s decision
and recommendations clearly omitted an award of pre-judgment interest, a defect
that was obvious on its face. Pursuant to Royal Elec., supra, and the plain
language of R.C. 1343.03(A), AHM has not been fully compensated and is
entitled to prejudgment interest. Thus, AHM’s assignment of error is sustained,
and we remand the matter to the trial court to determine the amount of pre-
judgment interest owed, i.e. to determine the “due and payable” date and the legal
rate of interest.
Judgment Affirmed in Part,
Reversed in Part and
Cause Remanded
WILLAMOWSKI and ROGERS, J.J., concur.
/jlr
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