Case Title: LOVELY v BURROUGHS CORP

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1974-10-21T00:00:00Z

Document:
No. 12569 I N T H E S U P R E M E C O U R T O F THE STATE O F MONTANA 1974 ORVIS G . L O V E L Y AND D O N A L D R. LAUBACH, P l a i n t i f f and Respondent and Cross -Appellant, B U R R O U G H S CORPORATION, a corporation, Defendant and Appellant. Appeal from: D i s t r i c t Court of the Sixth J u d i c i a l District, Honorable C. B. Sande, Judge presiding. Counsel of Record: For Appellant : Landoe, Gary and White, Bozeman, Montana H. B. Landoe appeared, Bozeman, Montana Henson and Tully, Minneapolis, Minnesota Robert Henson argued, Minneapolis, Minnesota For Respondent: Conrad B, Fredricks argued, and Richard W. Josephson argued, Big Timber, Montana Submitted: June 13, 1974 Decided : OCT 2 % 1974 M r . Justice Frank I. Haswell delivered the Opinion of the Court. I n a nonjury t r i a l i n the d i s t r i c t court of Park County, p l a i n t i f f s were awarded damages i n the amount of $16,760.82 f o r losses resurting from the defective operation of electronic ac- counting equipment supplied by the defendant. Defendant appeals from the judgment. P l a i n t i f f s cross-appeal from the damages awarded. The issues raised by the defendant on appeal are: 1 ) Li- a b i l i t y f o r breach of express o r implied warranty; 2) Measure of damages; 3) Assessment of costs. p l a i n t i f f s ' cross-appeal con- cerns only the measure of damages. Given the complex nature of the f a c t s and issues involved, a detailed consideration of both is required. P l a i n t i f f Orvis Lovely commenced an accounting practice i n Livingston, Montana, i n 1953. I n 1964 he formed a partnership with the other p l a i n t i f f , Donald taubach. I n 1966, the partner- ship purchased an additional practice i n nearby Big Timber, Montana, and maintained an o f f i c e there. The addition of t h i s practice in- creased the workload of the partnership t o the point where ad- d i t i o n a l help had t o be hired o r the work had t o be automated. P l a i n t i f f s were approached by David Larsen, a s sales rep- resentative of the defendant, concerning the use of Burroughs equipment i n t h e i r expanded practice. A s e r i e s of meetings, cor- respondence and demonstrations of available equipment ensued, re- sulting i n a purchase order f o r a small Burroughs computer. That order was superseded i n February, 1967 by a similar order f o r a larger, more expensive computer. The second order bore a hand- written notation t h a t it was t o be converted i n t o a lease prior t o delivery. Although the computer was delivered and i n s t a l l e d i n June, 1967, no formal lease was ever executed. P l a i n t i f f s sub- mitted an application and a check, through Larsen, f o r consid- eration by a third-party leasing firm i n November of 1967. Plain- t i f f s forwarded a second check i n December i n the same amount t o Burroughs before learning t h a t the application had been denied. Defendant then offered t o lease d i r e c t l y t o p l a i n t i f f s a t a higher monthly rental. p l a i n t i f f s ' rejection of t h i s o f f e r prompt- ed the removal of the computer i n February of 1968. The d i s t r i c t Court found t h a t defendant, a t the time of the order, knew the particular purposes f o r which the equipment was required and t h a t p l a i n t i f f s were relying on defendant's judgment i n furnishing suitable goods. It further found t h a t the equipment delivered was not f i t f o r the purposes intended, and t h a t p l a i n t i f f s were damaged thereby. These findings of f a c t a r e amply supported by the record. During the course of p l a i n t i f f s ' negotiations with Larsen, the l a t t e r became thoroughly familiar with the operations of t h e i r accounting practice. P l a i n t i f f s t e s t i f i e d t h a t they r e l i e d heav- i l y on ~ a r s e n ' s assessment of the computer's s u i t a b i l i t y f o r t h e i r particular needs. That reliance prompted p l a i n t i f f s t o s o l i c i t additional business from t h e i r customers which was t o be provided by the expanded capabilities of the new machine. Following i n s t a l l a t i o n and debugging of the machine, a number of customer accounts were transferred t o the automated puter while the defendant had the expectation of p r o f i t from a lease d i r e c t l y with the p l a i n t i f f s o r a s a l e t o the third-party leasing company. Defendant further benefitted by the receipt of the two checks a s well a s the s a l e of forms t o be used with the computer. To argue t h a t defendant gratuitously placed a $38,000 computer a t the disposal of the p l a i n t i f f s without expectation of p r o f i t does not square with the facts. Bailments f o r mutual benefit f a l l within the scope of section 42-101, R.C.M. 1947, which provides: one "Hiring is a contract by ~ h i c h / ~ i v e s t o an- other the temporary possession and use of property, other than money, f o r reward, and the l a t t e r agrees t o return the same t o the former a t a future time." [Emphasis suppZied] The Legislature, by the use of the word "reward", obviously con- templated benefits other than money a s being included i n a hiring. W e ,find no sound reason f o r excluding anticipated rewards from the scope of the statute. Section 42-211, R.C.M. provides: "One who l e t s personal property must deliver it t o the h i r e r , secure h i s qu5et enjoyment thereof against a l l lawful claimants, put it into a condition f i t f o r the purpose f o r which he l e t s it, and repair a l l deteriorations thereof not occasioned by the f a u l t of the h i r e r and not the natural r e s u l t of i t s use." [Emphasis supplied] This s t a t u t e expresses the common law of bailments re- quiring f i t n e s s f o r use i n bailments f o r mutual benefit. Atlantic -. Tug & Equip-. . Co, -v,. S . . 6 L. ,.Pavinn C ~ r p . , 334 N ,Y. S 2d 532, 8 Am, Jur.2d Bailments 5144. When a bailor has reason t o know the use f o r which the property is required, there a r i s e s an implied war- ranty of fitness f o r t h a t use--particularly when the bailee re- -5- process. Within a short time, problems arose i n t h e operation of the computer, requiring numerous v i s i t s by ~ u r r o u g h s ' re- pairmen. These d i f f i c u l t i e s occurred a s frequently a s daily and often necessitated shutting the computer down u n t i l the re- pairs could be made. The problems experienced adversely affected the p l a i n t i f f s ' a b i l i t y t o promptly and accurately service t h e i r customers' accounts. The damage t o the reputation of the firm was one of the factors which led t o the s a l e of the practice. Given t h i s evidence, the d i s t r i c t court concluded t h a t defendant had breached both express and implied warranties of f i t n e s s f o r intended use. It further concluded t h a t t h i s breach was the proximate cause of the damages which we s h a l l deal with l a t e r . Defendant argues t h a t there was no transactional basis f o r any warranty; t h a t breach of warranty, i f such warranty ex- isted, was not established by the record; and that i f there was a breach of warranty, the p l a i n t i f f s waived t h e i r claim f o r re- l i e f , Defendant maintains t h a t the transaction here amounted t o nothing more than a gratuitous bailment, giving rise t o no express o r implied warranty of f i t n e s s f o r intended use. W e disagree. A t the very l e a s t , a bailment f o r mutual benefit arose a s both parties received the benefits of the transaction. Global - * -.- Tank T r a i l e r Sales v. Textilena-Nease,- g c * . , 209 Kan. 314, 496 - - - - " . " * w - -... - . .- . . . -. .-. -- -* -- .... -- . - . P.2d 1292; Miller -- - - r - -- v. < a - Hand .. .- Ford \ - . . Sales-, -.* . -I$c,.,, 216 O r . 567, 340 P.2d 181; 8 C.J.S, Bailments 58(a). P l a i n t i f f s had the use of the com- -4- l i e s upon the bailor's expertise as t o the s u i t a b i l i t y of t h a t property f o r that use. Accordingly, defendant's delivery of the computer cre- ated a bailment f o r mutual benefit, and that relationship gave r i s e t o an implied warranty of fitness f o r use i n p l a i n t i f f s ' practice, The d i s t r i c t court found, and the evidence clearly shows, that *warranty was breached. From the time of installa- tion t o the time of removal, the computer suffered malfunctions which made it incapable of providing timely and accurate infor- mation, Defendant's protestations that a complex piece of equip- ment such as t h i s is expected t o have such problems a r e not per- suasive. While the problems might be normal for t h i s machine, and we a r e not convinced of that, defendant should have then known that the computer would never be suitable f o r p l a i n t i f f s ' needs. H i s representations t o the contrary would then be fraud- ulent. Defendant further suggests that p l a i n t i f f s waived t h e i r claim of breach of warranty by failing t o reject the computer during the approximately eight months a f t e r delivery. W e can- not agree. Even i f the defense of waiver had been timely raised, i n accordance with Rule 8(c), M.R.CIV,P., the evidence does not conform t o the theory. While the p l a i n t i f f s did retain possession f o r almost eight months, the evidence clearly shows that they did not accept the computer i n its defective condition. The record is replete with repeated complaints made by the plain- t i f f s , resulting i n numerous service c a l l s directed a t remedying the many problems. Plaintiffs ' actions amourt good f a i t h attempt t o permit defendant t o remedy the defects, not an ac- ceptance of them. W e therefore find no waiver of the protec- tion of warranties of f i t n e s s f o r intended use. For s i m i l i l a r holdings see: Ekco - + -. Products.Companv ,* * . . - -. --. - --" - - - - + v. United - " . .- - State-s, . . , 7 . . . , 312 F.2d 768 (U.S , C t , C1. 1963) ; KLPR -vA, I n c , *v_, Vis-$a1 a - m - Electronics - -. .- . . Cor- -- -" . .- ~ o r a t i o n , 327 F.Supp. 315,465 F.2d 1382 (8th C i r . 1972); Carlo Bianchi _ I & _ __.___.__ & CQ. -___ _ w. ~ n i l d e r s ' . _ .. " -,- .._ Eauipment .- I I ( - _ . - & .I S u ~ p l p - +-.. Corn., 347 Mass. 636, 199 N.E.2d 519. The d i s t r i c t court awarded'damages i n the following amounts : 1 ) $4,000 f o r t i m e spent attempting t o make the com- puter work and time spent correcting the mistakes made by the computer--time which otherwise could have been b i l l e d t o c l i e n t s . 2) $1,302.37 f o r hiring additional help required by the computer problems. 3) $3,000 inwages f o r hiring another accountant t o conduct the Big Timber practice since the computer demanded plain- t i f f s ' time i n Livingston, 4) $139.40 f o r costs of preparing a room f o r i n s t a l l a - t i o n of the computer; $1,596 which was the amount of t h e two checks which p l a i n t i f f s sent t o defendant during lease negotia- tions; $64.05 f o r telephone charges expended i n informing defen- dant's repairmen t h a t the computer was malfunctioning. 5) $3,391 f o r loss sustained on the s a l e of the Big Timber business, 6) $3,268 f o r loss sustained on the s a l e of the Living- ston business. Apart from the challenge t o the finding of any l i a b i l i t y here, defendant further contends that: 1 ) There is insufficient evidence t o support the award of numbes 5 and 6; 2) I t e m s 1, 3 and 6 a r e duplicative and therefore excessive; 3) A contrac- t u a l provision limiting damages should have been applied; and 4) The value of the use of the computer should have been o f f s e t against any damages awarded. P l a i n t i f f s cross-appeal, alleging t h a t 1 and 6 should have been larger awards. Damages may properly be awarded when they serve t o com- pensate the p l a i n t i f f f o r detriment proximately caused by the defendant, Section 17-301, R.C.M. 1947. Before an award can be made, the damages must be clearly ascertainable i n both t h e i r nature and origin. Section 17-302, R,C,M. 1947. Damages which a r e a matter of mere speculation cannot be the basis of recovery. Laas v. Mont. Hwy.commln, 157 Mont. 121, 483 P.2d 699; Cruse v. Clawson, 137 Mont. 439, 352 P.2d 989; Jurec v, Raznik, 104 Mont. 45, 64 P.2d 1076. P l a i n t i f f s purchased the Big Timber practice i n 1966 f o r $25,000 and sold it i n May of 1968 f o r $21,609. The d i s t r i c t court awarded the difference (N~tnber 5) a s damages. The record shows t h a t the Big Timber practice suffered when t h e errant computer de- manded time which would otherwise have been spent there attending t o business. The measure of damages applied by the d i s t r i c t court i s sufficibntly defined t o avoid a charge of being too specula- tive. Since the cause, origin and nature of the damages is clear, we w i l l not disturb t h a t judgment. The Livingston practice was f i f t e e n years old when sold -8- i n 1968 f o r $18,750. The d i s t r i c t court awarded $3,268 a s damages f o r loss on that s a l e (Number 6 above). That figure lacks both the certainty of origin and the factual basis which might allow us t o affirm it. It appears that the d i s t r i c t court arrived a t t h i s figure by subtracting the actual gross in- come of the Livingston practice i n 1967 from a projected gross income figure for 1967 which an expert t e s t i f i e d would have been the practice's gross income had it not had the computer problems. While a court can properly award damages f o r a loss of net pro- f i t s , it cannot award damages for a loss of anticipated gross in- come. Klemens & Son v. Reber Plbg. & Htg. Co,, 139 Mont. 115, 360 P.2d 1005; 22 Am.Jr.2d Damages 5178. Furthermore, it is d i f f i c u l t t o determine why the d i s t r i c t court looked a t these figures i n determining the loss on the sale of the Livingston practice, [See Finding of Fact No. 131 The record contains voluminaus expert testimony concerning meth- ods of placing a valuation on p l a i n t i f f ' s practice a t the time of sale, Without the benefit of further ex$mat9on 6f Ithe- computa- tions used by the t r i a l court, and since the award i s challenged by both parties, a redetermination of number 6 is necessary. Since the expert who t e s t i f i e d concerning the appropriate valuation of the business included a number of variables i n h i s basic formula of a certain percentage of gross income, we cannot compute damages based upon the record without making certain de- krminations of fact. These are properly the functions of the t r i a l court, and we therefore must remand for further considera- tion of t h i s element of damage. -4 r Defendant further protests that the damages awarded as numbers 1, 3 and 6 above overlap and encompass but a single detriment t o the plaintiffs. Since number 6 involves the loss on the sale of the Livingston practice, w e find no overlap between it and the other i t e m s . O n t h e i r face, how- ever, we can see the possibility of overlap between items 1 and 3. Since the time spent i n correcting computer errors is time which p l a i n t i f f s might otherwise have spent perform- ing services for clients, it is logical that the cost of hiring another t o service those clients would relieve p l a i n t i f f s of some of the damages of l o s t time. Without more, it would ap- pear that the cost of hiring the additional accountant and the loss of billable time would be t o some extent duplicative. However, the award for loss of billable time represents a sub- s t a n t i a l reduction i n the amount of damages claimed by plain- t i f f s f o r that i t e m . I n fact, plaintiffs protest that reduc - tion on cross-appeal. The reduced award was apparently the result of the d i s t r i c t court's adjustment of the claimed figure t o take in- t o account the overlap mentioned above. O n t h i s record, that adjustment was reasonable and w i l l not be disturbed by t h i s court. Defendant also c a l l s attention t o the disclaimer of l i a b i l i t y for consequential damages contained i n the purchase agreement here. The very language of the waiver belies its applicability here. It reads : "* * * Seller s h a l l not be l i a b l e f a r damage caused by delay i n delivery which is unavoidable o r beyond Seller's reasonable control nor i n any event for con- sequent i a 1 damages. I t The provision clearly speaks t o consequential damages arising from delay i n delivery, which i s not involved here. I n addi- tion, the language appears i n a document which purports t o be a purchase agreement, yet the parties asree that no purchase was intended. The language of that mere order cannot be con- sidered governing during the period of bailment. Finally, the waiver suffers the same infirmity a s the "fine print waiver'' invalidated i n Quality . " . Accepta~e~_Coru,. y.. MiJlipn - - and-Albers, - Inc., 367 F.Supp. 771 (D. Wyoming 1973), and many similar cases. A s t o the question of offsetting the value of the use of the computer against any damages awarded, it should be suf - f i c i e n t t o note that no evidence of such value was introduced. Indeed, it is d i f f i c u l t t o imagine how a computer which so damaged p l a i n t i f f s ' practice would be said t o have had value t o them. The f i n a l issue raised by the defendant concerns the costs of s u i t . Plaintiffs, on appeal, have admitted that our decision i n Johnson v. Furgeson, 158 Mont. 170, 489 P.2d 1032, supports the defendant's contentions. W e there held that costs of depositions taken f o r the convenience of the deposing party i n marshalling h i s own case must be borne by that party, See also Davis v. Trobough, 139 Mont. 322, 363 P.2d 727; Isman v. Altenbrand, . + . . - ~ 42 Mont. 188, 1 1 1 P. 849, The remahder-of de- fendant's objections t o the costs a r e equally well taken as not being included within the provisions of section 93-8618, R,C,M. 1947. It follows t h a t the judgment of the d i s t r i c t court must be affirmed i n part and reversed i n part. The judgment is sound with the exception of t h a t element of damages deal- ing with the Livingston practice loss, and t h e assessment of costs. W e must therefore remand f o r a redetermination of t h e amount of damages a r i s i n g from the loss on the s a l e of t h e Livingston business, Judgment should be then entered reflect- ing t h a t amount, and costs should be awarded i n an amount con- s i s t e n t with t h i s opinion. J u s t i c e W e concur: , "-9 . ( 6 . i - L * ' r . -----k----~s-4-*-b~---LL~J-Lh~-~----------- s i t t i n g i n place of M r . Chief J u s t i c e James T, Harrison.