Source: http://law.justia.com/cases/vermont/supreme-court/2011/2010-436.html
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SEC America, LLC v. Marine Electric Systems, Inc. - 2011 VT 125 :: November, 2011 :: Vermont Supreme Court Decisions :: Vermont Case Law :: US Case Law :: US Law :: Justia
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SEC America, LLC v. Marine Electric Systems, Inc.
Justia.com Opinion Summary: The parties in this case separately appealed the trial court order that awarded damages in excess of $78,000 to Plaintiff SEC America (SEC). Defendant Marine Electric Systems, Inc. (MES) contended the court erred in: (1) failing to reduce the damage award for partial payment; (2) granting an award for lost profits; and (3) relying on inadmissible evidence. SEC asserts the court erred in concluding that it acted unreasonably in failing to mitigate damages. This case arose out of a transaction to supply an electrical component for installation in jamming devices to be used by NATO forces in Afghanistan to disrupt the remote detonation of improvised explosive devices (IEDs). MES placed an order for power converters for its devices. SEC made a partial shipment of the converters, and continued working on the remaining units. MES' contract with NATO had collapsed, and MES' customer who promised to purchase the completed jammers reneged on its promise. MES sued its client and ultimately reached a settlement. None of the proceeds from the settlement went to SEC. Subsequently SEC filed suit against MES for breach of contract. Following a bench trial, the court found in SEC's favor. MES appealed, and SEC filed a cross-appeal. MES argued on appeal to the Supreme Court that the trial court erred in arriving at the proper amount of damages owed to SEC. Finding "no clear error to compel reversal of the judgment," the Court affirmed the trial court.
Receive FREE Daily Opinion Summaries by EmailSEC America, LLC v. Marine Electric Systems, Inc. (2010-436)
2011 VT 125
[Filed 10-Nov-2011]
DOCKET NO. 2010-436
MAY TERM, 2011
DOCKET NO. S0945-08 CnC
Trial Judge: Alden T. Bryan (Ret.), Specially
Assigned In the above-entitled
¶ 1. The parties to this contract dispute appeal separately from a trial
court order awarding damages in excess of $78,000 to plaintiff SEC America
(SEC). Defendant Marine Electric Systems, Inc. (MES) contends the court
erred in: (1) failing to reduce the damage award for partial payment; (2)
granting an award for lost profits; and (3) relying on inadmissible
evidence. SEC asserts the court erred in concluding that it acted
unreasonably in failing to mitigate damages. We affirm.
¶ 2. This case arose out of a transaction to supply an electrical component
for installation in jamming devices to be used by NATO forces in Afghanistan to
disrupt the remote detonation of improvised explosive devices (IEDs). The
facts may be briefly summarized. Additional material facts will be set
forth in the discussion that follows. In 2007, NATO was involved in
discussions with a company called EMW to purchase a jammer known as the MILJAM
350. The technology for this device belonged to an Israeli company owned
by one Alon Wallach. To comply with NATO rules
prohibiting purchases from companies domiciled in non-NATO countries, Wallach
arranged with MES, a defense contractor in New Jersey, to purchase the MILJAM
350 technology and manufacture the jammers in the United States. ¶ 3. The jammers required a power supply or converter. To obtain this
component, Wallach put MES's owner, Harry Epstein, in touch with Wallach's
distant relative, Ethan Herz, who owns SEC, an
engineering firm in South Burlington that manufactures electrical power-supply
units for a variety of industrial applications. SEC's model 695 DC
converter appeared to be suitable, and the three men had discussions concerning
necessary modifications to the converter case and the placement of cable
connections for use in the jammer. In December 2007, MES submitted a
purchase order for seventeen converter units, followed by a second amended
purchase order in February 2008 for the original seventeen-unit order at $2200
each, or $37,400, together with an additional order for twenty-nine units at
$1975 each, or $57,275, for a total purchase price of $94,675. ¶ 4. SEC shipped the first seventeen units in March 2008, and continued
production on the remaining twenty-nine, which consisted of obtaining printed
circuit boards or motherboards and loading or stuffing them with the necessary
electronic components. By mid-April 2008, SEC had not been paid for any
of the shipped units. Herz contacted Epstein,
who said that SEC would be paid when he (Epstein) was paid. Herz then stopped production on the remaining twenty-nine
units. It turned out that the deal between EMW and NATO had collapsed,
and EMW consequently refused to purchase the jammers from MES. MES sued
EMW and others, which resulted in an eventual settlement in March 2009, but
none of the proceeds went to SEC. ¶ 5. In August 2008, SEC filed this lawsuit against MES for breach of
contract. Following a bench trial, the court found in favor of SEC,
awarding the unpaid contract price of $37,400 for the seventeen units shipped,
lost profits of $23,275 for the twenty-nine incomplete units, and prejudgment
interest of $17,595.75, for a total award of $78,270.75. MES appealed,
and SEC filed a separate cross-appeal. ¶ 6. MES concedes on appeal that the parties entered into a valid
contract for the purchase and sale of the initial seventeen converter units but
claims that any damages for breach of the contract should have been reduced by
$15,000 that SEC received from Wallach and later returned. MES argues
that the trial court erred in accepting Herz's
characterization of this money as a "loan"
rather than as a partial payment, and asserts that SEC was obligated to retain
the money to mitigate its damages. ¶ 7. Regardless of whether the trial court properly characterized the money
as a loan or a payment, the evidence amply supports the trial court's finding
that, once the initial introductions from Wallach had been made, "[t]he entire
transaction . . . took place between MES and SEC" with "MES [as] the intended
purchaser and SEC [as] the intended seller during all material times in this
transaction" without any involvement of Wallach as a party to the
agreement. It is axiomatic that a seller is not obligated to accept
payment by a nonparty to the contract. See generally 28 R. Lord,
Williston on Contracts § 72:35, at 764-65 (4th ed. 2003) (observing that tender
of payment "by a third party who is a stranger to the contract, unless
subsequently ratified by the debtor, will ordinarily be held invalid" and that
"whatever the effect of payment by a stranger when accepted by the creditor, it
is clear that the creditor is under no obligation to accept such a payment in
the first instance"); see also Brabham v.
Am. Nat. Bank of Union Springs, 689 So. 2d 82, 87 (Ala. Civ. App. 1996) ("A
tender of payment by a stranger to a contract is normally invalid."); Swain
v. Kayko, 205 N.W.2d 621, 624 (Mich. Ct. App.
1973) (stating that "[g]enerally, a mere stranger to
an obligation cannot make an effectual tender" and that consequently "[a]s a
matter of law, a party to a contract has a right to demand payment from the
other party to the contract"); Chelius v. Questar Microsystems, Inc., 27 P.3d 681, 685 (Wash. Ct.
App. 2001) ("Unless a creditor consents, a debtor cannot avoid liability for a
debt by obtaining a third party's agreement to pay it."). Accordingly,
SEC was not legally obligated to accept the $15,000 tender from Wallach, and
the trial court therefore correctly declined to reduce the damage award by that
¶ 8. MES also raises several claims concerning the award in connection with
the twenty-nine additional converter units. First, MES asserts that SEC
was not entitled to damages because it never accepted the revised purchase
order for the twenty-nine units, so that no contract was formed. Vermont
has adopted the liberal standards set forth in the Uniform Commercial Code for
the formation of a sales contract: "A contract for the sale of goods may be
made in any manner sufficient to show agreement, including conduct by both
parties which recognizes the existence of such a contract." 9A V.S.A. § 2-204(1). The requisites for an offer and
acceptance are equally flexible. Thus, the submission of a purchase order
is generally considered to be an offer to purchase which the seller may then
accept or reject. See L. V. Appleby, Inc. v. Griffes, 160 Vt. 601, 602, 648 A.2d 808, 809 (1993) (mem.) (holding that "[s]ubmission
of purchase order . . . was an offer to purchase"); accord Am. Bronze Corp.
v. Streamway Prods., 456 N.E.2d 1295, 1300 (Ohio
Ct. App. 1982) ("Generally, the submission of a purchase order is viewed as
being an offer which may then be accepted or rejected by the seller.").
¶ 9. Unless clearly indicated otherwise, an offer "shall be construed as
inviting acceptance in any manner and by any medium reasonable in the
circumstances." 9A V.S.A. § 2-206(1). Performance by the seller has been recognized under this standard as a
reasonable mode of acceptance. See Appleby, 161 Vt. at 602, 648
A.2d at 809 (noting that trial court did not err in finding that "by filling
the [purchase] order and billing defendant, plaintiff accepted defendant's
offer in a reasonable manner"); accord Philip Schwartz, Inc. v. Gold Coast
Graphics, Inc., 623 So. 2d 819, 820 (Fla. Dist. Ct. App. 1993) (holding
that when buyer "submitted the purchase order to the printer it was making an
offer" and that "[t]he printer's performance constituted the acceptance of the
offer, and thus, a contract"); Nasco, Inc.
v. Dahltron Corp., 392 N.E.2d 1110, 1116 (Ill.
App. Ct. 1979) (holding that manufacturer validly accepted purchase order when
it "began preparation for the production" of ordered units and buyer "knew that
[manufacturer] was beginning production"); Am. Bronze Corp., 456 N.E.2d
at 1300 (holding that manufacturer's performance was "a reasonable mode of
acceptance" of purchase order and therefore "the agreements became binding at
the moment production began"). ¶ 10. The
trial court here found that MES submitted a revised purchase order for the
twenty-nine additional units in mid-February of 2008,
and that by mid- to late March of 2008 SEC "had the essential materials on hand
and was working on production." The court also found that, during this
period of time, officers from both companies were exchanging emails discussing
labels and other specifications relating to the additional twenty-nine
units. These included statements from SEC indicating that it expected
"the second batch" of converters to "go much faster" and that certain materials
had arrived for the second order, and from MES containing suggestions for the
"next batch" of twenty-nine units. SEC also submitted evidence of the
materials that it had ordered and the costs that it had incurred in connection
with the production of the additional units. The evidence was thus sufficient
to show that SEC had commenced production of the twenty-nine units and that MES
was aware of it, and this, in turn, was sufficient under the law to constitute
an acceptance of the revised purchase order and create a valid contract. See Rubin v. Sterling Enters., Inc., 164 Vt. 582, 588, 674
A.2d 782, 786 (1996) (we will not disturb trial court's findings if supported
by any credible evidence, nor its conclusions if reasonably supported by
findings and law).
¶ 11. MES
also summarily claims that no valid contract could have been formed for the
twenty-nine units because the purchase order failed to contain "the essential
term of time for delivery." The absence of one or more terms, however,
will not cause a contract to "fail for indefiniteness" where the parties
intended to make a contract and "there is a reasonably certain basis for giving
an appropriate remedy." 9A V.S.A. § 2-204(3). Furthermore, "[t]he
time for shipment or delivery or any other action under a contract if not . . .
agreed upon shall be a reasonable time." Id. § 2-309(1); see Appleby,
160 Vt. at 601-602, 648 A.2d at 809 (affirming trial court's finding that
seller's performance constituted acceptance and formation of contract despite
absence of date of delivery in purchase order); accord Autonumerics,
Inc. v. Bayer Indus., Inc., 696 P.2d 1330, 1336 (Ariz. Ct. App. 1984)
(holding that absence of delivery date in purchase order was not fatal to
contract formation under statutory provision that time for delivery, if not
agreed upon, shall be reasonable time); Southern Utils.,
Inc. v. Mandel Mach. Corp., 321 S.E.2d 508, 510 (N.C. Ct. App. 1984) (where
time for delivery was left open, "under the governing Code provision, plaintiff
was to pay and defendant to deliver within a reasonable time"). Accordingly, we find no merit to the claim. ¶ 12. MES
also argues on several grounds that the trial court erred in awarding SEC its lost profits as damages for MES's repudiation of
the twenty-nine units. The measure of damages for a non-acceptance or repudiation of a sale of goods is generally "the
difference between the market price at the time and place for tender and the
unpaid contract price." 9A V.S.A. § 2-708(1). Where this remedy is "inadequate," however, the measure of damages is the
"profit . . . which the seller would have made from full performance by the
buyer." Id. § 2-708(2). There was
ample evidence here that the contractually specified configuration of the case
and connections for use in the jammer devices was sufficiently unique that
there was no standard resale market, so that the court's reliance on § 2-708(2)
was justified. See, e.g., First Tenn. Bank Nat'l Assoc. v. Hurd Lock & Mfg. Co., 816 S.W.2d 38, 42 (Tenn. Ct.
App. 1991) (reaffirming general rule allowing "recovery of lost profits under
circumstances where there was no available market"); Kenco Homes, Inc. v.
Williams, 972 P.2d 125, 128 (Wash. Ct. App. 1999) (noting that, "[i]n general, the adequacy of damages under [2-708]
subsection (1) depends on whether the nonbreaching
seller has a readily available market on which he or she can resell the goods
that the breaching buyer should have taken"). MES asserts that the lost
profits measure was inconsistent with the court's further finding that SEC unreasonably
failed to mitigate its damages by either selling the stripped or unstuffed
circuit boards or incorporating them into other converters and recouping its
costs to that extent. MES confuses resale of a component, however, with
resale of the finished product, and we find no inconsistency in the court's
conclusion that lost profits was the proper measure of damages for the
twenty-nine converter units.[1]
¶ 13. MES
further claims that the document on which the court relied in calculating SEC's
lost profits, plaintiff's Exhibit 13, was erroneously admitted as a "summary"
of SEC's costs of production without a proper foundation, as required by Rule
1006 of the Vermont Rules of Evidence. Whatever the merits of the claim,
the record shows that MES also submitted a "Parts List" (defendant's Exhibit V)
enumerating the parts and costs incurred in production of the twenty-nine units
that was largely identical to the information contained in Exhibit 13. The trial court expressly relied on both exhibits in its damage
discussion. Accordingly, any error in the admission of Exhibit 13 was
harmless. See Wells v. Rouleau, 2008 VT
57, ¶ 15, 184 Vt. 536, 955 A.2d 518 (mem.) (holding that any error in
admission of document was harmless where it was cumulative of other properly
admitted evidence).
¶ 14. Finally,
MES contends the court erred in awarding prejudgment interest on that portion
of the award for lost profits. We find no error. The contract price
for the twenty-nine units was fixed, and the costs of production were known at
the time of the breach, so that the damages were readily ascertainable. See Estate of Fleming v. Nicholson, 168 Vt. 495, 501, 724 A.2d 1026,
1031 (1998) (reaffirming rule that prejudgment interest is mandated where
"damages are liquidated or reasonably ascertainable"). MES's reliance on Bull
v. Pinkham Engineering Associates, Inc., 170 Vt. 450, 752 A.2d 26 (2000) is
misplaced. There, we affirmed a trial court order denying prejudgment
interest on a lost-profit award where, on the facts presented, there was no
basis to conclude that the damages were readily ascertainable. Id.
at 464, 752 A.2d at 36. Although we cited to a
Missouri case holding that prejudgment interest is generally not allowed for
lost profits, Investors Title Co. v. Chicago Title Insurance Co., 983
S.W.2d 533, 538 (Mo. Ct. App. 1998), we specifically declined to issue "a
general ruling" on the point, 170 Vt. at 464, 752 A.2d at 36, and the Missouri
case itself distinguished an earlier decision upholding an award of prejudgment
interest where the lost-profit damages were reasonably ascertainable. Investors
Title, 983 S.W.2d at 538 (citing Schmidt v. Morival
Farms, 240 S.W.2d 952, 961 (Mo. 1951), where the court rejected claim that
damages for lost profits were "not definitely capable of ascertainment"); see
also Hall v. Miller, 143 Vt. 135, 146, 465 A.2d 222, 228 (1983)
(rejecting claim that damages for lost profits for breach of contract "could
not be established with reasonable certainty' " and upholding award of
prejudgment interest). Accordingly, we find no error in the award of
prejudgment interest. ¶ 15. In
its cross-appeal, SEC contends the court erred in finding that it acted in a
commercially unreasonable manner in failing to mitigate damages. To
recall, the court found that SEC stopped production for non-payment by late
April or early May of 2008, and further found that it must have been clear to
SEC by the summer of 2008 "that no export license [for the jammers] would
issue" and that in all probability the NATO purchase "was a dead issue."
The court concluded that SEC had a duty to mitigate at that point, and
that it was commercially unreasonable to fail to sell or incorporate the
stripped circuit boards for the twenty-nine units into other converters. Accordingly, the court reduced SEC's damages by the amount that would have been
saved had it done so.[2] ¶ 16. SEC
has not challenged the court's factual findings, but argues that countervailing
evidencein particular MES's promise to pay SEC when it was paid, and MES's
lawsuit against EMW for non-payment that was not settled until March 2009made
it reasonable for SEC to suspend production and essentially sit on the
incomplete circuit boards for almost a year. The weight to be accorded
the evidence in determining whether SEC acted reasonably in failing to mitigate
lies within the trial court's discretion. See, e.g., Cesco
Mfg. Corp. v. Norcross, Inc., 391 N.E.2d 270, 272-73 (Mass. Ct. App. 1979)
(setting forth trial court's finding that seller "acted in a commercially
reasonable manner [when] it sought to minimize damages by ceasing production"
and noting that court's findings cannot be set aside "unless clearly
erroneous"); see also Wilk Paving, Inc. v. Southworth-Milton, Inc., 162 Vt. 552, 557, 649 A.2d
778, 782 (1994) (holding that whether buyer's continued use of product
after revocation was a reasonable "good faith attempt to mitigate damages" was
"a question of fact" for trial court's consideration). Although SEC urges
that it was entitled to hope that a positive conclusion of the lawsuit would
ultimately lead to its payment and completion of the twnty-nine
converters, sufficient evidence supports the trial court's conclusion that it
was unreasonable to do nothing for a year, during which time the circuit boards
became obsolete. Accordingly, we find no clear error to compel reversal
of the judgment. Affirmed.
Paul L. Reiber,
John A. Dooley, Associate
[1] MES also claims in passing that SEC failed
to exercise reasonable commercial judgment in failing to complete manufacture
of the twenty-nine units, and that its recovery should be limited to what it
would have made if it had sold the units to other buyers. The argument is
inconsistent with the evidence and finding, noted earlier, that the units were
uniquely configured and therefore not amenable to resale. In addition,
MES summarily claims that, although the court credited MES with about $10,000
in parts that SEC was able to salvage and reuse, the court should have applied
an additional credit for the profit that SEC allegedly made in selling the units
with the salvaged parts. MES has not shown how or why it is entitled to
an additional credit for the resale of the finished product that included the
salvaged components, and we therefore find no error.
[2] By 2009, SEC was using a new
circuit board in its standard converter units that rendered obsolete the older
boards purchased for the twenty-nine units. Justiaon