Source: https://casetext.com/case/office-supply-co-inc-v-basicfour-corp
Timestamp: 2019-05-24 03:21:06
Document Index: 237429594

Matched Legal Cases: ['§ 2', '§ 2725', '§ 402', '§ 893', '§ 2725', '§ 893', '§ 1', '§ 401', '§ 893', '§ 893', '§ 2316', 'in fine', '§ 2738', '§ 2719', '§ 2714', '§ 2714', '§ 2719', '§ 12', '§ 2719', '§ 2739', '§ 2719', '§ 2714', '§ 2739']

Office Supply Co. v. Basic/Four Corp, 538 F. Supp. 776 | Casetext
Office Supply Co. v. Basic/Four Corp.
538 F. Supp. 776 (E.D. Wis. 1982)
Office Supply Co.v.Basic/Four Corp.
United States District Court, E.D. WisconsinMay 3, 1982
Civ. A. No. 80-C-603.
John V. Whaley, Whaley Whaley, John W. Foley, Foley, Foley Seehawer, Racine, Wis., for plaintiff.
Emily S. Mueller, Thompson Coates, Ltd., Racine, Wis., for defendant.
On January 31, 1975, the plaintiff's president, James F. Bruno, signed a contract for the purchase of computer hardware from the defendant and of computer software which was intended to control order processing, inventory control, sales analysis, and accounts receivable. Mr. Bruno mailed the contract to the defendant, and it was accepted by the defendant's assistant treasurer, R.C. Trost, on February 7, 1975. On April 1, 1975, the hardware was installed. In a letter dated May 22, 1975, the defendant advised the plaintiff that the warranty on the hardware would expire on July 1, 1975. The input of data on the software programs took longer to complete, and for a period of time the plaintiff ran parallel operations on the computer and manually as a check on the accuracy of the software applications. In a letter dated October 6, 1975, Mr. Bruno advised Basic/Four:
The sale of the software was technically in lease form for reasons related to copyright protection. No one has contended that the technical lease arrangement has any significance to application of the UCC.
"Although the applications programs appear to be operating satisfactorily, some `defects' might become apparent [sic] later. (Defects might comprise misinterpretation of data, mishandling of a keyboarding error, or a confusing operator instruction — but would not include anything beyond the scope of the system design specification.) It is my understanding that you warrant your programs, when used in accordance with Basic/Four operating instructions, to be free from `defects' for a period of ninety days, and that you will correct such `defects' promptly when they are brought to your attention." (Exhibit E to defendant's memorandum in support of motion for summary judgment, filed December 15, 1981.)
UCC § 2-725 contains a four-year period of limitation governing actions for breach of a sales contract. California has adopted the four-year limitation period, § 2725, Cal.Comm. Code, but Wisconsin has adopted a six-year limitation period, § 402.725, Wis.Stats.
The parties agree that normally the forum's statute of limitations will govern the timeliness of a breach of contract action even though the law of a different state is applied under the forum's choice of law rules to the substantive provisions of the contract. Estate of Schultz, 252 Wis. 126, 30 N.W.2d 714 (1948); Air Products Chemicals, Inc. v. Fairbanks Morse, Inc., 58 Wis.2d 193, 206 N.W.2d 414 (1973). In this case, however, the defendant argues, the California statute of limitations should be applied because the contract specifically provides for the application of California law and because § 893.07, Wis.Stats., mandates that the California statute be applied.
Section 2725(2), Cal.Comm. Code, provides:
Tender of the computer hardware occurred on April 1, 1975, and there was a ninety-day warranty. Any cause of action relating to the hardware, therefore, would have occurred at the latest on July 1, 1975, and under the California statute of limitations the plaintiff's cause of action, filed in June 1980, would be barred.
With regard to the software, Office Supply points to the language in the contract that "when programming accomplishes the results set forth in the `Design Specifications,' * * * such programming will be considered completed" (page 4, ¶ 3), and argues that that language creates a warranty extending to future performance, and that the programming did not accomplish the listed results until 1978. For reasons contained in the body of the decision in the section on warranties, in my opinion that language merely designates the time at which the ninety-day warranty period began to run and was not itself a warranty. In a letter dated October 6, 1975, plaintiff's president notified Basic/Four that the programming was completed. The warranty period therefore extended to January 6, 1975, and the plaintiff's complaint would have been untimely under California law.
Even assuming that the contract provisions purporting to exclude and modify warranties are invalid, their invalidity would not affect the time of accrual of a cause of action under § 2725(2), Cal.Comm. Code, and plaintiff's complaint would still be barred in California.
" * * * The general rule is that the running of the statutory period does not extinguish the cause of action, but merely bars the remedy. That is the law in California. [Citation omitted.] The law of the forum rather than where the obligation arose governs statutes of limitation and their applicability. * * * " Western Coal Mining Co. v. Jones, 167 P.2d 719, 724, 27 Cal.2d 819 (1946).
In Air Products Chemicals, Inc. v. Fairbanks, supra, a breach of contract action arising under Article 2 of the UCC involving engines manufactured in Wisconsin and sold to a corporation having its principal place of business in Pennsylvania, the parties and the Court agreed that Pennsylvania law should govern the parties' substantive rights and liabilities under the contract, but the Wisconsin Supreme Court determined that using a "center-of-gravity" or "grouping-of-contacts" approach to conflict of law issues, Wisconsin's six-year statute of limitations rather than Pennsylvania's four-year statute should apply. Unlike this case, in that case the foreign party was the plaintiff in the action and therefore application of Wisconsin's statute of limitations would not affect Pennsylvania's interest in protecting defendants from stale claims. 58 Wis.2d at 203, 206 N.W.2d 414. In reaching its decision, however, the Wisconsin Supreme Court also relied on its conclusions that "Pennsylvania is in no position to in any way influence what Wisconsin feels to be an appropriate period of protection for both itself and defendants from stale lawsuits" and that "by the decision of the legislature to permit aggrieved parties six instead of four years to prosecute their claims, a decision contrary to the recommended period by drafters of the Uniform Commercial Code which was ultimately adopted in Pennsylvania, the legislature determined that the interests of Wisconsin are best advanced by a longer period." 58 Wis.2d at 204, 206 N.W.2d 414.
In sum, in my opinion the plaintiff's cause of action in this case is not a "foreign cause of action" within the meaning of § 893.07(1), Wis.Stats., because although its substantive provisions are governed by foreign law, the parties' most significant contacts involving the contract are with Wisconsin and thus the cause of action arose in Wisconsin and the six-year statute of limitation policy of the State of Wisconsin is applicable to the action and it may proceed. That result also comports with the policy of the State of California that the law of the forum governs statutes of limitation. Western Coal Mining Co. v. Jones, supra.
UCC § 1-105 provides that when a transaction bears a reasonable relation to more than one state, the parties may agree that the law of either one or the other shall govern "their rights and duties." The section is codified in § 401.105, Wis.Stats., but no argument has been made that on the statute of limitations issue it adds anything to § 893.07, Wis.Stats., or mandates any result different from the result which obtains under § 893.07.
The Office Supply-Basic/Four contract specifically provides that it constitutes the entire agreement and understanding between the parties. That being so, parol evidence is not admissible under California law to vary the terms of the agreement. APLications, Inc. v. Hewlitt-Packard Co., 501 F. Supp. 129 (S.D.N.Y. 1980). The language of the contract must be interpreted in an effort to determine the intent of the contracting parties. S.M. Wilson Company v. Smith International, Inc., 587 F.2d 1363 (9th Cir. 1978).
The plaintiff contends that the language just quoted is a warranty of future performance, and that in fact the programming did not accomplish the desired results until 1978. Courts have been parsimonious in finding warranties of future performance where there is no explicit language in the contract creating such a warranty. Standard Alliance Industries, Inc. v. Black Clawson Company, 587 F.2d 813, 820 (6th Cir. 1978). For example, a representation as to the performance ability of an existing product will not be construed as an explicit warranty of future performance ability of the product. Jones Laughlin Steel Corporation v. Johns-Manville Sales Corporation, 626 F.2d 280, 291 (3d Cir. 1980) (interpreting California law). Section 2316(1), Cal.Comm. Code, provides in part:
The UCC allows contracting parties to exclude or modify all implied warranties. There is no correlative requirement that if implied warranties are excluded, express warranties must be given. Thus it is permissible, for example, to exclude all implied warranties and to provide for a ninety-day express warranty limited to repair or replacement of defective goods. APLications, Inc. v. Hewlitt-Packard Co., supra (ninety-day express warranty on the sale of a computer system under California law); Badger Bearing Co. v. Burroughs Corp., 444 F. Supp. 919 (E.D.Wis. 1977), aff'd, without opinion, 588 F.2d 838 (7th Cir. 1978).
In order to make an effective waiver of implied warranties, the provisions of § 2316(2), Cal.Comm. Code, must be followed:
" * * * to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. * * * "
Basic/Four points out that it disclaimed the implied warranties not once but twice, and that the disclaimers were written in italicized print, in contrast to the regular print used on the rest of the contract. Nevertheless, the disclaimers are not conspicuous. In Dorman v. International Harvester Company, 46 Cal.App.3d 11, 120 Cal.Rptr. 516 (1975), the California court of appeals noted that under pre-Code California law, disclaimers of warranty are strictly construed, and, applying the code, it found that an attempted disclaimer written in only slightly contrasting print and without a heading adequate to call the buyer's attention to the disclaimer clause was not effective. That decision controls in this case. The two disclaimers in the Office Supply-Basic/Four contract are on the reverse sides of the first two pages of the contract. They are not positioned close to the buyer's signature line. The contracts are printed on pale green paper and the disclaimers are set forth in print which, although italicized, is only slightly contrasting with the remainder of the contract. There are no headings noting the disclaimers of warranty. Since there is only "`some slight contrasting set-off'" and there is "`only a slight contrast with the balance of the instrument,'" Dorman, supra, 120 Cal.Rptr. at 522, quoting Woodruff v. Clark County Farm Bureau Coop. Assn. (1972), 153 Ind. App. 31, 286 N.E.2d 188, 198, quoting in turn Greenspun v. American Adhesives, Inc., 320 F. Supp. 442 (E.D.Pa. 1970), therefore, the disclaimers are not conspicuous.
" * * * [W]e must rely predominantly on the official comments to sections 2316 and 1201, subdivision (1), and to foreign law. The official comment to subdivision (10) of section 1201 states that the `test [of conspicuousness] is whether attention can reasonably be expected to be called to [the disclaimer provision].' (Cf. Gray v. Zurich Insurance Co., 65 Cal.2d 263, 271, 54 Cal.Rptr. 104, 419 P.2d 168.) We must examine this comment in the light of the official comment to section 2316, which states: `This section is designed principally to deal with those frequent clauses in sales contracts which seek to exclude "all warranties, express or implied." It seeks to protect a buyer from unexpected and unbargained language of disclaimer by denying effect to such language when inconsistent with language of express warranty and permitting the exclusion of implied warranties only by conspicuous language or other circumstances which protect the buyer from surprise.' (Emphasis added.) In other words, section 2316 seeks to protect the buyer from the situation where the salesman's `pitch,' advertising brochures, or large print in the contract, giveth, and the disclaimer clause — in fine print — taketh away."
An affidavit of a witness which conflicts with his deposition testimony should, despite the greater reliability usually attributed to the deposition, be considered on a summary judgment motion in determining if there is a genuine issue for trial. 6 Moore's Federal Practice ¶ 56.22[1] at 56-1325 through 56-1326; 10 Wright and Miller's Federal Practice and Procedure § 2738 at 686; Adams v. United States, 392 F. Supp. 1272, 1274, 1275 (E.D.Wis. 1975). Summary judgment may nevertheless be granted based upon the deposition testimony if the court is satisfied that the issue created by the affidavit is not "genuine." Perma Research and Development Company v. Singer Company, 410 F.2d 572, 578 (2d Cir. 1969); Radobenko v. Automated Equipment Corporation, 520 F.2d 540 (9th Cir. 1975); Farnsworth, McKoane Co. v. North Shore Savings Loan Association, 504 F. Supp. 673, 680 (E.D.Wis. 1981); Dudo v. Schaffer, 91 F.R.D. 128 (E.D.Pa. 1981); Choudhry v. Jenkins, 559 F.2d 1085, 1090 (7th Cir. 1977).
"While the facts embraced in these three recitals [made in the plaintiff's affidavit and contradicting his earlier deposition testimony] are both material and relevant to the issues raised by the pleadings, we reject appellants' efforts to characterize them as genuine issues of fact. When confronted with the question of whether a party should be allowed to create his own issue of fact by an affidavit contradicting his prior deposition testimony, the Court of Appeals for the Second Circuit held that no genuine issue of fact was raised. Perma Research Development Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir. 1969). Therein the Court noted:
"The very object of summary judgment is to separate real and genuine issues from those that are formal or pretended, so that only the former may subject the moving party to the burden of trial. [Citation omitted.] Here we are convinced that the issues of fact created by Radobenko are not issues which this Court could reasonably characterize as genuine; rather, they are sham issues which should not subject the defendants to the burden of a trial. * * * "
Section 2316(4), Cal.Comm. Code, provides:
Section 2719, Cal.Comm. Code, on contractual modification or limitation of remedies, provides in part:
As for the limitation of remedies, § 2719(2), Cal.Comm. Code, provides:
" * * * so long as the buyer has the use of substantially defect-free goods, the limited remedy should be given effect. But when the seller is either unwilling or unable to conform the goods to the contract, the remedy does not suffice. * *" Chatlos Systems, Inc. v. National Cash Register Corporation (NCR Corporation), 635 F.2d 1081, 1085 (3d Cir. 1980).
If a remedy fails of its essential purpose, in addition to breach of the bargain damages allowed under § 2714(2), incidental and consequential damages may also be recovered in a proper case. Section 2714(3), Cal.Comm.Code. If a remedy is limited to repair and consequential and incidental damages are excluded, however, then even if the repair remedy fails of its essential purpose, the buyer is limited to his breach of the bargain damages under § 2714(2) unless he can prove that the exclusion of incidental and consequential damages was unconscionable under § 2719(3), Cal.Comm.Code. In other words, an exclusion of incidental and consequential damages is a contract provision separate and distinct from a limitation of remedy to repair, and must receive separate consideration. Chatlos Systems, Inc. v. National Cash Register Corporation (NCR Corporation), supra, at 1086; S.M. Wilson Company v. Smith International, Inc., supra, at 1374-1376.
Office Supply has the burden of proving that the exclusion of incidental and consequential damages was unconscionable. Section 2719(3), Cal.Comm.Code. The exclusion is presumed valid in a commercial setting. Id.; White and Summers, Uniform Commercial Code, supra, § 12-11 at 473-475. Among the factors relevant to determining unconscionability are the length of the negotiation process, the length of time the buyer has to deliberate before signing the contract, the experience or astuteness of the parties, whether counsel reviewed the contract, and whether the buyer was a reluctant purchaser. Earman Oil Company, Inc. v. Burroughs Corporation, 625 F.2d 1291 (5th Cir. 1980). The commercial setting and the purpose and effect of the allegedly unconscionable clause are also relevant, Badger Bearing Co. v. Burroughs Corp., 444 F. Supp. 919 (E.D.Wis. 1977), aff'd without opinion, 588 F.2d 838 (7th Cir. 1978), as is the extent of the seller's default in attempting to fulfill its obligations on a remedy to repair, S.M. Wilson Company v. Smith International, supra, at 1375.
The parties in this case did not have equal sophistication in the data processing field, and Basic/Four is a much larger commercial operation. Nevertheless, the plaintiff is also an established commercial operation of significant size, and the plaintiff's president testified during his deposition that he is accustomed to engaging in contract negotiation on behalf of Office Supply. The plaintiff instituted negotiations with Basic/Four and engaged in a two-month period of comparative shopping. Basic/Four was not the only available source of the product which the plaintiff desired, and there was active competition amongst computer manufacturers to sell the plaintiff a system. The plaintiff took its time in deciding to purchase and was not prevented by Basic/Four from thoroughly investigating the system and examining the contract provisions. See Delta Air Lines, Inc. v. Douglas Aircraft Company, Inc., 238 Cal.App.2d 95, 47 Cal.Rptr. 518 (1966); Earman Oil Company, Inc. v. Burroughs Corporation, 625 F.2d 1291, 1299-1300 (5th Cir. 1980); Badger Bearing Company v. Burroughs Corporation, 444 F. Supp. 919, 923 (E.D.Wis. 1977), aff'd, without opinion, 588 F.2d 838 (7th Cir. 1978). There was no atmosphere of haste or undue pressure exerted on the plaintiff to compel it to enter into the contract. Cf., Industralese Automated Scientific Equipment Corporation v. R.M.E. Enterprises, Inc., 58 A.D.2d 482, 396 N.Y.S.2d 427, 432 (1977). Furthermore, it is undisputed that during the warranty period Basic/Four did make numerous efforts to repair all defects asserted by the plaintiff to exist in the system, even though the plaintiff contends that the efforts were not successful, and even after the warranty period expired that Basic/Four continued its efforts to resolve any problems raised by the plaintiff. See S.M. Wilson Company v. Smith International, Inc., 587 F.2d 1363, 1375 (9th Cir. 1978).
In a commercial setting a damages limitation clause is presumed to be valid under California law, § 2719(3), and the contracting parties are presumed to act at arms length. Earman Oil Company, Inc. v. Burroughs Corporation, supra, at 1300. Relying upon the deposition testimony of the plaintiff's president, the defendant has presented evidence which, if unrebutted, would establish that the damages limitation clause was not unconscionable under the circumstances of this case. While with respect to the issue of unconscionability a party should be permitted to present evidence as to the commercial setting in which the contract was made and the purpose and effect of the limitation clause, Badger Bearing Co. v. Burroughs Corp., supra, 444 F. Supp. at 923, when confronted with a summary judgment motion a party must do more to defeat it than rely upon "the vague hope that something may turn up at trial." Perma Research and Development Company v. Singer Company, supra, at 578; 10 Wright and Miller's Federal Practice and Procedure § 2739 (1973). In this case, the plaintiff having made no effort to controvert the defendant's proof, summary judgment on the issue of unconscionability is appropriate.
The plaintiff's final hope for the recovery of damages is to prove that the repair and replacement remedy provided for in the contract "failed of its essential purpose," § 2719(2), Cal.Comm. Code, which would entitle plaintiff to present evidence of the difference between what the system was worth at the time it was accepted and what it would have been worth had it been as warranted, § 2714(2), Cal.Comm.Code.
As previously stated, the remedy of repair and replacement is deemed to fail of its essential purpose when the goods which the buyer purchases are not substantially defect free, and in addition the seller is unable or unwilling to conform the goods to the contract. Chatlos Systems, Inc. v. National Cash Register Corporation (NCR Corporation), supra, 635 F.2d at 1085. See also S.M. Wilson Company v. Smith International, Inc., supra; Tokio Marine and Fire Insurance Company, Limited v. McDonnell Douglas Corporation, 617 F.2d 936 (2d Cir. 1980).
" * * * Viewed from the buyer's standpoint, the repair remedy's aim is to provide goods that conform to the contract for sale and do so at an appropriate time. A delay in supplying the remedy can just as effectively deny the purchaser the product he expected as can the total inability to repair. In both instances the buyer loses the substantial benefit of his purchase."
In S.M. Wilson, involving the purchase of a tunnel boring machine and arising under California law, the seller did not contest that the machine malfunctioned from the outset, and the seller was never able to repair it. The Court, therefore, found that the repair remedy failed of its essential purpose.
In this case Office Supply contracted for four software applications and all four of them were installed. (Bruno deposition at 109-110.) On October 6, 1975, Mr. Bruno wrote to Basic/Four that all four of the applications were operational and appeared to be satisfactory. (Exhibit E to plaintiff's memorandum in support of motion for summary judgment, filed December 15, 1981.) In the first week of November 1975, the October monthly statement of customer accounts in the accounts receivable application printed out of balance. (Bruno deposition at 43.) Mr. Carlson testified that as a result of that problem approximately 20% of the accounts receivable were out of balance, and the system was therefore only 78% operational. (Carlson deposition at 63.) Basic/Four worked on the problem, which continued through 1975, and finally in February 1976, the monthly statement printed through correctly. (Bruno deposition at 135.) Thereafter, both Mr. Bruno and Mr. Carlson testified, the accounts receivable application continued to cause intermittent problems until early 1978 when it was finally corrected by Marc Jerome, Office Supply's own programmer. (Bruno deposition at 136; Carlson deposition at 46.) The accounts receivable problem was, Mr. Bruno testified, the one significant defect left in the system at the expiration of the warranty period on January 6, 1976. (Bruno deposition at 87, 132-134, and 142.) Both men testified that while problems occurred with the hardware, the problems were always corrected either by Basic/Four or by Sorbus with a few minimal exceptions pursuant to the maintenance contract. (Bruno deposition at 121; Carlson deposition at 38 and 78.)
Mr. Bruno testified that between the hardware and software problems, the figure was 50%. He also stated that the figure was "[j]ust a guess." (Tr. at 114.)
The inference suggested by the evidence which has been presented both in support of and in opposition to the summary judgment motion is that while Office Supply may have had problems with the accounts receivable program starting in November 1975 and continuing through early 1978, the problems did not all result from the same defect in the program but rather resulted from at least two different defects, one of which was corrected by Basic/Four before the accounts were printed out in February 1976, and another of which was introduced into the program some time after July 1976. Consequently, the conclusion results that Basic/Four did make the repairs which it was obligated by the contract to make, that the repairs cured the defect then existing in the accounts receivable program, and that Basic/Four did fulfill its warranty obligations during the warranty period. S.M. Wilson Company v. Smith International, Inc., supra, at 1375.
The underlying purpose of the summary judgment procedure is —
" * * * to pierce the pleadings so that the burden and expense of a trial will not be wasted on baseless claims or phantom issues. * * * Accordingly, * * * the party opposing the summary judgment motion does not have the right to withhold his evidence until trial; nor can he demand a trial because of the speculative possibility that a material issue of fact may appear at that time. * * * " 10 Wright and Miller's Federal Practice and Procedure § 2739 at 715-716.
Under California law economic losses are not recoverable in tort. The rationale is explained in S.M. Wilson Company v. Smith International, Inc., supra, at 1376:
See also Jones Laughlin Steel Corporation v. Johns-Manville Sales Corporation, 626 F.d 280, 284-289 (3d Cir. 1980).