705 F.2d 134, 36 UCC 1 (6th Cir. 1983)
Roth Steel Products Company and Toledo Steel Tube Company are subsidiaries of Roth Industries that produce welded straight tubing and fabricated steel tubing for automobile exhaust systems.1 Sharon Steel Corporation is a subsidiary of NVF Corporation and an integrated steel producer that supplied hot rolled and cold rolled sheet steel.2
In November 1972 Sharon's Northern Ohio Sales Manager Frank Metzger met with Roth Industries vice-president Howard Guerin.3 They reached an oral agreement under which Sharon would sell the plaintiffs fixed monthly quantities of steel at discounted prices effective for all of 1973.4 The agreement covered 200 tons per month of hot rolled pickled steel at $148 per ton and 500 tons per month of cold rolled steel for each plaintiff at prices of $165 to $170 per ton.5 Metzger confirmed the agreement in a November 17, 1972 letter stating that cold rolled prices were subject to increase to the extent of any general price increase granted the steel industry.6
In February 1973 the parties increased the agreed monthly tonnages of hot rolled steel.7 In early 1973 federal price controls, rising demand, exports, and higher labor and material costs tightened the domestic steel supply and caused mills to operate at full capacity.8 On March 23, 1973 Sharon notified the plaintiffs it would withdraw all price concessions.9 After the plaintiffs protested, the parties compromised.10 Sharon continued the original 1972 prices until June 30, 1973 and thereafter charged modified prices that were higher than the 1972 prices but lower than its published book prices.11
Sharon adopted a blanking policy. It refused to accept Roth's October 1973 orders for 300 tons of hot rolled pickled steel and 400 tons of hot rolled black steel as well as Toledo's December 1973 order for 425 tons of cold rolled steel.12 In 1974 the parties dealt on an order-by-order basis.13 Each acknowledgment stated the price would be the seller's prevailing price at shipment.14 Sharon's deliveries ran three to five months late throughout the year.15
On May 9, 1974 the plaintiffs learned that Sharon was selling approximately 20,000 tons per month of its production to its subsidiary Ohio Metal Processing Company, which operated as a warehouse and resold the steel at premium prices to avoid federal price controls.16 The plaintiffs continued accepting late shipments until canceling most outstanding 1974 orders in October 1974 and rejecting a final shipment delivered October 31, 1974 nearly a year late.17
The plaintiffs sued in April 1975 for breach of contract and cover expenses.18 In March 1976 they amended the complaint to assert 41 counts seeking $896,174.60 in market-contract differential damages.19 The district court granted the plaintiffs damages of $555,968.46 but denied their motion for prejudgment interest and dismissed Sharon's counterclaim because Toledo properly rejected the late shipment.20 Sharon appealed the damages award and counterclaim dismissal.21 The plaintiffs cross-appealed the denial of prejudgment interest.22
Whether the UCC statute of frauds in O.R.C. Sec. 1302.04 governs over the general one-year statute of frauds in O.R.C. Sec. 1335.05 for contracts involving the sale of goods?23
When an irreconcilable conflict exists between a special statute and a general statute the special statute prevails as an exception unless the legislature has expressly manifested a contrary intent.24
Yes. O.R.C. Sec. 1302.04 is a special legislative attempt to tailor the statute of frauds to the unique characteristics of a commercial sales transaction.25 O.R.C. Sec.
1335.05 is the general statute of frauds provision encompassing a wide variety of contractual obligations.26 The November 1972 oral contract between Roth Steel Products Company, Toledo Steel Tube Company, and Sharon Steel Corporation for the sale of specific quantities of steel falls squarely within the scope of Article 2 of the uniform commercial code.27 Therefore the special UCC statute of frauds governs.28
The UCC statute of frauds governs the contract.29
Whether an admission by an agent with authority to bind the principal satisfies the judicial admission exception to the UCC statute of frauds?30
Agents with authority to bind their principals to the disputed contract may admit the existence of an oral contract for the purposes of O.R.C. Sec. 1302.04(C)(2) because both the principal and the agent have an identity of interest in protecting the principal from unfounded oral assertions of obligation.31
Yes. Frank Metzger, Sharon's Northern Ohio Sales Manager with actual authority to bind Sharon to the November 1972 oral contract, admitted in deposition testimony that the parties agreed on prices and tonnages of steel.32 The judicial admission exception is based on the maxim that principals rarely act in a manner inconsistent with their own interests.33 An agent with authority to bind the principal is equally reliable because agents owe a duty to act in the principal's best interest.34
An agent's admission satisfies the judicial admission exception.35
Whether the November 1972 negotiations between the parties resulted in an enforceable oral contract for the sale of specific quantities of steel throughout 1973?36
Yes. In November 1972 Metzger and Guerin reached an oral agreement that Sharon would sell Roth and Toledo fixed monthly quantities of hot rolled pickled steel at $148 per ton and cold rolled steel at $165 to $170 per ton for all of 1973.39 The plaintiffs' promise to purchase specific tonnages each month was unconditional and supplied consideration for Sharon's promise to sell.40
The November 1972 negotiations resulted in an enforceable oral contract.41
Whether Sharon's attempted price modification of the 1972 contract was sought in good faith under UCC 2-209?42
A modification under UCC 2-209 must be sought in good faith which requires both consistency with reasonable commercial standards of fair dealing and honesty in fact regarding the motivation for the modification.43
No. Although unforeseen market conditions existed that could prompt an ordinary merchant to seek a modification, Sharon acted in bad faith by threatening to stop selling steel to the plaintiffs unless they agreed to higher prices after June 30, 1973.4445 Sharon did not offer its contractual escalation theory as justification at the time of the modification and instead used its position as the plaintiffs' chief supplier to extract the change.46
Sharon's attempted price modification was not sought in good faith.47
Whether commercial impracticability under UCC 2-615 excused Sharon's refusal to accept purchase orders and make timely deliveries in 1973 and 1974?48
Commercial impracticability under UCC 2-615 excuses performance only when an unforeseeable event renders performance impracticable and the seller allocates production and deliveries among customers under contract and regular customers in a fair and reasonable manner.49
No. Sharon failed to show that its inability to perform was caused by the raw material shortage rather than its own policy of accepting more purchase orders than it could fulfill.5051 In 1974 Sharon diverted steel to its subsidiary Ohio Metal Processing Company, which was neither a customer under contract nor a regular customer, rendering the allocation system unreasonable.52
Commercial impracticability did not excuse Sharon's performance failures.53
Whether a buyer must give notice of breach under UCC 2-607(3) for accepted goods when the breach consists of late delivery or higher prices rather than defective goods?54
UCC 2-607(3) requires a buyer who has accepted goods to give notice of breach within a reasonable time after discovery for any breach including late delivery or higher prices because the statute by its terms applies to any breach and the policies of promoting settlement and minimizing prejudice to the seller apply equally.55
Yes. The clear language of O.R.C. Sec. 1302.65(C) requires notice of any breach after acceptance of goods.56 The policies of opening the way for settlement through negotiation and giving the seller opportunity to cure, inspect, or investigate apply to non-conforming performance such as late deliveries or price increases as well as to defective goods.57
Notice of breach is required for accepted goods regardless of the type of breach.58
Related opinions on this issue
Merritt joined the majority in holding that notice of breach is required under UCC 2-607(3) for any non-conforming performance after acceptance.59 He diverged from the majority, however, on the disposition of the 1974 notice issue.60 Merritt argued that the district court had already made alternative findings that the plaintiffs provided adequate and timely notice through their 1973 protests and 1974 complaints and letters.61
Because the adequacy of notice is a mixed question of fact and law, and the district court applied the correct legal standard with findings supported by substantial evidence, he would affirm the district court's holdings rather than remand for additional findings.62 This approach would bring the protracted litigation to an end without unnecessary repetition of fact-finding.63
Whether the plaintiffs provided timely notice of breach to Sharon regarding the 1974 late deliveries?64
Notice of breach must be given within a reasonable time after the buyer discovers or should have discovered the breach and a delay of nearly five months between discovery on May 9, 1974 and notice in October 1974 raises a factual question of timeliness that requires findings by the district court.65
No. The plaintiffs discovered on May 9, 1974 that Sharon's late deliveries were not entirely the result of raw material shortages.6667 They waited nearly five months before providing notice on October 3, 1974.68 Because the district court made no finding on timeliness the case must be remanded for that determination.69
The timeliness of the 1974 notice requires remand for findings.70
Related opinions on this issue
Merritt dissented from the majority's decision to remand the timeliness of the 1974 notice for further findings.71 He noted that the district court had explicitly found in the alternative that the plaintiffs satisfied any notice requirement through numerous oral inquiries, complaints, and letters in 1974.72 Merritt emphasized that the district court had already determined the facts necessary to conclude that notice was timely and adequate.73
Applying a substantial evidence standard of review to these findings, he concluded that affirmance was appropriate instead of prolonging the litigation by requiring the district court to repeat findings it had already made on the record.74
Whether damages for non-delivery or repudiation may be measured using the warehouse market price rather than the mill price under UCC 2-713?75
Under UCC 2-713 the market price is the price prevailing in the market in which the buyer would have obtained cover and when the buyer could not obtain steel from other mills the warehouse price is the proper measure because that is where the buyer would have purchased substitute goods.76
Yes. The district court found that the plaintiffs could not obtain steel from other mills to replace the tonnage Sharon failed to deliver.77 The plaintiffs would have been forced to cover by purchasing from warehouses at premium prices.78 The warehouse price therefore correctly measures the market price for damages under UCC 2-713.79
The warehouse market price is the proper measure of damages.80