Opinion
No. 27581/2006.
2010-08-25
MARJAM SUPPLY CO., INC. on its own behalf and as assignee of Bay Ridge Lumber Co., Inc., Plaintiff, v. ALL CRAFT FABRICATORS, INC., James Marran, Jr., D. Robert Donaldson, Douglas Robert Donaldson and Donaldson Acoustics Co., Defendants.
The Law Office of Elias C. Schwartz, Great Neck, NY, for Plaintiff. Lazer, Aptheker, Rosella & Yedid, P.C., Melville, NY, for Defendants.
The Law Office of Elias C. Schwartz, Great Neck, NY, for Plaintiff. Lazer, Aptheker, Rosella & Yedid, P.C., Melville, NY, for Defendants.
WILLIAM B. REBOLINI, J.
The non jury trial of this action was held on March 23, 2010. The matter was submitted for determination on May 26, 2010.
Donaldson Acoustics Co. (“Donaldson”) is a subcontractor on commercial construction jobs, handling, among other things, the installation of ceilings and drywall. Plaintiff Marjam Supply Co., Inc. (“Marjam”) was one of its suppliers of materials, such as ceiling tiles and frames, which are at issue in this lawsuit. The evidence demonstrated that the parties met and entered into an agreement in July 2005, for the purchase of construction materials for a high rise building construction project in New York City (“the Hearst Job”). In attendance at this meeting were the principals of each party and two of the three witnesses who testified at trial: Donaldson's purchasing agent Alan James and Marjam's sales representative William McMenamin.
After the meeting, James followed up by immediately delivering a written purchase order to Marjam. Marjam then forwarded an “order acknowledgment” to Donaldson for execution. As Marjam's corporate credit manager Gabrielle Iofseson explained at trial, upon its execution the “order acknowledgment” becomes a “disclaimer”, which is Marjam's term for a non-cancellable agreement rendering the ordered materials non-returnable, with both sides being bound by the order. In July 2005, James executed the three disclaimers sent by Marjam covering the Hearst Job, in which the parties: (I) identified materials that Donaldson would purchase for the Hearst Job; (ii) estimated the quantity of each item that would be needed on the job; and (iii) set the prices of these materials. No other signed disclaimers exist for the Hearst Job.
The way the parties worked under their agreement was as follows. As the time arrived when Donaldson was ready for the delivery to the jobsite of specific items, James would call in an order to McMenamin and request delivery of specific quantities of the contracted-for material. James would follow up with a written purchase order reflecting the calls for delivery, updating quantity if appropriate and carrying forward the agreed-upon price. After delivery, Marjam would render an invoice covering the delivered items, which would be paid by Donaldson, if appropriate.
As the job progressed, the quantities of materials needed often varied. Sometimes more of a given item was needed, sometimes less. The parties understood that such fluctuations are inherent in the construction industry, especially for large projects such as the Hearst Job. This necessitates the provision of approximations of quantities up-front, as opposed to price, which was set as a “buy out” price. The amount delivered of any given item often differed from the estimates initially provided in the disclaimers, as a comparison of the disclaimers and Marjam's invoices demonstrates and as reflected in the updated written purchase orders continually submitted by Donaldson
. By contrast, an examination of the documents shows that the “buy out” price is firm.
On occasion, if needed, Donaldson would order additional materials from Marjam beyond those covered by the parties' Agreement. To accomplish this, James would contact McMenamin and inquire about the price of the requested item. If the parties agreed, an additional order may be placed under a new purchase order number. These additional transactions, however, are not at issue in this lawsuit.
As demonstrated by the disclaimers, the parties agreed to a $5.95 per unit price for the infill panels. Several months later, James contacted McMenamin for delivery of these panels. As was customary, James followed up with written purchase orders, which reflected the $5.95 infill-panel price. After Marjam delivered the infill panels to the jobsite, it rendered an invoice in November 2005, for the delivered infill panels at the $5.95 per unit contract price. It is undisputed that Donaldson paid for the goods at the agreed upon $5.95 price. In December 2005, Marjam rendered a subsequent invoice, employing a wholly new pricing structure based upon size, rather than on a per unit basis. This “rebill” (as characterized by Iofseson) would have resulted in an increase in the aggregate price of the already delivered items of about fifty (50%) percent. The “rebill” invoice contained “disclaimer” language beneath which the signature of someone from Donaldson was sought. Donaldson never signed the “rebill” invoice. Other than the July 2005 disclaimers containing the $5.95 price, no other disclaimer covers the infill panels. Donaldson paid for the delivered items at the contract rate and refused to pay beyond what the parties had agreed.
In December 2005, James called McMenamin, informing him of the need for sprinkler panels for the Hearst Job and requesting a price for such panels. Marjam, however, failed to return a price and Donaldson, therefore, never issued a written purchase order. Also, Marjam never issued a disclaimer to be signed and the parties never reached an agreement on the sprinkler panels. Despite admitting to never having delivered the sprinkler panels, Marjam nevertheless invoiced Donaldson for these items on April 7, 2006, after its repudiation of the contract as described below. This invoice, which is the only document referencing the sprinkler panels, listed a price of $11.72, despite such price never having been communicated or agreed to. Due to the absence of an agreement, Donaldson did not pay Marjam for the undelivered sprinkler panels.
In March 2006, Marjam formally ceased delivery of materials that had been ordered under the parties' contract, announcing in a series of letters its intention to withhold delivery unless Donaldson entered into a proposed revised agreement and until it remitted payment in an amount that included the price increase for the infill panels. Donaldson never signed the proposed agreement. Marjam delivered no further materials in breach of the parties' Agreement.
By halting delivery, Marjam left Donaldson with no alternative but to procure the undelivered material from another supplier, Kamco Supply Co. (“Kamco”). Donaldson ordered from Kamco ceiling tiles that had been covered under the original Agreement and in doing so was forced to pay a higher price than it had locked in with Marjam. To help cover its loss, Donaldson withheld payment on certain outstanding invoices for goods delivered, applying the outstanding balance as a partial offset against its cover damages, with Donaldson's counterclaim being reduced accordingly (as discussed and calculated below).
Marjam breached the parties' Agreement by its improper attempt to wrest an unauthorized 50% price increase for the infill panels and its subsequent repudiation of the agreement upon its failure to extract the additional money. With regard to the portion of Marjam's claim seeking recovery on the balance of the improperly issued “rebill” invoice for the infill panels, Marjam has no basis to recover on this unauthorized price jump, having failed to establish any right under the agreement to collect any amount beyond the price set by the parties in such agreement.
Marjam's sale representative made an attempt at justification by claiming that Marjam made a mistake. Such does not excuse Marjam from its obligations under the agreement. Marjam's Mr. Iofeson himself described the disclaimers signed in July 2005, as non-cancellable and binding on both parties. McMenamin's testimony demonstrated the real issue here. Marjam entered into a binding contract without knowing anything about the product they were agreeing to deliver.
Marjam's Mr. McMenamin testified that he did not know the price of the infill panels prior to July 2005 meeting. He had had no discussion with the manufacturer regarding the infill panel price prior to Marjam's issuance and Donaldson's execution of the disclaimer. He explained that he did not learn the price of the infill panels until much later, after receiving the manufacturer's bill showing different prices for different sized panels. Remarkably, McMenamin testified that he had never previously dealt with infill panels and, in fact (at the time), had never, ever heard of them. Nevertheless, despite all of this, Marjam gave the “buy out” price, had Donaldson execute the July 2005 disclaimers and issued the original invoice at the $5.95 per-unit price, which Donaldson paid in full.
Upon learning of the manufacturer's price, McMenamin immediately rushed the “rebill” invoice to Donaldson and was told to get a disclaimer signed. The pressure was on to get a new disclaimer signed because Marjam was looking to lock in the reissued, higher price, knowing that it was bound to the $5.95 price set forth in the earlier disclaimers. Upon not being able to secure a signature of this new disclaimer, Marjam nevertheless furnished the “rebill” invoice in an attempt to seize the 50% pricing increase. In essence, Marjam tried to stick Donaldson with the bill for its mistake.
There is no basis at law upon which Marjam may recover the 50% increase it now seeks in derogation of the parties' written agreement. Also, Marjam can establish no entitlement to finance charges or attorneys' fees based upon its own mistakes. Essentially, the parties had an agreement to which Marjam is bound. As the evidence conclusively demonstrated that Donaldson properly paid the $5.95 per-unit contract price for the infill panels, plaintiff's claims on the infill panels must fail.
Similarly, the portion of plaintiff's claims seeking payment for the undelivered sprinkler panels must fail. Despite Donaldson's inquiry, no price was ever given for the sprinkler panels, no purchase order was issued, no disclaimer was sent, no agreement reached and no delivery made. As such, there is no agreement between the parties for the purchase of sprinkler panels.
As demonstrated by its own invoices, the price of $6,328.80 sought by Marjam for the sprinkler panels is greater than $500, bringing this transaction within the statute of frauds ( see,UCC § 2–201 providing, among other things, that “a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought”). Therefore, even assuming, arguendo, the existence of any agreement whatsoever covering these items (which is not the case), Marjam produced no writing demonstrating any agreement for the purchase of the sprinkler panels. Quite the contrary, in stark contrast to the parties' typical course of dealing, no purchase order or disclaimer exists covering these items. This is so notwithstanding the fact that McMenamin testified that such an order would not be placed without a signed disclaimer.
The only document that references the sprinkler panels is the invoice issued by Marjam after it had already expressly repudiated the parties' Agreement by its March letters. Not only was this invoice not signed by Donaldson but it indicates nothing more than Marjam's unilateral attempt to apply more pressure upon Donaldson for another unauthorized payment demand. Consequently, plaintiff has failed to establish any contractual liability on the part of Donaldson since it never ordered the sprinkler panels from Marjam. In any event, any such claim is barred by the statute of frauds. The plaintiff has made no showing that any of the exceptions to the statute of frauds set forth in UCC § 2–201 apply. Indeed, UCC § 2–201(2) can hardly be said to apply given that the sprinkler head invoice was improperly sent after Marjam's express repudiation and due to the absence of any of the documents (i.e., disclaimer, purchase order) normally employed by the parties to confirm such order. Similarly, UCC § 201(3) is inapplicable because plaintiff has failed to demonstrate that these items were specially manufactured. While its credit manager described them as “special order”, there is no documentary evidence supporting his conclusory statements, demonstrating the items were specifically manufactured for Donaldson, showing that Marjam was billed by the manufacturer for this “special order”, or that Marjam ever paid for the alleged “special order”. Furthermore, Marjam has not and cannot demonstrate that these sprinkler panels are not suitable for sale to other contractors in the ordinary course of Marjam's business. Indeed, even had Marjam proved these to be specially manufactured goods, Marjam did not demonstrate that no other construction job could use panels compatible with ceiling sprinklers.
As part of its campaign to augment the price of the infill panels, Marjam employed tactics in breach of the parties' agreement. In a clear repudiation of the parties' Agreement, Marjam sent a series of letters in March 2006, announcing its intention to withhold delivery unless and until Donaldson entered into a proposed revised agreement and remitted payment in an amount that included the price increase. Donaldson never signed the proposed agreement; Marjam never made another delivery.
As a consequence of Marjam's repudiation and breach, Donaldson's ability to carry out its responsibilities as subcontractor on the Hearst Job was placed at risk. Donaldson was left with no alternative but to procure the undelivered material from another supplier. Upon the failure of the seller to make delivery under, or upon its repudiation of, a contract, under UCC § 2–711, the nonbreaching part may seek the partial self help of cover along with recovery of damages pursuant to UCC § 2–712 ( see, Fertico Belgium S .A. v. Phosphate Chemicals Export Assn., Inc., 70 N.Y.2d 76 [1987] ) (“A covering buyer's damages are equal to the difference between the presumably higher cost of cover and the contract price, plus incidental or consequential damages suffered on account of the breach, less expenses saved.”).
Here, upon Marjam's repudiation and cessation of delivery, Donaldson ordered from another supplier, Kamco, the undelivered quantities of ceiling tiles covered under the parties' agreement. These were 30–by–30 and 30–by–54 ceiling tiles that had been itemized in the original July disclaimers, with quantities estimated and prices set at $1.81 and $1.96 per square foot, respectively. As evidenced by the written purchase orders in evidence, Donaldson ultimately ordered from Marjam the delivery of 10,000 square feet of the 30–by–30 tile and 150,000 square feet of the 30–by–54 tile. While Marjam did not object to these purchase orders, and indeed delivered much of the ceiling tile, the fact remains that it failed to deliver all of the ordered tile at the time it ceased delivery of all materials for the Hearst Job. The balance of the undelivered tile was needed to complete the Hearst Job, compelling Donaldson to go to Kamco.
As the testimony and documentary evidence showed, Donaldson was forced to pay a price higher than the contract price for these tiles, with Kamco charging $2.78 per square foot for the 30–by–30 tile (as opposed to the $1.81 price locked in with Marjam in July 2005) and charging $4.92 per square foot for the 30–by–54 tile (as opposed to the $1.96 Marjam price). This constitutes an upward price difference of $0.97 for the 30–by–30 tile and $2.96 for the 30–by–54 tile. During his testimony, James interpreted the Kamco purchase orders (which had broken down the tile by carton as well as by square footage), explaining that the first purchase order in Exhibit F showed that Donaldson ordered 1,500 square feet of 30–by–30 tile from Kamco, while the second and third purchase orders in Exhibit F showed an order of roughly 12,960 square feet for the 30–by–54 tile. This ceiling tile was delivered to the Hearst Job and Donaldson made payment to Kamco.
As James explained during his testimony, payment was made by the checks in evidence as Defendants' Exhibit G and, while these checks were also issued to pay for certain additional material, the accounting statement in evidence as Exhibit H demonstrates how each check was applied to pay the Kamco purchase orders, including these tiles. Defendants arrive at their cover damages, pursuant to UCC § 2–712(2), by multiplying the increase in the square foot price for each sized tile by the square footage ordered for each. Thus, 1,500 sq. ft. x $0.97 = $1,455.00 (cover damages for the 30–by–30 tile), plus 12,960 sq. ft. x $2.96 = $38,361.60 (cover damages for the 30–by–54 tile). Defendants total cover damages are therefore $39,816 .60
This is a slight downward adjustment from the amount of $39,822 .52 set forth in defendants' opening statement based upon the testimony of James.
In the course of dealing with Marjam's breach, Donaldson properly withheld payment on outstanding invoices for goods delivered, applying the outstanding balance as a partial offset to its cover damages, as is appropriate under UCC § 2–717, which provides, “The buyer on notifying the seller of the intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.”
Here, Marjam's own acts of breach and repudiation directly impelled Donaldson to exercise its right to cover and necessitated its application to its cover damages of the amount of certain outstanding Marjam invoices for the Hearst Job (which, clearly, is the same contract, as required by UCC § 2–717). Marjam has long had notice of Donaldson's intent to offset, with defendants averring as much of the “Counterclaim, Third Defense and Set–Off” contained in their original verified answer to plaintiff's complaint, served on August 23, 2006—just months after Marjam's repudiation and at the very time when Donaldson was incurring its covering damages ( see, Panda Capital Corp. v. Kopo International, Inc., 242 A.D.2d 690 [2nd Dept., 1997], recognizing that pleadings constitute notice). Defendants have maintained this counterclaim and set-off throughout all amended pleadings submitted in this matter.
Marjam's statement of account demonstrated the amount of the offset. As Marjam's credit manager testified during his explanation of Marjam's statement, the amount of goods sold and delivered is $32,485.23. Reducing this $32,485.23 total by the disputed sprinkler panels invoice in the amount of $6,328.80 (as listed on page 7 of the statement) and by the disputed price increase for the infill panels in the amount of $13,817.47 (as listed on page 6 of the statement), leaves a balance remaining for undisputed goods sold and delivered in the amount of $12,338.96, constituting the amount of offset applicable to defendants' cover damages.
The finance charges set forth in Marjam's statement of account, and as explained by Iofseson, cannot properly be charged to Donaldson due to Marjam's breach and repudiation.
In sum, Donaldson owes Marjam nothing for the improperly billed sprinkler panels, for which no agreement exists; nothing for the amount of unauthorized increase in the price of the infill panels, after properly paying at the contract rate; and nothing for the remaining invoices against which Donaldson properly offset and applied to its cover damages. Accordingly, no finance charges or attorneys' fees are owed and plaintiff's claims against D. Robert Donaldson and Douglas Robert Donaldson, too, must fail.
Donaldson's total counterclaim damages, after applying the offset credit, are $27,477.64, with statutory interest running from September 2006, the date final payment was made to Kamco for the cover goods. Incidentally, by applying the unpaid invoices as an offset to cover costs, Donaldson saved Marjam the interest it would have otherwise been paying on the offset amount thereby further mitigating its damages.
Based on the foregoing, defendants' request for dismissal of plaintiff's claims
fifth through eighth causes of action and judgment on the counterclaim in the amount of $27,477.64, together with interest, costs and disbursements, is granted.
The First, Second, Third and Fourth causes of action were settled by the parties and a stipulation of discontinuance has been filed with the Court.
The foregoing constitutes the decision and order of the Court pursuant to CPLR § 4213(b).
Settle judgment ( see,22 NYCRR § 202.48).