Bead Chain Manufacturing Co. v. Saxton Products, Inc.
183 Conn. 266, 439 A.2d 314, 31 U.C.C. Rep. Serv. (West) 91 (1981)
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Rule of Law:
Under the Uniform Commercial Code, a buyer's failure to reject goods within a reasonable time constitutes acceptance and waives the right to cancel for late delivery. If the buyer then breaches the contract for specially manufactured goods, the seller is entitled to recover damages measured by the lost profit, including reasonable overhead, plus costs reasonably incurred.
Facts:
- In January 1973, Saxton Products, Inc. (Saxton) sent a purchase order to The Bead Chain Manufacturing Company (Bead) for five million specially manufactured female electrical contacts, requiring new tooling.
- The design for the contacts was provided and subsequently approved by Saxton's chief engineer, Benjamin Jarmolow, in February 1973.
- The contract stipulated that the first installment of 250,000 contacts was due by mid-June 1973.
- Bead sent preproduction samples and small installments of finished contacts between August 1973 and May 1974, all of which were delivered after the original due date.
- Saxton did not reject any of the tenders or complain about their timeliness or conformity during this period.
- In July 1974, upon receiving a bill for the tooling, Saxton for the first time claimed the contacts were defective because they lacked 'memory' characteristics, a feature not specified in the approved design.
- Saxton then refused to accept further deliveries or pay for the contacts and tooling.
Procedural Posture:
- The Bead Chain Manufacturing Company (plaintiff) sued Saxton Products, Inc. (defendant) in a trial court for breach of a contract for sale.
- Saxton filed special defenses and a counterclaim against Bead.
- The trial court found in favor of the plaintiff, Bead, on both the complaint and the counterclaim, awarding damages of $8411 plus interest and costs.
- The defendant, Saxton, appealed the trial court's judgment.
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Issue:
Under the Uniform Commercial Code, is a buyer who fails to make a timely rejection of specially manufactured goods liable for the seller's lost profits, including reasonable overhead, and other costs reasonably incurred, even if the goods were delivered late?
Opinions:
Majority - Peters, J.
Yes. A buyer who fails to timely reject goods is liable for the seller's lost profits and reasonably incurred costs upon breach. Under UCC § 42a-2-602(1), a buyer must reject goods within a reasonable time after delivery or tender. Saxton's protracted delay in complaining about the late deliveries waived its right to rely on the contract's 'time is of the essence' clause, and its failure to notify Bead of any rejection resulted in acceptance of the goods. The rejection was also wrongful because the tendered contacts conformed to the specifications provided and approved by Saxton's own engineer; Bead did not provide a warranty of fitness for a particular purpose. Therefore, Saxton breached the contract by wrongfully rejecting the goods and refusing to pay for the tooling. Under UCC § 42a-2-708(2), the appropriate measure of damages for a seller of unfinished, specially manufactured goods is the profit the seller would have made from full performance, including reasonable overhead, plus incidental damages and costs reasonably incurred.
Analysis:
This decision solidifies the principle that a buyer's inaction and silence can waive explicit contractual rights, such as delivery deadlines, under the UCC's 'reasonable time' standard for rejection. It provides a crucial clarification on the application of UCC § 2-708(2) for sellers of specialty goods, establishing that they can recover their full gross profit (net profit plus overhead) to be made whole. This prevents a breaching buyer from leaving a manufacturer of non-resalable goods with only its out-of-pocket costs, thereby protecting sellers who invest in custom production. The case serves as a strong precedent for using course of performance to interpret contract terms and for calculating damages that truly reflect the seller's expectation interest.
