Stephan's MacHine & Tool, Inc. v. D & H MacHinery Consultants, Inc.
65 Ohio App. 2d 197, 19 Ohio Op. 3d 155, 417 N.E.2d 579 (1979)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Uniform Commercial Code, specific performance may be decreed for a seller's breach of contract when goods are unique or in other proper circumstances, and consequential damages, including lost profits and interest, are recoverable if the seller had reason to know of the buyer's needs and such losses could not reasonably be prevented by cover.
Facts:
- In February 1975, D & H Machinery Consultants, Inc. (D&H) orally committed to Stephan’s Machine & Tool, Inc. (Stephan's) that a four-inch Monti Horizontal Boring Mill machine (machine No. 1) would be delivered and installed by April 1975.
- On or about August 18, 1975, Stephan's and D&H executed a written contract for Stephan's to purchase machine No. 1.
- Machine No. 1 was not delivered and installed at Stephan's premises until October 1975, six months later than the original oral commitment.
- Following its installation, machine No. 1 developed numerous problems and malfunctions, proving to be innately defective and substantially inoperable despite D&H's extensive repair efforts.
- By a letter dated July 13, 1977, D&H agreed to replace the defective machine No. 1 with a new boring machine (machine No. 2) and install it at Stephan's premises at no additional charge.
- D&H subsequently refused to deliver machine No. 2, conditioning delivery on Stephan's paying an unrelated account debt of $12,384.72 to D&H.
- Stephan's had borrowed $96,000 from Toledo Trust Company to purchase machine No. 1, incurring significant interest payments, and the machine's inoperability led to defaults on the loan.
- Stephan's had obtained verbal acceptances for bids on work requiring machine No. 1, which it could not perform due to the machine's inoperability, resulting in lost profits.
Procedural Posture:
- Stephan’s Machine & Tool, Inc. (plaintiff) sued D & H Machinery Consultants, Inc. (defendant) in the Court of Common Pleas of Lucas County (trial court) for breach of contract, seeking specific performance for a replacement machine and damages.
- D & H Machinery Consultants, Inc. (defendant) filed a counterclaim against Stephan's Machine & Tool, Inc. (plaintiff) regarding an unrelated account debt.
- In April 1978, the trial court held a temporary injunction hearing and issued a temporary injunction order compelling D & H to deliver and install machine No. 2 at Stephan's premises.
- The trial court found D & H guilty of contempt of court for transporting machine No. 2 to an exhibition in August 1978, in violation of the temporary injunction, imposing a $200 fine and $500 in attorney's fees.
- In September 1978, the trial court conducted a final hearing without a jury.
- On December 6, 1978, the trial court journalized its final judgment, which ordered D & H to specifically perform its contract by delivering and installing machine No. 2, awarded Stephan's $81,375 in damages (for lost profits and interest), awarded D & H $8,200 on its counterclaim, and upheld the contempt finding against D & H.
- D & H Machinery Consultants, Inc. (defendant-appellant) appealed the trial court's final judgment to the Court of Appeals of Ohio.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
1. Does Ohio Revised Code 1302.90(A) permit a court to order specific performance for the delivery and installation of a specialized machine that has proven unique and caused irreparable financial harm to the buyer? 2. Are lost profits and interest payments recoverable as consequential damages under Ohio Revised Code 1302.89(B) for a seller's breach of contract when the seller had reason to know of the buyer's needs and the buyer could not reasonably 'cover' for the goods? 3. Can a party be found in contempt of court for violating a temporary injunction if the injunction's enforcement was suspended at the time of the alleged violation?
Opinions:
Majority - Brown, J.
Yes, the trial court properly ordered specific performance for the delivery and installation of machine No. 2. Ohio Revised Code 1302.90(A) permits specific performance for unique goods or in other proper circumstances. The testimony and the record established that the Monti Horizontal Boring Mill machine was unique, and the inoperable condition of machine No. 1 placed an insurmountable financial strain on Stephan's, including loan defaults. This demonstrated irreparable harm and the absence of an adequate remedy at law, justifying specific performance. Yes, the trial court correctly awarded Stephan's consequential damages for lost profits and interest payments. Ohio Revised Code 1302.89(B) allows for consequential damages for losses the seller had reason to know about and that could not reasonably be prevented by 'cover' or otherwise. D&H's president was thoroughly familiar with the industry and 'at the time of contracting had reason to know' Stephan's 'general or particular requirements and needs.' Stephan's adequately explained why 'cover' (farming out customer orders) was not feasible, as it would cause loss of customers. Lost profits of $55,000 were proven with 'reasonable certainty' through testimony about verbally accepted bids, distinguishing this case from others where claims were speculative. The interest payments of $26,375 on the loan for machine No. 1 were also supported by the record over the three-year period. No, the trial court erred in finding D&H guilty of contempt of court. D&H's act of transporting machine No. 2 to Chicago did not constitute a violation of the specific provisions of the temporary injunction order, which mandated D&H 'to deliver and install' the machine. Crucially, at the time of the Chicago exhibition, there was an order from the trial court suspending the enforcement of the injunction, which suspended D&H's duty to deliver and install machine No. 2, thus negating any contempt charge. Therefore, the fine and attorney's fees related to the contempt charge must be vacated. The court also affirmed the trial court's award of $8,200 to D&H on its counterclaim and found no reversible error in the admission of evidence or the exclusion of proffered testimony.
Analysis:
This case offers a significant interpretation of the Uniform Commercial Code regarding a buyer's remedies for breach of contract, particularly for specialized goods. It reinforces that specific performance, while an extraordinary remedy, is available for 'unique' goods, especially when a buyer faces severe financial distress and cannot reasonably mitigate losses by finding substitute goods. Furthermore, the ruling on consequential damages provides guidance on proving lost profits, establishing that verbal acceptances of bids can demonstrate 'reasonable certainty' if supported by testimony, and underscores the importance of the seller's foreknowledge of the buyer's operational needs. The reversal of the contempt charge highlights the necessity of strict construction of injunctive orders and the immediate effect of their suspension on compliance duties.
