Cambridge Technologies, Inc. v. Argyle Industries, Inc.

SALMON, Judge. In the fall of 1997, Argyle Industries, Inc. (“Argyle”), contracted to deliver 14,500 sets of parts to Cambridge Technologies, Inc. (“Camtec”). The parts were to be delivered in accordance with a schedule that was set forth in a purchase order. Camtec intended to assemble the parts manufactured by Argyle (and others) and to sell the assembled product to ■ the Department of Defense (“DOD”) in fulfillment of a contract it had with the U.S. government. ⁴¹⁹ Argyle did not meet the delivery schedule set forth in its contract with Camtec.

Nevertheless, Argyle made some late deliveries, and Camtec did not complain about the fact that the delivery schedule was not being met. After Argyle had delivered approximately forty percent of the sets of parts it had promised, and after the deadline for supplying all the contracted-for parts had expired, the DOD cancelled its contract with Camtec — due to the latter’s tardiness in making its deliveries. Immediately after the DOD contract was can-celled, Camtec, in turn, cancelled its contract with Argyle. Argyle filed a two-count complaint against Camtec in the Circuit Court for Dorchester County.

The first count was for breach of contract, and the second was under a quantum meruit theory. Camtec filed an answer to the complaint, together with a counter-complaint, in which it alleged, inter alia, that Argyle’s tardiness in making delivery caused it to lose the DOD contract. The breach (allegedly) caused Camtec to make expenditures that would have otherwise been unnecessary and to lose the profits it would have otherwise made. At the conclusion of a bench trial, the trial judge delivered a brief oral opinion in which he found that there had been “substantial compliance” with the contractual terms on Argyle’s part and awarded Argyle damages in the amount of $33,541.08 as to Count I. The damage award, purportedly, was based on figures supplied by Camtec.

The trial court disposed of the counterclaim with the following words: “The counterclaim is denied for failure of proof of damages.” Camtec filed this timely appeal and raises three major questions: 1. Did the trial court err in finding that Argyle had substantially performed the contract? 2. Did the trial judge err in calculating damages? 3. Did the trial court err in denying Camtec’s counterclaim on the basis that it had failed to prove damages? ⁴²⁰ I. BACKGROUND FACTS 1 Argyle, a New Jersey corporation, is in the business of providing wholesalers with manufactured metal products.

Camtec is in the business of manufacturing mechanical and electrical systems for the health-care industry. Over the last forty years, one of Camtec’s main customers had been the DOD. In 1996, Camtec began negotiations with the DOD to provide the latter with telescoping I.V. rods, which were to be designed so that I.V. bottles could be hung from the rods and the rods themselves could be attached to stretchers. The negotiations with the DOD were fruitful, and on April 7, 1997, the DOD awarded Camtec a contract for the manufacture of 14,162 I.V. rods. 2 The contract originally required Camtec to deliver the rods on or before November 18, 1997.

Between April and October 1997, Camtec worked with the DOD to update the specifications for the rods to conform to the most modern technology. Meanwhile, in contemplation of fulfilling its contract with the DOD, Camtec, on March 12, 1997, asked Argyle for an estimate of the cost of fabricating 14,500 I.V. poles, 500 “rod-jaws,” and 14,500 lock rings, which were all to be used in connection with the assembly of the I.V. rods. Argyle provided Camtec with a price for those items. Later, in September 1997, Camtec sought an additional quote from Argyle for some other items needed in conjunction with the construction of the rods.

On October 6, 1997, Camtec and Argyle entered into the contract that is the subject of this suit. The contract was set forth in Purchase Order No. 01057. In the purchase order, Argyle agreed to produce and deliver 14,500 sets of parts ⁴²¹ needed to construct the I.V. rods. 3 The purchase order provided that Argyle was to commence work when Camtec approved Argyle’s design prints for each of the seven items that made up the individual sets of parts needed to construct the I.V. rods. The seven parts were: (1) a 17" tube; (2) a 13.625" tube; (3) an “upper rod”; (4) a clamp; (5) a “jaw,” which attaches to the rod; (6) Lock Rings No. 1; and (7) Lock Rings No. 2.

All seven parts were necessary in order for Camtec to commence its assembly of the I.V. rods. The contract between Argyle and Camtec provided that “parts must be free of burrs and chips.” Chemical and physical analyses were required to be provided with each shipment. By December 23, 1997, all the sample parts that Argyle had provided to Camtec had been approved for production. Under the terms of the purchase order, Argyle was to supply twenty-five percent of the 14,500 sets of parts within ten weeks of December 23, 1997, and then provide twenty-five percent of the sets every two weeks thereafter.

Thus, under the contract, Argyle was obligated to deliver 3,625 sets of parts by March 3 and a similar number on March 17, March 31, and April 14, 1998. From the outset, Argyle understood that time was of the essence. After Camtec contracted with Argyle, the DOD and Camtec agreed to revise Camtec’s delivery schedule. Camtec was required under the revised contract to deliver fifty percent of the I.V. rods (7,081) by February 27, 1998, and fifty percent by March 31,1998.

A Camtec representative testified at trial that the extension had been expected because previously he had “verbal assurances” from the DOD that the latter would not hold Camtec to the original schedule. Therefore, in October 1997, when the purchase order was issued to Argyle, Camtec knew it would have additional time to complete the DOD contract — according to Camtec’s witness. ⁴²² By February 27, 1998, Argyle knew that it was not going to be able to meet the schedule of producing twenty-five percent of the order (ie., 3,625 sets) by March 3, 1998, nor was it going to be able to deliver a similar number every two weeks as scheduled. As of February 27, 1998, of the seven parts ordered, Argyle had delivered all the 17" tubes, all the 13.625" tubes, as well as all the upper rods. But it had delivered only 198 clamps and a similar number of jaws.

It had delivered no Lock Rings Nos. 1 or 2. On February 27, 1998, a representative of Argyle wrote Camtec and said: We will be shipping the following on Monday, 3/2/98: 237 pcs. of Lock Ring # 1 243 pcs. of Lock Ring # 2 686 pcs. of the Jaws On Wednesday, 3/4/98, we will have 2,000 of each of the four parts fully fabricated[;] it will take a few days for tumbling. We will be producing at least 1,000 sets a week, though this will probably be'closer to 2,000 sets a week. Shipments will be made every other week if this is acceptable to you.

If you have any questions or comments[,] please do not hesitate to call. After receipt of the February 27 letter, no one from Camtec protested the revised delivery schedule, nor was Argyle ever told of the deadlines set forth in Camtec’s contract with the DOD. The promises made in the letter of February 27 were not fulfilled. Argyle did send by March 6 (not March 3, as promised) 235 Lock Rings No. 1, 141 Lock Rings No. 2, and 679 jaws.

Thus, by March 6, 1998, Argyle had delivered only 141 complete sets of parts, which was less than five percent of the 3,625 sets due as of March 3. Argyle wrote Camtec on March 6,1998, and said: As we discussed, we will be shipping you the following on or before Friday 3/13/98: ⁴²³ 2.000 pcs. P/N 901042, Clamp 3.000 pcs. P/N 901048-0, Jaw 3.000 pcs.

P/N 901047-0, Lock Ring # 1 3.000 pcs. P/N 901046-0, Lock Ring # 2 We have shipped 143 pieces of Lock Ring 2 and 237 pieces of Lock Ring 1. As soon as we have better information on this we will pass it along. We will be producing at least 1,000 sets per week.

The production should be closer to 2,000 sets per week. Thank you for your patience. We understand time is of the essence. If you have any questions[,] please do not hesitate to call.

After March 6, 1998, Argyle never came close to delivering 1.000 sets of parts per week — much less 2,000. By March 31, 1998, which was four weeks and four days after the February 27 letter, Argyle had delivered an additional 4,740 jaws but had failed to make delivery of any additional lock rings (either No. 1 or No. 2), and only 2,183 clamps. Therefore, by March 31, 1998 — the date when, under the terms of the purchase order — -10,875 sets of the parts were to have been delivered, only about two percent (141) complete sets had been delivered to Camtec. In early April 1998, Argyle delivered nearly all the jaws remaining due under the contract.

But by April 14, 1998, the date when, under the agreement, all 14,500 sets should have been delivered to Camtec, Argyle had delivered only 1,633 complete sets. Even if appellant had met its own self-imposed 1.000 sets of parts per week schedule, 8,000 sets of parts would have been delivered by April 14,1998. Besides delivery problems, the quality of the clamps and lock rings that were delivered by Argyle were unacceptable. As mentioned earlier, the purchase order accepted by Argyle provided that the manufactured product was to be free of burrs (among other things).

A burr in an aluminum product is a sharp edge around a hole, caused by drilling of the hole. Before delivery to a customer, aluminum parts go through a ⁴²⁴ process called “tumbling” to get rid of burrs. According to a witness called by Camtec, one hundred percent of the clamps delivered by Argyle had a burr around the screw holes. The defective clamps were not returned to Argyle; instead, they were fixed by Camtec.

The repair procedures for getting rid of a burr in a clamp takes an estimated one and a half minutes per clamp. A somewhat similar problem existed with both Lock Rings Nos. 1 and 2. According to the testimony of Camtec’s witness, during the tumbling process, the rough edges around two small holes (where the jaw was to be screwed into the clamp) were “rolled into the thread,” thereby causing the thread to be “bugered.” The problem was remedied by Camtec’s employees tapping out the holes that had “bugered” edges. On April 30, 1998, the DOD cancelled Camtec’s contract to supply I.V. rods due to Camtec’s “extreme tardiness” in making deliveries of the final product.

Camtec immediately notified Argyle of the cancellation and directed it to stop all work immediately. The next day (May 1, 1998), Argyle sent Camtec a letter, which read as follows: In regards to the above listed purchase order, please find the following breakdown of our current stage of production: 1. P/N 901042-0 — Clamp a. 5,920 Pieces fabricated/tumbled awaiting shipment b. 3,172 Pieces not fabricated/tumbled 2. P/N 901047-0 — Lock Ring # 1 a. 850 Pieces completed and shipped 4-30-98 b. 5,850 Pieces fabricated/tumbled awaiting shipment c. 4,133 Pieces not fabricated/tumbled 3.

P/N 901046-0 — Lock Ring #2" a. 9,003 Pieces not fabricated/tumbled The total value of the above listed material is $21,934.88. In addition, there is a balance of $28,509.47 due against material that has already been shipped to your location. Except for the three parts mentioned in the letter of May 1, Argyle had delivered all the parts that had been ordered. ⁴²⁵ The problem, however, from Camtec’s perspective, was that Argyle had delivered less than one-half the contracted-for complete sets of parts, and without complete sets, Camtec could not assemble the I.V. rods for delivery to the government. In response to the May 1,1998, letter, Camtec wrote: As you have been advised, we have had a cancellation of the contract using the parts set forth in our purchase order 010157.

This may turn out not to be a complete cancellation and we are negotiating with the government relative to the specifics in this matter. Please stop all work on this order. On May 1, 1998, you sent me a memorandum outlining the status of the particular parts which you are making for us and listed monetary values for same. Please note that the $28,509.47 mentioned in your memo covers material which had been shipped to us, but is in a “hold status” because of possible quality problems.

Until these problems are resolved, I am not in a position to comment on this particular item. We are working as quickly as possible to get a full understanding of the implications resulting from the government action relative to the specific contract. As information develops, we will certainly be in touch with you. Argyle, on May 4, 1998, provided Camtec with a breakdown as to how they arrived at the $21,934.88 figure mentioned in its letter of May 1, 1998.

The next day, May 5, 1998, Argyle sent Camtec a letter saying in regard to the open invoices (i.e., invoices totaling $28,509.47) “[i]f we remove all parts in question, whether it be for count or quality, there is still a $17,060.32 balance.” Argyle then detailed how they arrived at that last-mentioned number. Camtec responded to the May 5 missive by listing a series of invoices where there were “quality discrepancies” and/or quantity discrepancies, or both. On May 7, 1998, Argyle wrote Camtec and said, in confirming a phone conversation, that Argyle was “looking for $17,060.32 by the end of the week for materials on your floor which have been counted, inspect ⁴²⁶ ed, and accepted by Camtec.” Parenthetically, we note that neither the letter, nor subsequent trial testimony, indicated that Camtec agreed with Argyle’s figures. The letter went on to say that the $17,060.32 figure “does not cover material” where Camtec questioned the quality of the work, nor did it include Argyle’s work in progress, nor Argyle’s expenses for unfabricated aluminum that had been purchased in anticipation of fulfillment of the contract.

Argyle demanded, in addition, immediate payment of $5,890.24 for the cost of the unfabricated aluminum. On June 1,1998, Camtec wrote Argyle a letter, the contents of which were summed up in the concluding paragraph, viz: In view of Argyle’s inability to perform under the Purchase Order which was a major factor in Camtec’s ability to perform under the Department of Defense contract, Camtec feels no obligation for further payment of any sort to Argyle. Earlier in the letter, Camtec had said that [a] major contributing factor to Camtec’s non-delivery [to the DOD] can be traced to Argyle’s inability to produce acceptable parts in accordance with the delivery schedule in the original Purchase Order ... and subsequent delivery promises [referring to the letters of February 27 and March 6]. Based on your delivery dates sets forth in [the February 27 letter], Camtec hired workers and started production.

This effort had to be discontinued when Argyle failed to ship on 3/2/98 and 3/4/98. In fact, Argyle never achieved anywhere close to shipping 1,000 sets of acceptable parts per week. After the DOD cancelled its contract, Camtec entered into a modified contract with the DOD to provide 5,947 I.V. rods. The number equaled the number of useable complete sets of parts Camtec had been supplied by Argyle as of April 30, 1998 — according to Camtec’s figures.

II

THE TRIAL During the trial of this case, both sides relied primarily on documents that were admitted into evidence without objection. ⁴²⁷ Those documents spelled out, in a clear fashion, the contract between the parties and presented an understandable picture of what items were delivered by Argyle and when. In addition, two witnesses were called by Argyle and one by Camtec. An unusual feature of the case was there was remarkably little conflict in the testimony of the witnesses. One slight divergence that separated the parties was that Argyle maintained that it did not know the identity of the customer with whom Camtec had contracted to sell the I.V. rods prior to the April 30, 1998, cancellation.

Camtec, on the other hand, presented a witness who testified that from the outset Argyle did know that Camtec had a contract with the DOD. All witnesses agreed that Camtec never advised Argyle of its deadlines under the DOD contract. Camtec’s president, Thomas Holdt, was asked at trial why he did not cancel the contract when Argyle sent the letter dated February 27, changing, or at least attempting to change, the delivery schedule. He answered that if the schedule set forth in the February 27 letter had been met he felt confident that Camtec still could have sold all 14,162 I.V. rods to the DOD.

Mr. Holdt explained that he stayed in contact with the DOD, and they had indicated a willingness to amend their contract with Camtec to push back the delivery dates provided they were given firm dates when they could expect to receive the I.V. rods. Therefore, according to Mr. Holdt, “If we had gotten the parts as indicated in the letter of [February] the 27th, I believe I could have made a reasonable presentation to the Department of Defense for extending the delivery dates and delivered the contract.” Mr. Holdt testified that prior to the cancellation of the contract he had been in touch -with the DOD because it “hadn’t been getting anything [from Camtec],” nor had they “been getting satisfactory answers.” As a consequence, the DOD advised Comtec that “they were going to cancel the contract because of late delivery.” Mr. Holdt conceded that Camtec never advised Argyle of the problems it was having with the DOD. He explained Camtec’s silence by saying it ⁴²⁸ depended upon Argyle’s written schedule that they had presented to us, and if they had stuck to those schedules [Camtec] would have been okay. Even defective parts, we could have cleaned up the defective parts and built I.V. rods.

According to Mr. Holdt, Camtec told the DOD of its problems, but the latter would not give Camtec an extension until it had “some definite figures from us.” During Argyle’s counsel’s cross-examination of Mr. Holdt, the witness was asked why Camtec did not alert Argyle to the fact that late deliveries were jeopardizing Camtec’s contract with the DOD. Mr. Holdt replied that no notification was made because “our arrangement was between Argyle and Camtec, not Argyle and the Department of Defense.” 4 Argyle’s counsel also cross-examined Mr. Holdt regarding the letter he wrote dated June 1, 1998, in which he said that a “major contributing factor” to the cancellation of the DOD contract was Argyle’s late deliveries. Counsel asked whether “there were other factors that caused” DOD’s cancellation. Mr. Holdt steadfastly maintained that there were none.

Thereafter, counsel for Argyle again suggested by his questions that there was more than one cause for delay when he directed Mr. Holdt’s attention to a June 18, 1998, letter from Mr. Holdt to a representative of the DOD. In that letter, Camtec requested an extension of four months for the completion of the original contract and said that the request “is ⁴²⁹ necessitated by our vendors not delivering material in accordance with our purchase orders.” (Emphasis added.) Mr. Holdt denied the implication that more than one vendor was responsible for the delay. Argyle’s proof of damage was simple. Relying on the same figures as set forth in its letter to Camtec dated May 1, 1998, Argyle asserted it was due $28,509.47 for parts already delivered.

That last-mentioned figure was based upon the contract price for each part that was shipped. Additionally, Argyle claimed it was entitled to the sum of $21,934.88 for aluminum materials purchased in anticipation of fulfilling the contract, but not manufactured, together with parts that were manufactured but not yet delivered. In support of its counterclaim, Camtec introduced an exhibit that set forth its damages as follows: Loss of Value/Mitigation $ 8,623.15 Lost Profits on 8215 Rods $19,498.78 Unutilized Goods/Services $25,349.40 Amount Paid to Argyle $30,727.86 Amount Due Argyle for 5,947 Sets of Parts ($33,541.08) Total Damages $50,658.11 The $8,623.15 figure represented the amount it cost Camtec to remedy the defects in the lock rings (both Ring Nos. 1 and 2) and the clamps. The category “Unutilized Goods/Services” included costs for materials purchased but not utilized due to the loss of the DOD contract and $9,529.40 for the labor involved in threading tubes supplied by Argyle but not used, again due to the loss of the DOD contract.

At the conclusion of the case, the trial judge commenced by saying that, although the contract was far from a “Hornbook example” of what a contract should be, a contract, nevertheless, existed “and there was substantial compliance with the contract by plaintiff.” The trial judge concluded his brief opinion in these words: So under the first count of the complaint — I’m going to use [Camtec’s counsel’s] figures or Camtec’s figures here ⁴³⁰ under the first count breach of contract thirty-three thousand five hundred forty-one dollars and eight cents plus costs. The counterclaim is denied for failure of proof of damages ....

III

Did the trial court err in finding that Argyle had substantially performed 5 the contract? Argyle claims that the trial judge was not clearly erroneous when he found that Argyle had substantially performed its contract. 6 Camtec counters that the court was clearly erroneous in this regard because (1) at the time that the parties entered into the contract, Argyle acknowledged that time was of the essence; (2) under the unambiguous terms of the contract, Argyle was required to deliver 3,625 sets of parts by March 3, 1998, and a similar number every two weeks until April 14, 1998, when all 14,500 sets of parts were to be delivered; (3) Argyle never came close to meeting the delivery schedule set forth in the contract. The evidence was undisputed that as of April