Heat Exchangers, Inc. v. Map Construction Corp.

Menchine, J., delivered the opinion of the Court. Map Construction Corporation (Map) brought suit against Heat Exchangers, Inc. (Heat) and another 1 in the Circuit Court for Montgomery County for alleged breach of contract. Heat filed a counterclaim against Map alleging breach of contract. 2 The original action and the counterclaim were tried together in a bench trial with judgment nisi and absolute entered in favor of Map against Heat for $31,640.48 in the original suit and judgment nisi and absolute entered in favor of Map for costs against Heat in the counterclaim. The appeal by Heat raises in this Court the single following issue: “Did the lower court err by failing to determine whether the failure of Heat Exchangers, Inc. to timely deliver was excused by ‘commercial impracticality’?” Heat’s contention on appeal rests upon the provisions of the Annotated Code of Maryland CL § 2-615 that reads as follows: “§ 2-615.

Excuse by failure of presupposed conditions. Except so far as a seller may have assumed a greater ⁶⁸¹ obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or nondelivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.

(c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.” Map argues alternatively: 1. That the issue suggested on this appeal was not raised or decided below and is not before us under Rule 1085; and 2. That the evidence failed to establish excuse by failure of presupposed conditions under § 2-615. Maryland Rule 1085 The record contains testimony indicating that appellant relied in part on the provisions of § 2-615, supra.

Although the trial judge made no specific reference to that section in his oral opinion, he did make reference generally to the Uniform Commercial Code and we think his decision implies that he found that § 2-615 furnished no justification for Heat’s failure to perform. Under these circumstances, Maryland Rule 1085 is not applicable. Panamerican Co. v. Broun, 238 Md. 438, 447 , 209 A. 2d 575, 579-80 (1965); Kent v. ⁶⁸² Mer. Safe Dep. & Tr.

Co., 225 Md. 590, 593 , 171 A. 2d 723, 725 (1961). The Impact of § 2-615 This section of the Uniform Commercial Code has not been the subject of appellate interpretation in Maryland. The Official Comment upon the section begins as follows: “Prior uniform statutory provision: None. Purposes: 1.

This section excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting.” Certain facts are not in dispute and fairly may be summarized as follows: In November, 1973, contract discussions took place between Airpac Systems, Inc. (Airpac), manufacturer’s representative for Heat, and Map. On April 4, 1974, after bids had been received by Map from Heat and another company, Map signed a purchase order for 398 custom designed air conditioning units and essential plumbing connections (hereinafter described as risers), to be assembled and installed by Pleat in a multi-story apartment building to be constructed by Map. The bid price of Heat was $199,500.00. In the latter part of April, 1974, Heat submitted drawings and specifications for the units and risers.

On May 7,1974, The Whalen Company (Whalen), that had been the unsuccessful second bidder, advised Map that the proposed drawings and specifications furnished by Heat indicated a possible infringement of a patent owned by Whalen. Heat thereafter gave Map a letter of indemnification against a suit for patent infringement. Nonetheless, Heat with the concurrence of Map, decided to change the original design of the units so that the risers connecting the units from floor to floor would be placed outside of rather than within the unit cabinets. ⁶⁸³ On June 4, 1974» Heat undertook to assemble and install the units as redesigned. Map received and accepted Heat’s undertaking on June 10, 1974.

The acceptance document, prepared by Heat, bore the notation “Thank you for your order we will ship on or about Aug. 25, 1974.” On July 1, 1974, Map requested that risers and equipment for the first five floors be released for shipment as soon as possible with “the balance of the equipment for the anticipated delivery date of 25 August 1974.” No shipments were made. On August 22,1974, Airpac wrote Map advising that Heat was requesting a price increase of $10,154.00. On June 18, 1974, Heat had informed Airpac (its representative) that such a price increase would be necessary. This suggested increase was not disclosed to Map, however, until August, apparently because of fear that the contract might be cancelled by Map.

On August 30,1974, Map by telephone agreed to the price increase but requested early delivery of the shipment. On September 3, 1974» Map formally approved and returned to Heat a document showing agreement by the parties to the price change. Heat had endorsed on that document a notation declaring that “riser section assemblies will precede equipment shipments and should leave the factory within the next week to ten days.” No shipments were made by Heat. On September 6, 1974, Map sent a letter to Heat stating, inter alia, that “It is imperative that we get the first five floors of equipment by the end of this month.” Heat did not demur.

On September 10, 1974, Map, by telephone, repeated to Heat that delivery must occur before the end of September. On September 27th, Heat informed Map that the risers would be shipped “next week for sure.” No shipment was made. Testimony offered by Map indicated that the failure of Heat to supply the equipment prevented orderly progress of various trades in the course of construction of the apartment building, causing Map to be faced with back charges. On October 3, 1974, in the course of a telephone ⁶⁸⁴ communication with a representative of Heat, Map was advised that the risers had not yet been shipped; that Heat would try to ship them the third week of October, but could not promise.

Map thereupon “decided to seek another source.” Map contracted with Whalen on October 7,1974, at higher cost. The requisites of proof before nondelivery may be excused under the provisions of § 2-615 were thus succinctly stated in Neal-Cooper Grain Co. v. Texas Gulf Sulphur Co., 508 F. 2d 283 (7th Cir. 1974): “ ‘(1) a contingency must occur (2) performance must thereby be made “impracticable” and (3) the non-occurrence of the contingency must have been a basic assumption on which the contract was made.’ ” 508 F. 2d at 293 . We adopt that interpretation of § 2-615. Appellant alleges that an intervening contingency prevented delivery of the goods by reason of: (a) strikes; (b) necessary price increases resulting from the supply shortage of component parts; (c) the threat of a patent infringement suit; and (d) inability to get necessary components from suppliers.

The proof does not support the allegations. (a) Strikes Lloyd L. Ludkey, marketing and sales manager of Heat and the sole witness offered by it, testified as follows: “There has been some testimony having to do with strikes of various factories. In my estimation the strikes caused a very small portion of the problems that we encountered at that time.” We find nothing in the record showing or tending to show that strikes in any way provided an excuse for nondelivery. (b) Price Increases The only evidence relating to the necessity for a price increase was that the initial contract price must be increased ⁶⁸⁵ by $10,154.00.

Map had agreed to the price increase. Moreover, the record shows that Heat was aware of the necessity for such an increase on June 18,1974, but Map was not so informed until August 22, 1974. Here, too, we find nothing supporting a contention that price increases would justify nondelivery. (c) The Threat of a Patent Infringement Suit “Q There was ultimately no patent infringement suit or injunction filed, was there?

A There was not; not to my knowledge. Q Who were the persons who reconciled that situation? A At our factory, Engineering, Production and myself would have arrived at the decision to suggest to the customer that we in fact escape the possibility [of patent infringement] by not including the risers in the cabinets, and we would have secured permission, which we did, from Map Construction, either directly or through Air-Pac Systems. Q Finally a reconciliation or settlement was accomplished?

A Yes. Again, I can’t pin it down, but I would say it would have to be in June. On July 1 we received from Air-Pac Systems the release.” (From testimony of Heat’s representative.) Again, the evidence is wholly lacking in proof that threat of patent