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DAY & ZIMMERMANN, INC. v. BLOCKED IRON CORP. OF AM

October 9, 1961

DAY & ZIMMERMANN, INC.
v.
BLOCKED IRON CORPORATION OF AMERICA



The opinion of the court was delivered by: KIRKPATRICK

Day & Zimmerman, Inc., industrial engineers, brought this suit for a balance due it (fixed by the Court at $ 184,413.01) on a contract to design and construct a plant for Blocked Iron Corporation of America. BLCOA counterclaimed for damages for defective performance. D & Z's liability upon the counterclaim has been determined in a separate trial, testimony in the trial upon the issue of damages has been taken, and the case is now before the Court for disposition of that issue. The nature of the contract and the obligations of the parties under it are fully discussed in the opinion filed after earlier trial D.C., 200 F.Supp. 117.

 D&Z was held liable by the Court because of defective performance in two respects: first, D&Z recommended and procured the purchase of a drying oven (the largest and most expensive piece of equipment) in the plant) of inadequate heating capacity and, in so doing, failed to exercise the skill to be expected of an engineering firm; and, second, a portion of the floor of the oven-carbonator assemblage, the construction of which it undertook itself, developed cracks through which a large amount of carbon dioxide was alleged to have leaked out.

 The damages claimed by BICOA consist of (1) money wasted in correcting the oven and and its air circulating system amounting to $ 75,000., (2) income lost as a result of reduced production due to the insufficiency of the oven (claimed in the amount of nearly $ 700,000.), and (3) the value of carbon dioxide lost through cracks in the carbonator floor (claimed directly in the amount of $ 11,076.20 and indirectly *fn1" in a very much larger amount).

 (1)

 It was stipulated that BICOA spent the sum of $ 75,000. in making revisions to correct the heat input and air circulation of the oven. This sum represents the additional cost incurred over and above what the oven would have cost had the changes been incorporated in its as originally installed or, in other words, money wasted as a result of the original error. Half of the amount was by the stipulation attributed to increasing the BTU input to the oven and the other half to increasing the air circulation.

 D&Z has been found at fault in respect of the heat capacity of the oven , and it follows that it is liable for the $ 37,500. wasted in installing additional burners.

 As to the second $ 37,500., the burners having been increased to the extent required, it was essential that the additional heat get to the blocks being dried in the oven. The system as originally designed did not have enough air circulation capacity to take care of a nearly threefold increase in the BTU input. Had the error as to the size and number of the burners been discovered at the time when the oven design was submitted to D&Z, the air circulation would undoubtedly have been increased accordingly by the manufacturer, if not by D&Z itself. Getting increased air circulation was a necessary part of the oven revision. Without it, increasing the heat input would have been futile.

 In view of the fact that the burners and air circulation equipment thus constitute a single heat distribution system, I find that D&Z is liable for the entire $ 75,000., representing money spent in increasing both.

 The largest part of BICOA's allowable damages consists of loss of profits *fn2" by reason of delay in getting the plant into full commercial production, the delay having been incurred in efforts to make the oven and air circulating equipment adequate.

 The principles governing the measure of damages in a case like the present one are concisely stated in the Restatement of Contracts, Sections 331(1) and 346(1)(b). *fn3" These sections are in accord with the law of Pennsylvania upon the point. Section 346 states the measure for defective performance of a construction contract. The contract in the present case has been held to be not a construction contract (except as to the carbonator floor, BICOA's third claim for damages, supra) but one for professional services in connection with the construction of an industrial plant. However, although the rights and obligations of the parties under the two classes of contracts may be quite different, the loss occasioned by a breach consisting of defective performance resulting in delay but not in total failure to complete, will be about the same in both, and I think that BICOA can be properly recompensed for its losses by applying the measure of damages for breach of a construction contract, stated in 346(1)(b). Paraphrasing Comment c. under that subsection: If the engineering firm (builder) had reason to foresee that the product of the plant would be placed upon the market (put to a special use) and that substantial profits (an exceptional return) would be made, Section 346(1)(b) does not deny the owner of the plant (the other party) compensation measured by that profit (exceptional return); he can get judgment for the amount thereof it he can comply with the rule as to certainty of proof (Section 331).

 As a matter of fact, BICOA's claim as set forth in the exhibit *fn4" in which it calculates its damages is not for damages for delay in getting into full production, but, although not so expressly stated, is in effect, for D&Z's failure to procure an oven which complied with the duty specifications which D& Z set up for Industrial Ovens, the manufacturer, *fn5" or, if not that, then the claim can only be a renewal of the 'guarantee' theory of the contract which BICOA pressed in the earlier trial and which theory the Court did not adopt. BICOA contends that the plant has never been, and probably never will be, *fn6" able to operate as it would have had an adequate oven been installed at the outset, not suggesting that an oven complying with the duty specifications would not have been adequate.

 In support of its claim BICOA has offered a carefully prepared exhibit (Schedule I). I have no doubt that, so far as it contains figures taken from BICOA's books, Schedule I correctly shows the entries, which in turn are competent evidence of the facts which they record. However, most of it consists of conclusions drawn from the entries by BICOA's process engineer, the purpose being to show how much loss of production was due to oven deficiency (for which D&Z has been held liable) as distinguished from loss of production due to other causes (for which ...


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