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INDUSSA CORP. v. RELIABLE STAINLESS STEEL SUPPLY C

January 30, 1974

INDUSSA CORPORATION
v.
RELIABLE STAINLESS STEEL SUPPLY COMPANY


Edward R. Becker, District Judge.


The opinion of the court was delivered by: BECKER

EDWARD R. BECKER, District Judge.

This case involves a claim by the plaintiff for the balance due on goods sold and delivered, and a counterclaim by defendant for damages for non-delivery of certain other goods. Following a one day nonjury trial, we found for the plaintiff in the sum of $16,850.60 plus interest on the principal claim, *fn1" and found for the plaintiff against the defendant on the counterclaim. In support of our verdict, we delivered, at the conclusion of the trial, a bench opinion containing findings of fact and conclusions of law. That opinion, as edited, is annexed hereto. This memorandum addresses defendant's motion for a new trial or judgment notwithstanding the verdict.

 The goods involved were aluminum sheets which the plaintiff had imported from Norway and Japan. The parties had entered into seven contracts for the purchase and sale of that aluminum. Delivery was made on the first five contracts. Defendant paid the sums due on the first two contracts (although they were overdue when paid). The third, fourth and fifth contracts, on which the aluminum was also delivered, were the subject of plaintiff's claim. Defendant did not dispute its liability to plaintiff for the $16,850.60 which was past due on those contracts. The only disputed claim was the counterclaim, which was based on plaintiff's failure to deliver to defendant the aluminum covered by the sixth and seventh contracts. Plaintiff concedes that it did not deliver those shipments, having stopped delivery on February 28, 1969, while the goods were in transit on the high seas.

 Plaintiff's stoppage of delivery was founded upon its invocation of sections 2-702 and 2-705 of the Uniform Commercial Code ("Code"), *fn2" which govern a seller's right to refuse or stop delivery when the buyer is insolvent within the Code definition of insolvency (§ 1-201(23)). *fn3" In our bench opinion, we found the defendant to have been insolvent, *fn4" justifying the plaintiff's failure to deliver the sixth and seventh orders.

 The posttrial motions assign a variety of errors. Many of the assignments relate to the integrity of our findings of fact, particularly those in which we credited the testimony of plaintiff's witnesses and rejected some of the testimony of defendant's witnesses. Under rule 59(a), F.R. Civ. P., we are free to open the judgment and amend our findings of fact, but we have, after careful review, decided to adhere to our original findings, with the exception of three additional findings which we have set forth in note 4, supra.

 We have also reviewed our conclusions of law and have decided to amend our conclusions with respect to the question of plaintiff's obligation to notify the defendant promptly of the decision not to deliver the goods ordered. In our bench opinion, we stated our conclusion that plaintiff had no such duty to notify because it intended to make no claim against the defendant for damages. For the reasons which follow, we now withdraw the conclusion that the plaintiff had no such duty. However, we reaffirm our earlier conclusion that the defendant proved no damages resulting from plaintiff's breach of its supposed duty to notify. Hence defendant's motions will be denied. Our change in position reflects the benefit of a more careful study of the law than time permitted during the trial.

 The basic problem is that the Code does not address the notification question. Section 2-702 lists two seller's remedies on discovery of buyer's insolvency. *fn5" The first, which was not resorted to here, allows the seller to refuse delivery except for cash. The second, which was invoked here, allows the seller to stop delivery under section 2-705. That section reads, in pertinent part, "The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (Section 2-702) . . . ." Neither section indicates whether notice is required, although notice seems implicit in the other § 2-702 remedy of refusal to deliver except for cash. *fn6"

 The defendant has also argued that the notification point must be resolved in its favor because of plaintiff's failure to give it an opportunity to give adequate assurance of performance under § 2-609, which inherently involves the giving of notice. That section provides in part: "when reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return." It is true that comment 1 to § 2-705 states that "where stoppage occurs for insecurity it is merely a suspension of performance, and if assurances are duly forthcoming from the buyer the seller is not entitled to resell or divert." But that comment is present because § 2-705 gives the seller the right to stop delivery of certain large shipments not only for buyer's insolvency, but also, inter alia, "if for any other reason the seller has a right to withhold or reclaim the goods." The latter would include insecurity. The answer to defendant's argument is that the insecurity and insolvency provisions are separate concepts, treated separately by the Code, giving separate grounds for stoppage of delivery. In addition, the right to demand assurance conferred by § 2-609 is stated as permissive, not mandatory.

 Defendant also argues that a notice requirement must be read into § 2-712 (buyer's right to cover after non-delivery), pointing out that a buyer cannot cover until he knows there will be no delivery. However, the language of § 2-712(1) makes plain that the buyer's right to cover arises only after a non-delivery in breach of the contract. *fn7" The seller did not breach the contract here, the buyer did; hence that section does not apply to this case.

 The parties have not cited any cases on the notification point, and we have been unable to find a case, somewhat to our surprise, since this seems hardly a point of insignificant technicality. We turn, therefore, to the general requirement of reasonable commercial standards of fair dealing, which provides a guide to interpretation of the Code. *fn8"

 It appears to us that reasonable commercial standards of fair dealing would, in the circumstances of this case, require plaintiff to notify defendant of its decision to stop delivery. We are particularly influenced by consideration of (1) the ease, simplicity, and minimal expense of giving such notification, (2) the potential benefit to defendant of receiving notification, and the potential harm of not receiving notification, and (3) the absence of any reasons for the plaintiff not to give notification. Accordingly, we withdraw the conclusion stated in our bench opinion that notification is not required, and hold that in the circumstances of this case, Indussa had a legal duty to notify Reliable promptly that it was stopping delivery. This holding does not alter the outcome of the case, however, for defendant proved no damages resulting from breach of the duty to notify, and so is still not entitled to recovery.

 Since the duty to notify does not appear in the Code, naturally the Code has nothing to say about measure of damages for failure to notify. We would define the damages as the harm suffered by defendant as a result of the delay in its learning that the goods would not be delivered. Such harm would be the increase, over the period notification was delayed, in the defendant's cost of acquiring substitute goods. *fn9"

 The decision to stop delivery was made on February 28, 1969. Delivery on the sixth contract was due on March 26, 1969; on the seventh contract, part of the delivery was due in late February and part in April. The place of delivery was Philadelphia. Defendant learned of the non-delivery only at the time delivery was due. Hence the delay in notice was about one ...


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