The opinion of the court was delivered by: DAVIS
After a jury trial in this contract action, a verdict was returned for the plaintiff, Draft Systems Inc., in the amount of $ 409,184.16. Before the court are defendant's motions for judgment n. o. v. and for a new trial which in substance challenge the sufficiency of the evidence in support of the award of damages.
After careful consideration of these motions, I have concluded that the arguments raised therein are without merit, and they are denied accordingly.
Plaintiff, Draft Systems, is engaged in the business of manufacturing a type of dispensing unit used on beer kegs. TR. 2.67-8. This beer dispensing unit consists essentially of two component parts-a double valve and a syphon tube. TR. 2-12. One component part, the syphon tube, which is approximately eighteen inches in length and made of graded nylon, was supplied by the defendant, Rimar Manufacturing, Inc. TR. 2.23. Throughout 1974 the plaintiff submitted purchase orders for various amounts of nylon 11 or nylon 2908L tubing to the defendant. TR. 2.27-33. In August 1975 the defendant filled the aforesaid orders by shipping the required amounts to the plaintiff. After the inspection of the amount of goods and specifications of the tubing, including a check of the accompanying documents which certified that the tubing was actually nylon 11, the plaintiff accepted the goods and began using them in its manufacturing process. TR. 2.28-40. Some months later, the plaintiff began receiving complaints from beer distributors that the dispensing mechanism was not functioning properly. It was later determined that the defendant forwarded a different grade of tubing, nylon 6, rather than the nylon 11 specified in the purchase orders and blueprints supplied by plaintiff. TR. 3.59. Expert testimony established that because of the higher liquid absorption rate of nylon 6 tubing contrasted with the absorption rate of nylon 11, an excessive amount of beer was absorbed by the nylon 6 tubing. This excessive absorption caused the internal diameter of the tubing to expand, thus, breaking the seal between the tubing and the metal portion of the dispensing unit to which the tubing was attached. TR. 3.71. It was theorized that, after carbon dioxide was pumped into the keg in order to force beer from it-i. e. drafting the beer-carbon dioxide entered the beer stream through the broken seal; this created a condition known as "wild beer" which was unfit for consumption.
The jury, by interrogatories, found that the defendant breached the express, and implied warranties of merchantability and fitness for a particular purpose which were incorporated into the contract. In its post trial motions, defendant presents a myriad of claims for relief from the judgment against it. I now turn to these contentions.
Preliminarily, defendant vigorously contends that all items of consequential damages should be excluded from the verdict because the evidence is insufficient to support the jury award. More specifically, it asserts that the proof failed to demonstrate that defendant had any knowledge concerning the particular requirement of the contract that the nylon tubing supplied could not have a liquid absorption rate in excess of that of nylon 11.
This argument, however, misconceives the nature of consequential damages.
In this case, the defendant knew the nature of the plaintiff's business. The defendant knew that the nylon tubing was required as a component of the plaintiff's beer dispensing system. TR. 2.70. It knew that the tubing would eventually be immersed within the beer. TR. 2.71. Furthermore, the company knew that nylon 6 did not have the same hydroscopic properties as nylon 11. TR. 2.73. It also knew that the plaintiff required nylon 11 for use in its product. TR. 2.74 & 2.76. In short, the defendant knew of all plaintiff's general and particular requirements except the precise demarcation in absorption rates which would render nylon 6 useless. But the plaintiff's specification of the particular grade of nylon coupled with the defendant's knowledge of the difference in the absorption properties of varying grades of nylon, put the defendant on notice of the particular quality of tubing which would be valuable to the buyer. Thus, the jury could properly find that the defendant had sufficient reason to know of the general and particular requirements of the plaintiff to thereby charge defendant with the consequential losses proximately following from the breach of warranty under section 2715(b).
See R. I. Lampus Co. v. Neville Cement, Etc., supra, 474 Pa. at 209, 378 A.2d at 293.
Alternatively, the defendant contends that the award of consequential damages is precluded under Section 2-715(2) of the code since the plaintiff failed to perform an adequate inspection of the tubing to ensure that conforming goods were incorporated in the finished product. While the defendant restates the law correctly, the underlying facts do not support his position.
Section 2-715(2)(a) of the Code provides, in part, for the award of consequential damages resulting from seller's breach "which could not reasonably be prevented by cover or otherwise."
Hence, the dispositive question is whether the plaintiff's actions upon receipt of the goods were commercially reasonable.
The testimony establishes that upon receipt of the tubing from Rimar, the plaintiff performed various tests to insure that the goods conformed to specifications as to length, width, inside and outside diameter, and quantity. TR. 2.37. Furthermore, the product certification of tubing grade forwarded by the defendant was compared to the corresponding bills of lading to verify that the tubing shipped was actually nylon 11. TR. 2.38. It is undisputed that the tubing shipped was nonconforming nylon 6 and that the plaintiff was unaware of the certification error until an investigation into the keg failures was instituted. Moreover, the defendant acknowledged that the plaintiff relied on the certification of product grade. TR. 2.83. The significance of the plaintiff's reliance on the manufacturer's certification is heightened since it is not disputed that nylon 6 and nylon 11 are identical in color and texture. The distinction can only be detected by infrared spectroscopy which was unavailable at the plaintiff's plant. TR. 2.39 & 2.82.
The jury was properly instructed as to the applicable law under Section 2-715(2)(a) of the Code. By awarding damages, the jury implicitly found that the product defect could not reasonably have been discovered under the foregoing circumstances. There is ample evidence to support this conclusion. And while a spectroscopic examination would have further enhanced the accuracy of the plaintiff's inspection procedure, I cannot say that Section 2-715(2)(a) imposes such a burdensome duty as a matter of law. See Lewis v. Mobil Oil Corp., 438 F.2d 500, 509 (8th Cir. 1971). Therefore, in view of the acknowledgment by the defendant of plaintiff's reliance on the certifications of tubing grade and the impossibility of manual detection of grade variance, the question of the reasonableness of the efforts expended by the plaintiff to detect the defect was properly for the jury. See Hanna Lumber Co. v. Neff, 265 Ark. 462, 579 S.W.2d 95, 98 (1979).
Defendant also attacks various items of consequential damages which the jury found properly attributable to the breach of contract. Specifically, defendant contends that the awards of: (1) bank interest charges in the amount of $ 120,420.05; (2) lost profits in the amount of $ 95,975.00; and (3) a percentage of the manufacturing costs reflecting overhead, were improper. These contentions are equally without merit.
A two pronged attack is leveled at the award of interest charges on the bank loan obtained by the plaintiff. First, the defendant asserts that the court abused its discretion in permitting testimony of such interest charges since the damage claim was not formally pleaded or included in the pre-trial order. See Fed.R.Civ.P. 16 and Local Rule 21(d)(2)a. At trial, I found that the circumstances in this case fit the exception in Rule 16 and Local Rule 21 authorizing amendments "to prevent manifest injustice", and allowed the introduction of evidence of interest charges with certain qualifications. Nothing, brought to the attention of the court, requires reconsideration of this ruling. Exclusion of such an appreciable amount of damages from jury consideration would surely be unjust. Moreover, the failure of the defendant to designate the precise contours of prejudice claimed or to request a continuance at trial reinforces my view that the ruling was within the allowable range of the trial judge's discretion.
See Moore v. Sylvania Electric Products, Inc., 454 F.2d 81, 84 (3rd Cir. 1972), Wendkos v. ABC Consolidated Corp., 379 F. Supp. 15, 18 (E.D.Pa.1974); Carl Beasley Ford, Inc. v. Burroughs Corp., 361 F. Supp. 325, 335 (E.D.Pa.1973), aff'd, 493 F.2d 1400 (3rd Cir. 1974).
Defendant further argues that such an award of interest on the loans obtained by the plaintiff to avoid financial disaster during the period of repair and replacement of the malfunctioning dispensing devices is not properly an item of consequential damages. Similar awards of accrued interest for financing capital losses, however, have been properly sustained as an element of consequential damages. See Chatlos Systems v. National Cash Register Corp., 479 F. Supp. 738, 744 n.5 (D.N.J.1979); Diversified Environments v. Olivetti Corp., 461 F. Supp. 286, 292 (M.D.Pa.1978); Carl Beasley Ford, Inc. v. Burroughs Corp., supra, 361 F. Supp. at 334; Willred Co. v. Westmoreland Metal Mfg. Co., 200 F. Supp. 59, 69 (E.D.Pa.1961); Certain-Teed Products Corp. v. Goslee Roofing & Sheet Metal Inc., 26 Md.App. 452, 339 A.2d 302, 314-15 (1975). Where a seller provides defective goods to a manufacturer with knowledge that they are to be used in the manufacturing process, it is reasonable to assume that the consequent disruption of production will cause financial difficulties for the buyer especially when the buyer is heavily dependent on one product for its financial success as ...