PRECISION MASTER INC V HUGO LEONARDI JR
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STATE OF MICHIGAN
COURT OF APPEALS
PRECISION MASTER, INC., d/b/a MAPLE
MOLD TECHNOLOGIES,
UNPUBLISHED
July 12, 2007
Plaintiff/Counter-DefendantAppellant/Cross-Appellee,
No. 268501
Lapeer Circuit Court
LC No. 03-033520-CK
v
MOLD MASTERS COMPANY,
Defendant/Counter-PlaintiffAppellee/Cross-Appellant.
PRECISION MASTER, INC. d/b/a MAPLE
MOLD TECHNOLOGIES,
Plaintiff-Appellant/Cross-Appellee,
v
No. 268938
Lapeer Circuit Court
LC No. 04-034410-CZ
HUGO LEONARDI, JR.,
Defendant,
and
MOLD MASTERS COMPANY,
Defendant-Appellee/CrossAppellant.
Before: Meter, P.J., and Talbot and Owens, JJ.
PER CURIAM.
Plaintiff, Precision Master, Inc., appeals from entry of a judgment in favor of defendant,
Mold Masters Company, in these consolidated breach of contract actions. We affirm.
I. Background and Procedural History
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In 2002, defendant contracted with Collins & Aikman to manufacture molds for
automobile parts, which were ultimately to be supplied to General Motors Corporation (GMC).
Defendant subcontracted with plaintiff to manufacture pull ahead/production molds in
accordance with its contract with Collins & Aikman. Plaintiff explained that the mold
manufacturing process consisted of two phases. Phase I involved the building of the “pull
ahead” mold, while Phase II comprised the “productionizing of the mold, building the other
cavities and preparation of the mold for production use.” In total, defendant issued a total of
nine purchase orders to plaintiff in accordance with the contract.
Payment terms for Phase I were “net 120 days from lst shots.” Phase II provided that
“[p]ayment terms for production tools are net 90th prox upon OEM PPAP submission.” “PPAP”
is defined as an acronym for the “production part approval process” and is interpreted as
meaning that payment would be due or forthcoming within 90 days after submission of the
production parts for approval by GMC as the “OEM.” This case arises from the failure of
plaintiff to pay 120 days from the first shots with respect to Phase I of the purchase orders.
Delays in payment by defendant to plaintiff ranged from a minimum of three days overdue for
three purchase orders to a maximum of 142 days overdue on two purchase orders, resulting in an
average payment delay of 78 days for each Phase I purchase order. Although the payments were
late, defendant paid all but one purchase order in full. For the purchase orders pertaining to
Phase I, the total amount due was $172,188. Of this amount, defendant paid plaintiff $167,646,
with a balance of $4,542 remaining owed on one purchase order.
By September 2003, plaintiff had completed the Phase I manufacturing of the molds.
However, citing the frequency of late payments, plaintiff forwarded correspondence to defendant
indicating its willingness to “complete the balance of the contract,” but that it would require
either initiation of payments “C.O.D.” for all future work or, in the alternative, the imposition of
cancellation charges to retain the molds already in defendant’s possession. Plaintiff indicated
that “time was of the essence” and that it would suspend any further work should defendant fail
to respond within the required timeframe. In addition to requiring future payments be made
C.O.D., plaintiff also required payment of all outstanding invoices, imposition of one percent
monthly interest on all late payments and several additional terms.
Defendant responded, acknowledging plaintiff’s concern that the history of late payments
would continue into Phase II of the mold production and offered to “post a letter of credit
requiring that [plaintiff] is paid by a bank per the terms contained in each outstanding purchase
order . . . for the remaining work if [defendant] does not make payment in accordance with the
purchase orders.” Defendant indicated the importance of a timely response by plaintiff in order
to maintain the mold production schedule. Plaintiff rejected defendant’s offer to secure a letter
of credit as not providing “adequate security.” In addition, plaintiff asserted that defendant was
currently in breach of the contract and owed $37,324, irrespective of “PPAP approval.”
Plaintiff initiated a complaint for breach of contract. Defendant counterclaimed and
asserted that plaintiff had waived any claim for breach of contract based on the acceptance of late
payments. In filing its motion for partial summary disposition, defendant contended that plaintiff
waived its right to cancel the purchase orders by routinely accepting the late payments and that
defendant’s offer to secure a letter of credit was sufficient to provide plaintiff with adequate
assurances. Defendant argued that plaintiff’s demands improperly sought to substantially modify
terms of the contract. In its motion for summary disposition, plaintiff contended defendant first
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breached the contract by failing to make timely payments. Defendant argued that the unpaid
balance of $4,542 could not comprise a breach because it did not substantially impair the value
of the whole contract, as required by statute, to legitimately cancel contractual performance.
At the hearing on the motion for summary disposition, the trial court acknowledged that
payments by defendant were routinely late, but that plaintiff accepted the late payments “without
repudiating the contract.” In addition, the trial court stated that plaintiff had the right, with
regard to the single purchase order retaining an unpaid balance, to cancel the contract if the
alleged breach “substantially impaired the value of the contract.” The trial court proceeded to
grant defendant’s motion for summary disposition, ruling, in relevant part:
[T]he nonpayment of [$4,542] did not impair the whole contract and, thus, did not
allow Maple [Mold] to cancel the entire purchase because the alleged $4,542
constituted only 5.47 percent of the entire value of the contract. Furthermore,
Mold Masters offered a letter of credit to further assure Maple Mold of the future
payments to be paid.
The trial court denied plaintiff’s motion for reconsideration.
After plaintiff refused to perform Phase II of the contract, defendant sought to purchase
substitute goods in mitigation of its losses. Plaintiff incurred additional costs of $44,976 on five
of the Phase II purchases orders to secure cover through procurement of substitute goods. In
addition, defendant realized a savings of $33,388 in the production of three of the Phase II
molds, but argued that any savings realized should not be offset and that it was entitled to
payment from plaintiff in the amount of $44,976. At the conclusion of a bench trial, the court
found that the total cost of productionizing the Phase II molds was $44,976 more than the
contract between plaintiff and defendant, less the $33,388 in savings realized by defendant to
have the substitute goods produced by an alternative contractor. Following subtraction of the
realized savings, the trial court also subtracted $4,542, the outstanding amount owed by
defendant to plaintiff in accordance with Phase I of the contract, resulting in a judgment in favor
of defendant of $7,046, plus $726 interest.
II. Standard of Review
This Court reviews a trial court’s decision on a motion for summary disposition de novo.
First Pub Corp v Parfet, 468 Mich 101, 104; 658 NW2d 477 (2003). “Contract interpretation
and statutory interpretation involve issues of law that are subject to de novo review by this Court.
We reverse a trial court's findings of fact only if they are clearly erroneous.” Sands Appliance
Serv, Inc v Wilson, 463 Mich 231, 238; 615 NW2d 241 (2000) (citations omitted).
III. Analysis
Plaintiff contends the trial court erred in determining it breached the contract by failing to
continue to perform despite the ongoing receipt of late payments by defendant. Plaintiff further
contends the trial court erred because it did not consider defendant’s failure to perform or initiate
the second phase of the contractual agreement between the parties regarding preparation of the
molds for production.
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The parties do not dispute that the purchase orders at issue in this matter constituted an
installment contract, in accordance with MCL 440.2612(1), which defines an “installment
contract” as “one which requires or authorizes the delivery of goods in separate lots to be
separately accepted.” Pursuant to MCL 440.2612(3):
Whenever nonconformity or default with respect to one or more installments
substantially impairs the value of the whole contract there is a breach of the
whole. But the aggrieved party reinstates the contract if he accepts a
nonconforming installment without seasonably notifying of cancellation or if he
brings an action with respect only to past installments or demands performance as
to future installments.
Comment six to the statute, while not dispositive, provides insight and guidance with regard to
interpretation of this statutory provision. Specifically, the comment provides, in relevant part:
Whether the non-conformity in any given installment justifies cancellation as to
the future depends, not on whether such non-conformity indicates an intent or
likelihood that the future deliveries will also be defective, but whether the nonconformity substantially impairs the value of the whole contract. If only the
seller’s security in regard to future installments is impaired, he has the right to
demand adequate assurances of proper future performance but has not an
immediate right to cancel the entire contract. If [sic] is clear under this Article,
however, that defects in prior installments are cumulative in effect, so that
acceptance does not wash out the defect “waived.”
In addition, comment seven to the statute provides that “[u]nder the requirement of seasonable
notification of cancellation under subsection (3) . . . a seller may withhold a delivery pending
payment for prior ones, at the same time delaying his decision as to cancellation.”
Although plaintiff contends it complained repeatedly regarding the receipt of late
payments by defendant, there is no indication of actual notice of intent by plaintiff to cancel the
contract and discontinue further performance until the Phase I production molds were fully
completed. Importantly, for contract cancellation in accordance with MCL 440.2612(3), a party
must demonstrate that the non-conformity “substantially impairs the value of the whole
contract.” As noted by the trial court, the outstanding amount due to plaintiff on Phase I
constituted a very minor percentage of the value of the contract and, thus, was insufficient to
justify cancellation of the specific purchase order, let alone the entire contract.
More importantly, the statute clearly indicates that plaintiff’s acceptance of the
“nonconforming installment[s]” served to reinstate the contract, based on plaintiff’s failure to
notify defendant of its intent to cancel the contract. Although plaintiff contends it strongly
objected to the ongoing late payments tendered by defendant, mere objection to the untimely
payments is not commensurate with outright repudiation or notification of cancellation. In
addition, the language contained in MCL 440.2612(3) indicates that plaintiff’s demand for
assurances with regard to timely receipt of future payments also served to reinstate the contract
and did not justify outright cancellation and revocation of performance.
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Plaintiff’s contention that it was entitled to receive payment and cancel any further
performance under the contract due to the failure of defendant to initiate Phase II production is
not sustainable. The purchase orders are quite clear, with regard to the second phase of
production that payment is due within 90 days after “OEM PPAP submission.” Because there is
no assertion that the “production part approval process” had occurred with GMC, the condition
precedent for initiation of payment under this portion of the purchase orders had not occurred
and defendant could not be in breach of this portion of the contract.
Plaintiff next argues that the trial court erred in determining that defendant’s offer of a
letter of credit provided sufficient assurance to address the concern of the timeliness of future
payments. MCL 440.2609 provides, in relevant part:
(1) A contract for sale imposes an obligation on each party that the other’s
expectation of receiving due performance will not be impaired. 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.
(2) Between merchants the reasonableness of grounds for insecurity and
the adequacy of any assurance offered shall be determined according to
commercial standards.
In this instance, defendant offered to provide a letter of credit to assure payment in conformance
with the purchase order timeframes. In contrast, plaintiff demanded alteration of the actual
contractual terms by requiring payments C.O.D., the initiation of interest on late payments, and
other requirements. The demands by plaintiff did not constitute merely “adequate assurances” of
performance, but in actuality comprised a unilateral attempt to alter and favorably enhance the
contractual provisions. Defendant’s offer to secure a letter of credit with a third-party bank to
assure payment in accordance with the purchase orders provided satisfactory assurance of “due
performance.” Further, MCL 440.2609(1) does not permit full repudiation of a contract, but
rather merely the suspension of performance. Plaintiff’s mere anticipation or belief that
defendant could not procure a letter of credit did not provide a legitimate basis for its repudiation
of the contract. Finally, the adequacy of the assurance provided by defendant is not determinable
solely by plaintiff’s preferences, but rather in accordance with “commercial standards.” As such,
a letter of credit from a bank, requiring its payment of defendant’s obligations under the
specified contractual timeframes, was correctly deemed to be sufficient assurance by the trial
court.
On cross-appeal, defendant takes issue with the trial court’s calculation and award of
damages. Defendant contends the trial court should only have considered additional costs
incurred by defendant in procuring substitute goods without offset for any savings realized.
Contrary to defendant’s assertion, the issue is determined by the clear language of MCL
440.2712(2). “Because the plain language of the statute is the best indicator of the Legislature's
intent, we enforce the statute as written.” US Fidelity & Guarantee Co v Michigan Catastrophic
Claims Ass’n, 274 Mich App 184, 201; 731 NW2d 481 (2007).
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MCL 440.2712(1) permits a buyer to procure substitute goods or “‘cover’ by making in
good faith and without unreasonable delay any reasonable purchase of or contract to purchase
goods in substitution for those due from the seller.” Specifically:
The buyer may recover from the seller as damages the difference between the cost
of cover and the contract price together with any incidental or consequential
damages as hereinafter defined (section 2715), but less expenses saved in
consequence of the seller’s breach. [MCL 440.2712(2) (footnote omitted).]
In procuring substitute goods to meet Phase II production requirements, defendant incurred
additional charges on five of the purchase orders. One of the purchase orders was for precisely
the same cost by the new subcontractor as would have been incurred for production of the goods
by plaintiff. Three of the purchase orders for substitute goods resulted in a savings to defendant
from the price that would have been owed to plaintiff for production of these same items. It is
disingenuous of defendant to suggest that the monies saved on three of the purchase orders
securing the substitute goods are not included as “expenses saved in consequence of the seller’s
breach,” in accordance with the language of MCL 440.2712(2). “The remedy for breach of
contract is to place the nonbreaching party in as good a position as if the contract had been fully
performed.” Roberts v Farmers Ins Exch, ___ Mich App ___; ___ NW2d ___ (Docket No.
270406, issued March 27, 2007), slip op, p 7. Therefore, the purpose is to allow the
nonbreaching party to realize the benefit of his bargain, but not to obtain a windfall. Based on
the clear and unambiguous language of the statute, the trial court’s calculation of damages was
both permissible and entirely reasonable.
Affirmed.
/s/ Patrick M. Meter
/s/ Michael J. Talbot
/s/ Donald S. Owens
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