LOVELY v BURROUGHS CORP

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No. 12569 I N T E SUPREME C U T O THE STATE O MONTANA H OR F F 1974 ORVIS G. LOVELY AND D N L R. LAUBACH, O AD P l a i n t i f f and Respondent and Cross -Appellant, BURROUGHS CORPORATION, a c o r p o r a t i o n , Defendant and Appellant. Appeal from: D i s t r i c t Court of t h e S i x t h J u d i c i a l District, Honorable C. B. Sande, Judge p r e s i d i n g . Counsel o f Record: For Appellant : Landoe, Gary and White, Bozeman, Montana H. B. Landoe appeared, Bozeman, Montana Henson and T u l l y , Minneapolis, Minnesota Robert Henson argued, Minneapolis, Minnesota For Respondent: Conrad B, F r e d r i c k s argued, and Richard W. Josephson argued, Big Timber, Montana Submitted: June 13, 1974 Decided :OCT 2 % 1974 M r . J u s t i c e Frank I. Haswell d e l i v e r e d t h e Opinion of t h e Court. I n a nonjury t r i a l i n t h e d i s t r i c t c o u r t of Park County, p l a i n t i f f s were awarded damages i n t h e amount of $16,760.82 f o r l o s s e s r e s u r t i n g from t h e d e f e c t i v e o p e r a t i o n o f e l e c t r o n i c a c counting equipment s u p p l i e d by t h e defendant. from t h e judgment. Defendant a p p e a l s P l a i n t i f f s cross-appeal from t h e damages awarded. The i s s u e s r a i s e d by t h e defendant on a p p e a l a r e : 1 ) L i a b i l i t y f o r breach of e x p r e s s o r implied warranty; 2 ) Measure of damages; 3) Assessment o f c o s t s . p l a i n t i f f s ' cross-appeal con- c e r n s o n l y t h e measure o f damages. Given t h e complex n a t u r e of t h e f a c t s and i s s u e s involved, a d e t a i l e d c o n s i d e r a t i o n o f both i s r e q u i r e d . P l a i n t i f f Orvis Lovely commenced a n accounting p r a c t i c e i n L i v i n g s t o n , Montana, i n 1953. I n 1964 h e formed a p a r t n e r s h i p w i t h t h e o t h e r p l a i n t i f f , Donald taubach. I n 1966, t h e p a r t n e r - s h i p purchased a n a d d i t i o n a l p r a c t i c e i n nearby Big Timber, Montana, and maintained a n o f f i c e t h e r e . The a d d i t i o n of t h i s p r a c t i c e i n - c r e a s e d t h e workload o f t h e p a r t n e r s h i p t o t h e p o i n t where ad- d i t i o n a l h e l p had t o be h i r e d o r t h e work had t o be automated. P l a i n t i f f s were approached by David Larsen, a s s a l e s repr e s e n t a t i v e of t h e defendant, concerning t h e u s e o f Burroughs equipment i n t h e i r expanded p r a c t i c e . A s e r i e s of meetings, c o r - respondence and demonstrations of a v a i l a b l e equipment ensued, res u l t i n g i n a purchase o r d e r f o r a s m a l l Burroughs computer. That o r d e r was superseded i n February, 1967 by a s i m i l a r o r d e r f o r a l a r g e r , more expensive computer. The second o r d e r bore a hand- w r i t t e n n o t a t i o n t h a t it was t o be converted i n t o a l e a s e p r i o r t o delivery. Although t h e computer was d e l i v e r e d and i n s t a l l e d i n June, 1967, no formal l e a s e was e v e r executed. P l a i n t i f f s subm i t t e d a n a p p l i c a t i o n and a check, through Larsen, f o r conside r a t i o n by a t h i r d - p a r t y l e a s i n g f i r m i n November o f 1967. P l a i n t i f f s forwarded a second check i n December i n t h e same amount t o Burroughs b e f o r e l e a r n i n g t h a t t h e a p p l i c a t i o n had been denied. Defendant then o f f e r e d t o l e a s e d i r e c t l y t o p l a i n t i f f s a t a p l a i n t i f f s ' r e j e c t i o n of t h i s o f f e r prompt- h i g h e r monthly r e n t a l . ed t h e removal of t h e computer i n February o f 1968. The d i s t r i c t Court found t h a t defendant, a t t h e time o f t h e o r d e r , knew t h e p a r t i c u l a r purposes f o r which t h e equipment was r e q u i r e d and t h a t p l a i n t i f f s were r e l y i n g on d e f e n d a n t ' s judgment i n f u r n i s h i n g s u i t a b l e goods. It f u r t h e r found t h a t t h e equipment d e l i v e r e d was n o t f i t f o r t h e purposes i n t e n d e d , and t h a t p l a i n t i f f s were damaged thereby. These f i n d i n g s of f a c t a r e amply supported by t h e r e c o r d . During t h e c o u r s e of p l a i n t i f f s ' n e g o t i a t i o n s w i t h Larsen, t h e l a t t e r became thoroughly f a m i l i a r w i t h t h e o p e r a t i o n s o f t h e i r accounting p r a c t i c e . P l a i n t i f f s t e s t i f i e d t h a t they r e l i e d heav- i l y on ~ a r s e n ' sassessment o f t h e computer's s u i t a b i l i t y f o r t h e i r p a r t i c u l a r needs. solicit additional That r e l i a n c e prompted p l a i n t i f f s t o b u s i n e s s from t h e i r customers which was t o be provided by t h e expanded c a p a b i l i t i e s of t h e new machine. Following i n s t a l l a t i o n and debugging of t h e machine, a number of customer accounts were t r a n s f e r r e d t o t h e automated p u t e r while t h e defendant had t h e e x p e c t a t i o n of p r o f i t from a lease d i r e c t l y with t h e p l a i n t i f f s o r a s a l e t o t h e third-party l e a s i n g company. Defendant f u r t h e r b e n e f i t t e d by t h e r e c e i p t of t h e two checks a s w e l l a s t h e s a l e of forms t o be used w i t h t h e computer. To argue t h a t defendant g r a t u i t o u s l y placed a $38,000 computer a t t h e d i s p o s a l of t h e p l a i n t i f f s without e x p e c t a t i o n of p r o f i t does n o t square w i t h t h e f a c t s . Bailments f o r mutual b e n e f i t f a l l w i t h i n t h e scope o f s e c t i o n 42-101, R.C.M. 1947, which provides: one to "Hiring i s a c o n t r a c t by ~ h i c h / ~ i v e s ano t h e r t h e temporary possession and u s e of property, o t h e r than money, f o r reward, and t h e l a t t e r a g r e e s t o r e t u r n t h e same t o t h e former a t a f u t u r e time." [Emphasis suppZied] The L e g i s l a t u r e , by t h e u s e of t h e word "reward", obviously con- templated b e n e f i t s o t h e r than money a s being included i n a h i r i n g . W , f i n d no sound reason f o r excluding a n t i c i p a t e d rewards from e t h e scope o f t h e s t a t u t e . S e c t i o n 42-211, R.C.M. provides: "One who l e t s personal p r o p e r t y must d e l i v e r i t t o t h e h i r e r , s e c u r e h i s qu5et enjoyment thereof a g a i n s t a l l lawful claimants, p u t i t i n t o a c o n d i t i o n f i t f o r t h e purpose f o r which h e l e t s i t , and r e p a i r a l l d e t e r i o r a t i o n s thereof not occasioned by t h e f a u l t of t h e h i r e r and not t h e n a t u r a l r e s u l t of i t s use." [Emphasis supplied] This s t a t u t e expresses t h e common law o f bailments r e q u i r i n g f i t n e s s f o r u s e i n bailments f o r mutual b e n e f i t . A t l a n t i c -. Tug & Equip-. . Co, -v,. S . . Jur.2d Bailments 5144. 6 L. ,.Pavinn C ~ r p , 334 N ,Y.S 2d 532, 8 Am, . When a b a i l o r has reason t o know t h e u s e f o r which t h e property is r e q u i r e d , t h e r e a r i s e s an implied warr a n t y of f i t n e s s f o r t h a t u s e - - p a r t i c u l a r l y when t h e b a i l e e re-5- Within a s h o r t time, problems a r o s e i n t h e o p e r a t i o n process. o f t h e computer, r e q u i r i n g numerous v i s i t s by ~ u r r o u g h s ' r e These d i f f i c u l t i e s occurred a s f r e q u e n t l y a s d a i l y pairmen. and o f t e n n e c e s s i t a t e d s h u t t i n g t h e computer down u n t i l t h e r e p a i r s could be made. The problems experienced a d v e r s e l y a f f e c t e d t h e p l a i n t i f f s ' a b i l i t y t o promptly and a c c u r a t e l y s e r v i c e t h e i r customers' accounts. The damage t o t h e r e p u t a t i o n of t h e f i r m was one of t h e f a c t o r s which l e d t o t h e s a l e o f t h e p r a c t i c e . Given t h i s evidence, t h e d i s t r i c t c o u r t concluded t h a t defendant had breached both express and implied w a r r a n t i e s o f f i t n e s s f o r intended use. It f u r t h e r concluded t h a t t h i s breach was t h e proximate cause o f t h e damages which we s h a l l d e a l w i t h later. Defendant argues t h a t t h e r e was no t r a n s a c t i o n a l b a s i s f o r any warranty; t h a t breach of warranty, i f such warranty exi s t e d , was n o t e s t a b l i s h e d by t h e r e c o r d ; and t h a t i f t h e r e was a breach of warranty, t h e p l a i n t i f f s waived t h e i r c l a i m f o r r e lief, Defendant maintains t h a t t h e t r a n s a c t i o n h e r e amounted t o nothing more than a g r a t u i t o u s bailment, g i v i n g r i s e t o no e x p r e s s o r implied warranty of f i t n e s s f o r intended use. We disagree. A t t h e very l e a s t , a bailment f o r mutual b e n e f i t a r o s e a s both p a r t i e s received t h e b e n e f i t s of t h e t r a n s a c t i o n . Global-. * Tank il a - - - - " T r a -... e- r .S.- l e s . v. . ."* w- -- Textilena-Nease,- g c * . . -..-. -* -- .... . - . -- , 209 Kan. 314, 496 P.2d 1292; M-i l-l e r --v. Hand . - . . Sales-, -I$c,.,, 216 O r . 567, 340 P.2d -.. Ford -.* . r - <a- \ - 181; 8 C.J.S, Bailments 58(a). -4- P l a i n t i f f s had t h e u s e o f t h e com- l i e s upon t h e b a i l o r ' s e x p e r t i s e a s t o t h e s u i t a b i l i t y of t h a t property f o r t h a t use. Accordingly, defendant's d e l i v e r y of t h e computer c r e a t e d a bailment f o r mutual b e n e f i t , and t h a t r e l a t i o n s h i p gave r i s e t o an implied warranty of f i t n e s s f o r use i n p l a i n t i f f s ' practice, The d i s t r i c t c o u r t found, and t h e evidence c l e a r l y shows, t h a t *warranty was breached. From t h e time of i n s t a l l a - t i o n t o t h e time of removal, t h e computer s u f f e r e d malfunctions which made i t incapable of providing timely and a c c u r a t e i n f o r mation, Defendant's p r o t e s t a t i o n s t h a t a complex p i e c e of equip- ment such a s t h i s i s expected t o have such problems a r e not p e r While t h e problems might be normal f o r t h i s machine, suasive. and we a r e not convinced of t h a t , defendant should have then known t h a t t h e computer would never be s u i t a b l e f o r p l a i n t i f f s ' needs. H i s r e p r e s e n t a t i o n s t o t h e c o n t r a r y would then be fraud- ulent. Defendant f u r t h e r suggests t h a t p l a i n t i f f s waived t h e i r claim of breach of warranty by f a i l i n g t o r e j e c t t h e computer during t h e approximately e i g h t months a f t e r d e l i v e r y . n o t agree. W cane Even i f t h e defense of waiver had been timely r a i s e d , i n accordance with Rule 8(c), M.R.CIV,P., conform t o t h e theory. t h e evidence does n o t While t h e p l a i n t i f f s did r e t a i n possession f o r almost e i g h t months, t h e evidence c l e a r l y shows t h a t they d i d not accept t h e computer i n i t s d e f e c t i v e condition. The record i s r e p l e t e with repeated complaints made by t h e p l a i n t i f f s , r e s u l t i n g i n numerous s e r v i c e c a l l s d i r e c t e d a t remedying t h e many problems. P l a i n t i f f s ' a c t i o n s amourt good f a i t h a t t e m p t t o permit defendant t o remedy t h e d e f e c t s , n o t a n a c ceptance of them. W t h e r e f o r e f i n d no waiver o f t h e p r o t e c e For s i m i l i l a r t i o n of w a r r a n t i e s o f f i t n e s s f o r intended use. holdings see: Ekco -. Products.Companv v. United - State-s, 312 F.2d -. --. - --" . .- ., . + ,* *. 768 (U.S , C t ,C1. 1963) ; KLPR ~ o r a t i o n , 327 F.Supp. ----+ -" 7..., -vA, , *v_,Vis-$a1 Inc E l e c t r o n i c.-s ..-- - " . .-. Cor- a - m - 315,465 F.2d 1382 ( 8 t h C i r . 1972); Carlo Bianchi & C Q . _w . ~ n _i l.. "e r s .._. _ __.___.__-___ Corn., 347 Mass. . d ' Eauipment -& .I u ~ -p l p _ . S -,- I _ & 636, 199 N.E.2d I I(- +-.. 519. The d i s t r i c t c o u r t awarded'damages i n t h e following amounts : 1) $4,000 f o r t i m e s p e n t a t t e m p t i n g t o make t h e com- p u t e r work and time s p e n t c o r r e c t i n g t h e mistakes made by t h e computer--time which otherwise could have been b i l l e d t o c l i e n t s . 2) $1,302.37 f o r h i r i n g a d d i t i o n a l h e l p r e q u i r e d by t h e computer problems. 3) $3,000 i n w a g e s f o r h i r i n g a n o t h e r accountant t o conduct t h e Big Timber p r a c t i c e s i n c e t h e computer demanded p l a i n t i f f s ' time i n Livingston, 4) $139.40 f o r c o s t s of p r e p a r i n g a room f o r i n s t a l l a - t i o n of t h e computer; $1,596 which was t h e amount o f t h e two checks which p l a i n t i f f s s e n t t o defendant d u r i n g l e a s e n e g o t i a t i o n s ; $64.05 f o r telephone charges expended i n informing defend a n t ' s repairmen t h a t t h e computer was malfunctioning. 5) $3,391 f o r l o s s s u s t a i n e d on t h e s a l e o f t h e Big Timber b u s i n e s s , 6) $3,268 f o r l o s s s u s t a i n e d on t h e s a l e o f t h e Living- ston business. Apart from t h e c h a l l e n g e t o t h e f i n d i n g o f any l i a b i l i t y h e r e , defendant f u r t h e r contends t h a t : 1 ) There i s i n s u f f i c i e n t evidence t o support t h e award of numbes 5 and 6; 2) I t e m s 1, 3 and 6 a r e d u p l i c a t i v e and t h e r e f o r e e x c e s s i v e ; 3) A c o n t r a c t u a l p r o v i s i o n l i m i t i n g damages should have been a p p l i e d ; and 4 ) The v a l u e o f t h e u s e o f t h e computer should have been o f f s e t a g a i n s t any damages awarded. P l a i n t i f f s cross-appeal, a l l e g i n g t h a t 1 and 6 should have been l a r g e r awards. Damages may p r o p e r l y b e awarded when they s e r v e t o comp e n s a t e t h e p l a i n t i f f f o r d e t r i m e n t proximately caused by t h e defendant, S e c t i o n 17-301, R.C.M. 1947. Before a n award can be made, t h e damages must be c l e a r l y a s c e r t a i n a b l e i n both t h e i r n a t u r e and o r i g i n . S e c t i o n 17-302, R,C,M. 1947. Damages which a r e a m a t t e r o f mere s p e c u l a t i o n cannot be t h e b a s i s of recovery. Laas v. Mont. Hwy.commln, 157 Mont. 121, 483 P.2d 699; Cruse v. Clawson, 137 Mont. 439, 352 P.2d 989; J u r e c v , Raznik, 104 Mont. 45, 64 P.2d 1076. P l a i n t i f f s purchased t h e Big Timber p r a c t i c e i n 1966 f o r $25,000 and s o l d i t i n May o f 1968 f o r $21,609. awarded t h e d i f f e r e n c e (N~tnber5 ) a s damages. The d i s t r i c t c o u r t The record shows t h a t t h e Big Timber p r a c t i c e s u f f e r e d when t h e e r r a n t computer demanded time which would o t h e r w i s e have been s p e n t t h e r e a t t e n d i n g t o business. The measure o f damages a p p l i e d by t h e d i s t r i c t c o u r t i s s u f f i c i b n t l y d e f i n e d t o avoid a charge o f being t o o s p e c u l a tive. Since t h e cause, o r i g i n and n a t u r e o f t h e damages i s c l e a r , we w i l l n o t d i s t u r b t h a t judgment. The Livingston p r a c t i c e was f i f t e e n y e a r s o l d when s o l d -8- i n 1968 f o r $18,750. The d i s t r i c t c o u r t awarded $3,268 a s damages f o r l o s s on t h a t s a l e (Number 6 above). That f i g u r e l a c k s both t h e c e r t a i n t y of o r i g i n and t h e f a c t u a l b a s i s which might allow us t o a f f i r m it. It appears t h a t t h e d i s t r i c t c o u r t a r r i v e d a t t h i s f i g u r e by s u b t r a c t i n g t h e a c t u a l g r o s s i n come of t h e Livingston p r a c t i c e i n 1967 from a projected gross income f i g u r e f o r 1967 which an expert t e s t i f i e d would have been t h e p r a c t i c e ' s gross income had i t not had t h e computer problems. While a c o u r t can properly award damages f o r a l o s s of n e t prof i t s , i t cannot award damages f o r a l o s s of a n t i c i p a t e d g r o s s i n come. Klemens & Son v. Reber Plbg. & Htg. Co,, 139 Mont. 115, 360 P.2d 1005; 22 Am.Jr.2d Damages 5178. Furthermore, i t i s d i f f i c u l t t o determine why t h e d i s t r i c t c o u r t looked a t t h e s e f i g u r e s i n determining t h e l o s s on t h e s a l e of t h e Livingston p r a c t i c e , [See Finding of F a c t No. 131 The record contains voluminaus expert testimony concerning methods of placing a v a l u a t i o n on p l a i n t i f f ' s p r a c t i c e a t t h e time of sale, Without t h e b e n e f i t of f u r t h e r ex$mat9on 6f Ithe- computa- t i o n s used by t h e t r i a l c o u r t , and s i n c e t h e award i s challenged by both p a r t i e s , a redetermination of number 6 i s necessary. Since t h e expert who t e s t i f i e d concerning t h e a p p r o p r i a t e v a l u a t i o n of t h e business included a number of v a r i a b l e s i n h i s b a s i c formula of a c e r t a i n percentage of gross income, w e cannot compute damages based upon t h e record without making c e r t a i n dekrminations of f a c t . These a r e properly t h e functions of t h e t r i a l c o u r t , and w e t h e r e f o r e must remand f o r f u r t h e r considerat i o n of t h i s element of damage. -4r Defendant f u r t h e r p r o t e s t s t h a t t h e damages awarded a s numbers 1, 3 and 6 above overlap and encompass but a s i n g l e detriment t o t h e p l a i n t i f f s . Since number 6 involves t h e l o s s on t h e s a l e of t h e Livingston p r a c t i c e , w e f i n d no overlap between i t and t h e o t h e r i t e m s . O t h e i r f a c e , hown ever, w e can see t h e p o s s i b i l i t y of overlap between items 1 and 3. Since t h e time spent i n c o r r e c t i n g computer e r r o r s i s time which p l a i n t i f f s might otherwise have spent performing s e r v i c e s f o r c l i e n t s , i t i s l o g i c a l t h a t t h e c o s t of h i r i n g another t o s e r v i c e those c l i e n t s would r e l i e v e p l a i n t i f f s of some of t h e damages of l o s t time. Without more, i t would ap- pear t h a t t h e c o s t of h i r i n g t h e a d d i t i o n a l accountant and t h e l o s s of b i l l a b l e time would be t o some e x t e n t d u p l i c a t i v e . However, t h e award f o r l o s s of b i l l a b l e time r e p r e s e n t s a subs t a n t i a l reduction i n t h e amount of damages claimed by p l a i n I n f a c t , p l a i n t i f f s p r o t e s t t h a t reduc t i f f s for that item. - t i o n on cross-appeal. The reduced award was apparently t h e r e s u l t of t h e d i s t r i c t c o u r t ' s adjustment of t h e claimed f i g u r e t o t a k e i n t o account t h e overlap mentioned above. O t h i s record, t h a t n adjustment was reasonable and w i l l n o t be d i s t u r b e d by t h i s court. Defendant a l s o c a l l s a t t e n t i o n t o t h e d i s c l a i m e r of l i a b i l i t y f o r consequential damages contained i n t h e purchase agreement here. The very language of t h e waiver b e l i e s i t s a p p l i c a b i l i t y here. It reads : "* * * S e l l e r s h a l l n o t be l i a b l e f a r damage caused by delay i n d e l i v e r y which i s unavoidable o r beyond S e l l e r ' s reasonable c o n t r o l nor i n any event f o r consequent i a 1 damages. I t The provision c l e a r l y speaks t o consequential damages a r i s i n g from delay i n d e l i v e r y , which i s n o t involved here. I n addi- t i o n , t h e language appears i n a document which purports t o be a purchase agreement, y e t t h e p a r t i e s a s r e e t h a t no purchase was intended. The language of t h a t mere o r d e r cannot be con- s i d e r e d governing during t h e period of bailment. Finally, the waiver s u f f e r s t h e same i n f i r m i t y a s t h e " f i n e p r i n t waiver'' i n v a l i d a t e d i n Quality A c c e p t a ~ e ~ _ C o r u , . MiJlipn- -and-Albers, . ". y.. I n c . , 367 F.Supp. 771 (D. Wyoming 1973), and many s i m i l a r cases. A s t o t h e question of o f f s e t t i n g t h e value of t h e use of t h e computer a g a i n s t any damages awarded, i t should be suf - f i c i e n t t o n o t e t h a t no evidence of such v a l u e was introduced. Indeed, it i s d i f f i c u l t t o imagine how a computer which s o damaged p l a i n t i f f s ' p r a c t i c e would be s a i d t o have had value t o them. The f i n a l i s s u e r a i s e d by t h e defendant concerns t h e c o s t s of s u i t . P l a i n t i f f s , on appeal, have admitted t h a t our d e c i s i o n i n Johnson v. Furgeson, 158 Mont. 170, 489 P.2d 1032, supports t h e defendant's contentions. W t h e r e held t h a t c o s t s e of depositions taken f o r t h e convenience of t h e deposing p a r t y i n marshalling h i s own c a s e must be borne by t h a t p a r t y , See a l s o Davis v. Trobough, 139 Mont. 322, 363 P.2d 727; Isman v. Altenbrand, 42 Mont. 188, 1 1 P. 849, . +..1 ~ The remahder-of d e - f e n d a n t ' s o b j e c t i o n s t o t h e c o s t s a r e e q u a l l y w e l l taken a s n o t being included w i t h i n t h e p r o v i s i o n s o f s e c t i o n 93-8618, 1947. R,C,M. It follows t h a t t h e judgment o f t h e d i s t r i c t c o u r t must b e a f f i r m e d i n p a r t and reversed i n p a r t . The judgment i s sound w i t h t h e e x c e p t i o n of t h a t element of damages d e a l i n g w i t h t h e Livingston p r a c t i c e l o s s , and t h e assessment of costs. W must t h e r e f o r e remand f o r a r e d e t e r m i n a t i o n of t h e e amount o f damages a r i s i n g from t h e l o s s on t h e s a l e of t h e Livingston b u s i n e s s , Judgment should be t h e n e n t e r e d r e f l e c t - i n g t h a t amount, and c o s t s should be awarded i n a n amount cons i s t e n t w i t h t h i s opinion. Justice W concur: e , "-9 . (6. i - * - - - - -L - - - - ~ s - 4 - * - b ~ - - - L L ~ J - L h ~ - ~ - - - - - - - - - - k ' r . s i t t i n g i n p l a c e of M r . Chief J u s t i c e James T, Harrison.

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