A & A MECHANICAL, INC. v. THERMAL EQUIPMENT SALES, INC.
Annotate this Case
Download PDF
RENDERED:
July 23, 1999; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-000807-MR
A & A MECHANICAL, INC.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NO. 1994-CI-000557
v.
THERMAL EQUIPMENT SALES, INC.
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, HUDDLESTON, AND KNOPF, JUDGES.
KNOPF, JUDGE:
In 1992 the University of Kentucky (UK) undertook
the renovation of some of the laboratory buildings on its
Lexington campus.
It awarded a contract for work on the
laboratories’ ventilation systems to A & A Mechanical, Inc.
(A&A), the appellant.
A&A in turn subcontracted with the
appellee, Thermal Equipment Sales, Inc. (TES), which was to
supply A&A with duct work and other materials.
In April 1994,
TES sued A&A for the alleged breach of their agreement, and by
order entered March 24, 1998,1 the Franklin Circuit Court awarded
1
The March 24 order completed the proceedings by
(continued...)
TES damages and attorney fees.
Insisting that the trial court
misconstrued, factually and legally, its agreement with TES, A&A
appeals.
We affirm.
In January 1993, during the bidding phase of UK’s
renovation project, TES sent a price list to A&A that included,
among other prices, a quote of fifty-three thousand seventy-four
dollars ($53,074.00) plus tax, for approximately nineteen
thousand pounds (19,000 lbs.) of PVC coated duct and fittings and
five hundred pounds (500 lbs.) of PVC coated “radioisotope stack
and fittings.”
Soon thereafter, in February 1993, UK awarded the
ventilation contract to A&A, and A&A in turn sent a purchase
order to TES that provided in part as follows:
Provide per plans, specs, addenda 1 and 2 and
alternates 1 and 2 all round PVC coated
ductwork and fittings including the
radioisotope stack and fittings as found in
but not exclusively in spec section 15810 for
a total lump sum price of 53,074. [plus] Tax
3,184. [total] 56,238.
A sales representative of TES and A&A’s project manager then met
to discuss ordering and shipping details.
They agreed that A&A
would order specific sections of duct work as its needs became
known, but would attempt to allow sufficient lead time for
manufacturing.
During the course of their discussion, the two
(2) men realized that each had based his estimate of the quantity
of duct work that would be required on plans prepared by UK’s
1
(...continued)
establishing the amount of TES’s attorney-fee award. That order
incorporated by reference a February 17, 1998 judgment, following
a bench trial, that declared A&A’s liability for both damages and
fees. A&A appeals from both the judgment of liability and the
determination of the fee award.
-2-
engineers and that the estimates were in close agreement.
Both
were aware, moreover, that this was a rehabilitation project and
so was certain to require some deviation from the plans in order
to accommodate pipes, wiring, and other fixtures the plans did
not represent.
A&A ordered duct work in May, July, and October 1993.
TES passed the orders along to its manufacturer, who shipped the
goods directly to A&A and billed TES.
A&A.
TES apparently then billed
Following completion of the second order and shipment, A&A
had been billed and had payed slightly less than forty thousand
dollars ($40,000.00).
In the course of sending A&A’s third order
to the manufacturer, TES realized that the order would exhaust
and slightly exceed the fifty-six thousand dollar ($56,000.00)
total price provided for in the purchase agreement.
Concerned,
TES contacted A&A to find out how near completion the project
was.
A&A then, in November and December 1993, prepared a fourth
order listing its remaining requirements.
That order, TES
calculated, would add nearly nineteen thousand dollars
($19,000.00) to the estimated total cost of the duct work.
TES
thereupon informed A&A that it would not fill the fourth order
without additional payment.
In response, A&A insisted that its
fourth order was contemplated by the original contract and
demanded that TES supply the remaining goods.
The ensuing
stalemate culminated in A&A’s obtaining duct work to complete
the project from a third party and TES’s filing suit.
Referring to both TES’s bid sheet and A&A’s purchase
order, the trial court ruled that the agreement between TES and
-3-
A&A was for a definite quantity of duct work at a definite total
price.
It found that, ultimately, the project required
significantly more goods than had been agreed upon, and concluded
that TES had fully performed and was entitled to recover the
balance of the full contract amount.
It further concluded that
A&A’s withholding payment for goods it had received justified
TES’s decision to cease performing.
A&A takes issue with each of
these propositions, but for the reasons discussed below, we are
not persuaded that the trial court misconceived this agreement.
We begin our discussion by noting that this case was
tried by the circuit court sitting without a jury.
It is before
this Court upon the trial court’s findings of fact and
conclusions of law and upon the record made in the trial court.
Accordingly, appellate review of the trial court's findings of
fact are governed by the rule that such findings shall not be set
aside unless clearly erroneous.
Ky., 643 S.W.2d 261 (1982).
CR 52.01; Largent v. Largent,
The trial court's conclusions of
law, however, including its interpretation of the written
contract, are subject to independent appellate determination.
Morganfield National Bank v. Damien Elder & Sons, Ky., 836 S.W.2d
893 (1992).
As the parties correctly observe, the supply contract
at issue was a contract for the sale of goods and so is governed
by Article Two of the Uniform Commercial Code (UCC), adopted in
Kentucky effective as of July 1, 1960, at KRS Chapter 355.2.2 To
2
As defined in KRS 355.2-105,
“Goods” means all things (including
(continued...)
-4-
further its goal of encouraging and simplifying commercial
transactions, the UCC is more liberal than was the common law in
permitting open terms in a sales contract and in not requiring
complete certainty or definiteness.3
Under the code, even when
certain terms are left open (such as those relating to price,
time, and delivery), a contract for the sale of goods does not
fail for indefiniteness or lack of mutuality if the parties have
intended to make a contract and there is a reasonably certain
basis for granting appropriate relief.
KRS 355.2-204(3).
The
requirement that there be a basis for relief, however,
necessitates that the contract provide a quantity term, for
without such a term that basis is lacking.
David J. Leibson and
Richard H. Nowka, The Uniform Commercial Code of Kentucky, n. 201
at 74 (2d ed. 1992 & Supp. 1998).
2
But, as A&A correctly
(...continued)
specially manufactured goods) which are
movable at the time of identification to the
contract for sale other than the money in
which the price is to be paid, investment
securities (Article 8) and things in action.
“Goods” also includes the unborn young of
animals and growing crops and other
identified things attached to realty as
described in the section on goods to be
severed from realty (KRS 355.2-107).
“Sale” and “Contract for sale” are defined in KRS 355.2-106:
“Contract for sale” includes both a
present sale of goods and a contract to sell
goods at a future time. A “sale” consists in
the passing of title from the seller to the
buyer for a price (KRS 355.2-401).
3
See in general, David J. Leibson and Richard H. Nowka, The
Uniform Commercial Code of Kentucky (2d ed. 1992 & Supp. 1998).
-5-
observes, the quantity term need not be fixed.
Code section
2-306(1) (KRS 355.2-306(1)) provides that the quantity term may
be measured by the output of the seller or the requirements of
the buyer:
A term which measures the quantity by the
output of the seller or the requirements of
the buyer means such actual output or
requirements as may occur in good faith,
except that no quantity unreasonably
disproportionate to any stated estimate or in
the absence of a stated estimate to any
normal or otherwise comparable prior output
or requirements may be tendered or demanded.
There is no dispute in this case that the parties
intended to make a contract.
The question is whether they
arrived at terms sufficiently definite to permit enforcement.
A&A maintains that they did, and claims that the terms should be
gleaned exclusively from its purchase order.
Its reasoning is
not entirely clear, but it seems to argue that TES’s bid sheet
either was not an offer because it was only an invitation, or, if
TES’s bid was an offer, that its own purchase order amounted to a
counter-offer, which became an integration upon TES’s acceptance.
In either case, A&A insists that its purchase order is a writing
intended to summarize the bargain, and thus that the trial court
erred by appealing to circumstantial evidence to alter the terms
of the purchase order.
Those terms, A&A claims, were a fixed
price (some $56,000.00) in exchange for all the PVC coated duct
work required to complete the job.
Article Two of the UCC has retained a parol evidence
rule, KRS 355.2-202, but the rule applies only to writings or
memoranda clearly “intended by the parties as a final expression
-6-
of their agreement with respect to such terms as are included
therein . . . .”
Even when the rule does apply, the final
writing
may be explained or supplemented
(a) by course of dealing or usage of trade
(KRS 355.1-205) or by course of performance
(KRS 355.2-208); and
(b) by evidence of consistent additional
terms unless the court finds the writing to
have been intended also as a complete and
exclusive statement of the terms of the
agreement.
We are not persuaded that the trial court misapplied the parol
evidence rule in this case.
A principal purpose of the UCC is to lower transaction
costs by permitting covered parties to rely on certain objective
standards of fair and reasonable dealing.
355.1-203.
KRS 355.1-102; KRS
Parties wishing to disclaim UCC provisions may, to a
limited extent, do so, but deviations from the Code and from the
presumptions underlying it should be clearly expressed.
KRS
355.1-102(3); Kentucky Utils. Co. v. South E. Coal Co., Ky., 836
S.W.2d 392 (1992).
One such presumption is that, in the absence
of a writing clearly intended to exclude it, a trial court may
consider evidence of circumstances surrounding the agreement-particularly with respect to related writings, course of dealing,
course of performance, and usage of trade--to explain and
supplement, but not to contradict, the agreement’s written terms.
KRS 355.1-205; KRS 355.2-204; KRS 355.2-208.
In determining the quantity term of this agreement, the
trial court referred to TES’s bid sheet as well as to the
parties’ course of performance and other surrounding
-7-
circumstances.
The bid sheet specified a particular quantity of
duct work, expressed in pounds, and a particular price.
The
trial court understood the inclusion in A&A’s purchase order of
TES’s exact price to be a sufficient reference to the bid sheet
to incorporate its quantity term as well.
In disputing this finding, A&A notes that the reverse
side of its purchase-order form included the following merger
clause:
The entire agreement between the parties
consists of this Purchase Order and any
documents incorporated by reference as stated
herein and no other acceptance or
acknowledgement [sic] or other conditions
will apply. Amendments, if any, will be made
in writing by mutual agreement only and must
be signed by both parties.
A&A maintains that this clause precludes reference to TES’s bid
sheet and that, without such reference, the purchase order must
be construed as calling for an unlimited quantity of duct work,
that is, all the duct work required to complete the job.
We do
not agree that reference to the bid sheet and other circumstances
was precluded.
As A&A correctly notes, the standard method to
integrate an agreement and thus to limit the relevance of
surrounding circumstances is to include a merger clause in the
final writing.
It has been held, however, that, even a merger
clause, to overcome the UCC’s presumption in favor of the
admissibility of course of dealing, course of performance,
and
usage of trade evidence, must expressly refer to such evidence.
Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3 (4th Cir.
1971); Liebson and Nowka, The Uniform Commercial Code of
-8-
Kentucky, 2nd ed. at 52 (1992).
Without such a requirement,
merely formal merger clauses, such as A&A’s here, could easily
frustrate the Code’s policy of encouraging the enforcement of
relatively informal agreements.
We are not persuaded that the trial court misapplied
A&A’s merger clause.
First, by its own terms the clause
contemplates the incorporation of other writings clearly
identified in the purchase order.
We agree with the trial court
that TES’s bid sheet was so identified.
Furthermore, the clause
does not expressly preclude consideration of evidence tending to
show course of dealing, course of performance, or usage of trade,
and thus does not overcome the presumption that such evidence may
be considered.
The trial court did not err, therefore, by
construing the contract in light of standard practices in the
industry and in light of A&A’s contract with UK.
A&A’s pre-Code
authority suggesting that the presumption should work the other
way (i.e. that an integration should be presumed from the
existence of the writing unless the writing clearly indicates a
contrary intent), has been superseded by the Code.
A&A further maintains that TES’s bid sheet was not an
offer.
Whether a supplier or sub-contractor’s price quotation is
an offer or merely an invitation to offer is a question of fact
to be determined from the terms of the quotation and the
circumstances.
Cannavino & Shea, Inc. v. Water Works Supply
Corp., 280 N.E.2d 147 (Mass. 1972) (supplier’s price list sent to
several potential contractors deemed a solicitation); Earl M.
Jorgenson Co. v. Mark Constr., Inc., 540 P.2d 978 (Haw. 1975)
-9-
(steel supplier’s signed bid sheet upon which contractor based
its own bid for highway contract deemed an offer).4
Here, TES’s
quotation was not a general list of prices, but was addressed to
the particular project at UK.
In addition, TES’s bid sheet was
signed, indicating a firm commitment to the stated price and
quantity for the duration of the bidding period.
KRS 355.2-205.
The trial court did not clearly err by finding that this bid
sheet was an offer.
A&A contends that, even if TES’s bid was an offer, its
own purchase order amounted to a counter-offer rejecting TES’s
fixed quantity term and substituting a “requirements” term as
that word is used in KRS 355.2-306.
The trial court rejected
this construction and held instead that the contract was for the
quantity of duct materials specified in TES’s bid sheet.
Under the common law, an acceptance would not give rise
to a contract unless it mirrored the terms of the offer; any
significant deviation operated as a rejection and counter-offer.
Restatement (Second) of Contracts § 59 (1981).
To further its
policy of encouraging and simplifying contract formation, the UCC
significantly alters this rule.
KRS 355.2-207, Additional terms
in acceptance or confirmation, provides as follows:
4
A primary purpose of the UCC is to foster a consistent
commercial law among the different states. KRS 355.1-102(2)(c).
It behooves us, therefore (courts and practitioners), to become
acquainted with business practices and Code interpretations in
jurisdictions other than our own. Foreign authority remains nonbinding, but the Code’s goal of consistency enhances that
authority’s persuasiveness. But see, Ditch Witch Trenching
Company of Kentucky v. C&S Carpentry Services, Inc., Ky. App.,
812 S.W.2d 171 (1991).
-10-
(1) A definite and seasonable expression of
acceptance or a written confirmation which is
sent within a reasonable time operates as an
acceptance even though it states terms
additional to or different from those offered
or agreed upon, unless acceptance is
expressly made conditional on assent to the
additional or different terms.
(2) The additional terms are to be construed
as proposals for addition to the contract.
Between merchants such terms become part of
the contract unless:
(a) The offer expressly limits acceptance to
the terms of the offer;
(b) They materially alter it; or
(c) Notification of objection to them has
already been given or is given within a
reasonable time after notice of them is
received.
(3) Conduct by both parties which recognizes
the existence of a contract is sufficient to
establish a contract for sale although the
writings of the parties do not otherwise
establish a contract. In such case the terms
of the particular contract consist of those
terms on which the writings of the parties
agree, together with any supplementary terms
incorporated under any other provisions of
this chapter.
Again, the difference between the UCC’s approach and that of the
common law is largely a matter of initial presumptions.
Under
the Code, an acceptance is presumed to be an acceptance of the
offer as made, and the inclusion of additional terms in the
acceptance is presumed not to negate the original offer, but to
supplement it.
If the offeree’s intention is to reject the offer
and to make a counter-offer, this intention should be clearly
expressed.
Consolidated Aluminum Corp. V. Krieger, Ky. App., 710
S.W.2d 869 (1986).
The offeree’s silence with respect to an
offered term is not sufficient to reject or to modify it.
M. Jorgensen Co. v. Mark Construction, Inc., supra.
Earl
The trial
court did not err, therefore, by ruling that A&A’s silence with
-11-
respect to the quantity offered in TES’s bid sheet did not change
the agreement from one for a fixed quantity of duct materials to
one for A&A’s requirements.
Even if the agreement were a requirements contract
under KRS 355.2-306, moreover, A&A would not be entitled to
relief.
As noted above, KRS 355.2-306 restricts the quantity
term of a requirements contract to an amount not “unreasonably
disproportionate to any stated estimate . . . .”
A&A admits,
however, that TES’s initial estimate, based on the plans provided
by UK’s engineers, was reasonable.
It further admits that the
quantity actually required for the project was at least twentynine percent (29%) more than had been estimated.5
This is
clearly an unreasonable deviation from the stated estimate.
Cf.
Lowder v. North Carolina State Highway Commission, 217 S.E.2d 682
(N.C.App. 1975) (holding that fifteen percent (15%) is a
significant variation of a major contract term); The State of
Washington, Dept. of Fisheries v. J-Z Sales Corporation, 610 P.2d
390, 394 (Wash.App. 1980) (observing that, “[i]t has been held as
a matter of law that a demand for goods in excess of 20 percent
over the offeree's estimate is ‘unreasonably disproportionate’”).
A&A’s demand for extra performance would thus not be supported by
KRS 355.2-306 even were that provision to apply.
We also observe that the supply contract at issue here
is not the sort of contract ordinarily thought of as a
requirements contract under KRS 355.2-306.
5
Requirements
$17,000.00, A&A’s expenditure for “extra” duct work,
divided by $57,000.00, the original estimate, times 100%.
-12-
contracts generally arise in situations where a unit price can be
determined but the total quantity of units cannot.
Even in that
situation, the obligation to supply or to buy units is not
unlimited, but is subject to the notion of “reasonable
proportion.”
See Empire Gas Corporation v. American Bakeries
Company, 840 F.2d 1333 (7th Cir. 1987) (discussion by Judge
Posner).
Here, there was no attempt to establish a unit price to
which both parties were willing to commit themselves.
Instead,
the agreement contemplated a total price for a given quantity of
duct work, which both parties believed was a reasonable estimate
of the quantity required for the project.
Both parties also
recognized that the quantity ultimately required was apt to
exceed the estimate, but this contingency was addressed by the
provision in A&A’s contract with UK allowing for additional
payment for “extra” materials and labor.
Such provisions have become a common manner of
organizing construction projects, which frequently require
preliminary estimates of hard-to-determine conditions.
Catapano
Co., Inc. v. City of New York, 455 N.Y.S.2d 144 (1980); but see
Dravo Corporation v. Commonwealth, Department of Highways, Ky.
App., 564 S.W.2d 16 (1977) (holding that, in light of owner’s
explicit disclaimer, construction contractor could not rely upon
owner’s estimate without assuming the risk that such estimate
would prove inaccurate).
These provisions typically require the
contractor, during the course of performance, to call the owner’s
attention to situations the contractor believes to be “extra” so
that the owner can determine if, in its judgment, the situation
-13-
really is outside the contract, and if so how to address it.
Allowing thus for adjustments of the contract in light of the
actual conditions encountered obviates both expensively detailed
pre-contract estimates and high, ‘worst case’, bids.
supra.
Catapano,
It places the risk of extra expense on the owner, who
should bear it since he is the one benefitting from the extra
labor and materials, but at the same time affords the owner
protection against the contractor’s fraud or inefficiency.
This
is clearly the arrangement under which both A&A and TES
understood themselves to be operating.
A&A’s project manager testified that during the early
stages of the installation he realized that he was consuming more
duct work than had been projected because the ducts frequently
had to detour around pipes or other obstacles the plans did not
include.
He was also aware that A&A’s contract with UK permitted
him to request additional compensation for “major” additions to
the contract.
Nevertheless, he did not request additional
compensation from UK for the extra duct work because he judged
most of the reroutings “minor,” and concluded that the aggregate
of such “minor” alterations would also be “minor.”6
When TES
finally realized what had happened and demanded additional
compensation, A&A belatedly brought the matter before UK’s
supervising engineer, who denied A&A’s request for additional
funds on the ground that A&A had not abided by the contract’s
notice provisions.
A&A thereupon took the position vis-a-vis TES
6
Logicians refer to such invalid inferences from parts to
whole as the fallacy of composition: Because the atoms of this
book are invisible, the book must be invisible.
-14-
that the additional duct work had been deemed a “minor” extra
under the contract and thus was non-compensable.
If, somehow, TES’s claim had arisen despite its extra
performance having been properly submitted to UK for approval, it
is at least conceivable that A&A would have been entitled to rely
upon UK’s denial as a defense against TES.7
Having compromised
TES’s claim, however, by independently deciding that no
additional compensation was due for the extra materials, A&A will
not now be permitted to shield itself behind UK’s decision, a
decision apparently not based on the claim’s merits.
the basis of TES’s estimate.
A&A knew
Under its duty to deal with TES in
good faith, A&A was not entitled substantially to exceed that
estimate without either seeking additional compensation from UK
or providing additional compensation itself.
The trial court did
not err by so concluding.
In addition to slightly less than twenty thousand
dollars ($20,000.00) in damages, the trial court awarded TES
attorney fees in excess of fifty-five thousand dollars
($55,000.00).
The fee award was made pursuant to the following
provision of A&A’s purchase order:
It is agreed by Vendor and Contractor that
. . . [i]n the event an action is brought
7
The trial court, noting that the purchase order did not
include a “pay when (or if) paid” clause, seems to have reasoned
that UK’s response to claims for “extras,” whether those claims
were timely or otherwise and whether the response was on the
merits of the claim or not, could have no bearing on A&A’s
liability to TES. We are uncomfortable with that proposition,
but because A&A did not make a timely claim for the extra duct
materials and because UK did not decide the merits of TES’s
claim, the question is not before us, and we therefore decline to
address it.
-15-
to enforce the provisions of this Purchase
Order, the prevailing party shall be
entitled to recover its costs of suit and
reasonable attorney’s fees.
A&A maintains that the fee award is excessive.
As a general rule, the amount of an attorney-fee award
is a matter entrusted to the discretion of the trial court:
The trial judge is generally in the best
position to consider all relevant factors and
require proof of reasonableness from parties
moving for allowance of attorneys fees.
Cadillac Olds, Inc. v. Roberts, Ky., 813 S.W.2d 287, 293 (1991).
It is true, as indicated by the above quotation and as A&A
observes, that this discretion is not unlimited, that, in
exercising its discretion, a trial court should require parties
seeking attorney fees to demonstrate that the amount sought is
not excessive and accurately reflects the reasonable value of
bona fide legal expenses incurred.
Brown v. Fulton, Hubbard &
Hubbard, Ky. App., 817 S.W.2d 899 (1991).
fulfilled this obligation.
The trial court here
At the behest of the trial court, TES
submitted a detailed invoice (some forty-three (43) pages) of its
attorneys’ charges.
Although there is room to quibble over some
of the amounts charged, such as those for trial preparation and
post-trial briefing, the invoices adequately support the decision
of the trial court upholding the claimed fee.
If the trial
court’s determination is reasonable, the fact that there may be
other reasonable conclusions is not a sufficient basis for
overturning the award.
This litigation has continued for several
years, primarily as a result of A&A’s persistence, and has
included numerous instances of “last minute” preparation in
-16-
response to A&A’s introduction of new theories.
Although the fee
award is well in excess of the award of damages, there is no rule
requiring strict proportionality between the two.
Meyers v.
Chapman Printing Co., Inc., Ky., 840 S.W.2d 814 (1992).
The
trial court has not been shown to have abused its discretion.
In sum, the sales agreement between TES and A&A is
governed by the Uniform Commercial Code as adopted in KRS Chapter
355.
The contract contemplated a fixed quantity of duct work for
a fixed price with approval to be sought from the owner for duct
work significantly in excess of that fixed quantity.
A&A’s
failure to seek the owner’s approval when appropriate and its
refusal to pay for duct work it had received constituted a breach
of the agreement entitling TES to damages.
A&A is also liable
under the contract for TES’s reasonable attorney fees, and the
trial court’s determination of the extent of that liability was
within its discretion.
For these reasons, we affirm the March 24, 1998, order
of Franklin Circuit Court.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
H. Edwin Bornstein
Ackerson, Mosley & Yann
Louisville, Kentucky
Gregory P. Parsons and
Anne E. Gorham
Stites & Harbison
Lexington, Kentucky
ORAL ARGUMENT FOR APPELLANT:
Robert L. Ackerson
Louisville, Kentucky
ORAL ARGUMENT FOR APPELLEE:
-17-
Anne E. Gorham
Lexington, Kentucky
-18-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
