Norsal Exports, LTD v Synergy Microwave Corp.
Annotate this CaseDecided on August 4, 2004
District Court, Nassau County
NORSAL EXPORTS, LTD, Plaintiff(s)
against
SYNERGY MICROWAVE CORP., Defendant(s)
19050/03
Kushnick & Associates, attorneys for plaintiff: Weinberg & Kert, LLP, attorneys for defendant.
David A. Gross, J.
Plaintiff commenced this action to recover Fourteen Thousand One Hundred Eighty Four and 28/100 ($14,184.28) Dollars previously paid to the Defendant for forty-four (44) IQ Modulator Units. Defendant counterclaimed for payment on an outstanding invoice of Five Thousand One Hundred Fifty-Nine and 82/100 ($5,159.82) Dollars, which reflects the balance due on sixteen (16) IQ Modulator Units delivered and accepted by the Plaintiff.
The following details of the transaction were discerned at trial:
Plaintiff, NORSAL EXPORTS, LTD. (hereinafter "NORSAL") is in the business of receiving engineering requirements and specifications from its customers and building or having third parties build those products. In the instant matter, NORSAL received specifications for sixty (60) IQ Modulator Units (hereinafter the "60 UNITS") from Mitron, a Hong Kong Company. Thereafter, NORSAL contacted the defendant, SYNERGY MICROWAVE CORP. (hereinafter "SYNERGY"), a manufacturer of signal processing components for the telecommunications industry, and ordered construction of the 60 UNITS according to the specifications provided to NORSAL from Mitron. SYNERGY built and shipped the 60 UNITS to NORSAL in two shipments.
On or about September 20, 2000, Synergy delivered forty-four (44) IQ Modulators (hereinafter the "44 UNITS") to NORSAL. Thereafter, on or about October 1, 2000, NORSAL shipped the 44 UNITS to MITRON. After receipt, Mitron informed NORSAL that it was rejecting the 44 UNITS because the "output impedance" failed to adhere to the previously provided specifications. NORSAL, in turn, informed SYNERGY of the "output impedance" problem. SYNERGY decided to test the sixteen (16) IQ Modulators (hereinafter the "16 UNITS") which were yet to be delivered and found a problem with the output impedance level.
On or about December 15, 2000, SYNERGY authorized the return of the previously shipped [*2]44 UNITS. While waiting for the return of those units, SYNERGY corrected the output impedance on the 16 UNITS and, on or about December 12, 2000, shipped these to NORSAL, who shipped them to its customer, Mitron. Subsequently, SYNERGY received and repaired the 44 UNITS and shipped the repaired 44 UNITS to NORSAL with test date showing that all 60 UNITS now worked properly. On or about February 16, 2001, Mitron received the repaired 44 UNITS from NORSAL. Upon receipt of the repaired 44 UNITS, Mitron had all 60 IQ Modulators.
It was not until on or about March 5, 2001, that Mitron claimed there was another problem "the phase problem". Thereafter, NORSAL notified SYNERGY of the phase problem and requested that SYNERGY provide them with a return to manufacturer authorization for the 60 UNITS. Since, SYNERGY had manufactured 61 IQ modulators and, therefore, had one remaining in stock, SYNERGY tested this sixty-first unit and those tests revealed that the "phase" was within contract specifications, and thus, there was no phase problem.
Thereafter, SYNERGY contacted the end customer and requested that one IQ Modulator be returned for testing, but that was never done. Subsequently, SYNERGY was informed by NORSAL that the end-customer had procured similar units from a different supplier at one-third of the original cost and, consequently, no longer needed the 60 UNITS manufactured by SYNERGY. NORSAL attempted to return the 60 UNITS without a return to manufacturer authorization, and, SYNERGY refused to accept them, because SYNERGY had delivered all 60 UNITS according to contract specifications.
During the course of the trial two important issues were raised and counsel for the parties were directed to prepare post-trial memorandum of law regarding these issues. The first was whether Plaintiff's Exhibits 4 and 5, concerning test results obtained by Mitron were admissible. The answer to this question bears directly upon whether defendant's motion for a directed verdict, which decision this court reserved, should be granted or denied.
The second issue was whether the Plaintiff properly rejected the 60 UNITS within the requirements of Article 2 of the Uniform Commercial Code.
1.During trial of the matter, NORSAL offered into evidence Plaintiff's Exhibit 4 and 5 — test results proffered to establish that the 60 UNITS did not meet contract specifications — as Business Records exceptions to the Hearsay rule. The court allowed the Test results subject to it's review of the parties' post-trial memorandum of law on the issue presented. After careful review this court finds that these exhibits should have been excluded as hearsay evidence because they do not fall under the business records exception — CPLR § 4518.
Hearsay evidence, an out of court statement offered into evidence to prove for the truth of the matter asserted, is inadmissible unless it qualifies for an exception to the Hearsay rule. In the case at bar, Plaintiff's Exhibits 4 and 5 were being offered to show that the tests results confirmed Plaintiff's assertion that the 60 UNITS did not conform to contract specifications and, consequently, that there was a breach of contract and a proper ground for rejection of the 60 UNITS. In other [*3]words, these Exhibits were being offered for the truth of the statements contained within the documents. NORSAL characterized these test results as admissible under the business records exception.
CPLR § 4518 entitled "Business Records" provides in pertinent part:
"(a) Generally. Any writing or record, whether in the form of an entry in a book or otherwise, made as a memorandum or record of any act, transaction, occurrence or event, shall be admissible in evidence in proof of that act, transaction, occurrence or event, if the judge finds that it was made in the regular course of any business and that it was the regular course of such business to make it, at the time of the act, transaction, occurrence or event, or within a reasonable time thereafter."
The essence of the business records exception to the hearsay rule is that "records systematically made for the conduct of business as a business are inherently highly trustworthy because they are routine reflections of day to day operations and because the entrant's obligation is to have them truthful and accurate for purposes of the conduct of the enterprise." See Garsite Products, Inc. v. Arthur Young & Company, 1989 N.Y. Misc. Lexis 893, 16 (Sup. Ct. N.Y. 1989). In Garsite, the court precluded introduction of a memorandum prepared by defendant's employee which was only a memory of conversations the employee was not privy to between two other individuals regarding the plaintiff. See id. at 15. The Court held that the memoranda cannot be described as a "routine" reflection of the employee, because he was recording something somebody else told him. There was nothing to reveal how or if the defendant checked the truth or accuracy of the employee's recollection and report. See id. at 16. Similarly here, the accuracy of the test results introduced by SYNERGY, which detail information that passed between Mitron's customer and their testing agent, lack the same reliability — NORSAL did not verify the accuracy of the test results and they are only recordings of information obtained from other parties.
In order to satisfy the business records exception to the rule against hearsay, testimony must be given that the test results were made in the regular course of business and that it was the regular course of that business to make it at the time of the act or at a reasonable time thereafter. See W v. A., 449 N.Y.S.2d 886 (Fam.Ct. 1982) (holding that HLA test results were not admissible because no witness testified to establish a proper foundation for the evidence). In the instant case it is undisputed that NORSAL did not test the 60 UNITS and there was no testimony that these from an individual at Mitron, that these exhibits were made in the regular course of business or that it was the regular course of Mitron's business to make such a letter detailing the test results. Moreover, it is incredulous to allow a representative of NORSAL (hereinafter "Plaintiff's witness") to testify as to what the regular course of Mitron's business is and whether or not the Exhibits were prepared in the regular course of Mitron's business.
Additionally, for test results to be admissible into evidence, there must be foundational evidence that the equipment performing the test was in proper working condition when the test was administered, that the equipment and materials used were of the proper kind and in the proper proportion, and that the tests were considered to be scientifically reliable. See generally [*4]People v. Gower, 42 N.Y.2d 117, (1977) (holding that a foundation is required for test results to be admissible into evidence); People v. Garneau, 507 N.Y.S.2d 931, 934 (4th Dept. 1986) (refusing to allow Breathalyzer test results into evidence because there was no foundation that the test was properly administered); Brown v. Murphy, 348 N.Y.S.2d 777, 778 (1st Dept. 1973) (barring evidence of laboratory test results on urine); People v. Randolph, 600 N.Y.S.2d 331, 332 (3d Dept. 1993) (holding laboratory test result introduced to establish that defendant testified positive for cocaine use was inadmissible hearsay evidence). In the case at bar, Plaintiffs offered Exhibits lacked the proper foundational evidence requirements.
Plaintiff's witness testified to the fact that NORSAL did not perform the tests and, moreover, lacked the facilities and equipment to perform the tests. In fact, Mitron had resold the 60 UNITS to its customer, the end-user. Plaintiff's witness further testified that Mitron did not even perform the actual testing because they do not have the testing facilities. In fact, Plaintiff testified that he believed that either Mitron's customer did the testing or the customer hired an independent third party to do the testing. Additionally, Plaintiff's witness admitted that the equipment which would be used to test the IQ Modulators had to be calibrated, and, therefore, if the equipment was not calibrated properly then the test results would yield false and erroneous results. Consequently, based on the testimony and precedential case law, the reliability of the test results themselves are seriously brought into question and provide a sound basis for rejecting the proffered Exhibits as hearsay evidence.
Permitting Plaintiff's witness to testify as to these results would be similar to the error that occurred in Brown v. Murphy. 348 N.Y.S.2d 777 (1st Dept. 1973). In that case, the Appellate Division held that it was error for an individual to testify about conversations he had with the chemist who prepared certain lab reports including the nature of the tests and that the chemist stated that the tests were considered conclusive. See id. at 779. In the case at bar, Plaintiff's witness was essentially permitted to testify that he had conversations with Mitron about the test results that someone else performed, the nature of those tests and that they were conclusive that the 60 UNITS failed to conform to contract specifications. See also, People v. Randolph, at 332 (holding it was improper for laboratory results and the testimony of defendant's probation officer that the results were positive to be submitted into evidence to support the charge that the defendant tested positive for cocaine use). Plaintiff's Exhibits 4 and 5 were test results obtained by a third party, with neither an indication of who tested them, the nature of the equipment used to test them, the qualifications of the individuals who performed the test, nor under what circumstances the tests were conducted.
Defendant Synergy further argues that, if the test results may not be considered, it should be entitled to a directed verdict on the theory that there was no credible evidence upon which the Court could conclude that, once the 60 UNITS were re-received, there was a reasonable basis (defect) on which to premise either rejection or breach of contract. This court agrees that the truth of the matter asserted within Exhibits 4 and 5 forms the entire basis of NORSAL's case, and based on the foregoing, the Court must grant Norsal's motion for directed verdict in the Defendant's favor at the close of the Plaintiff's case. [*5]
With respect to synergy's counterclaim, SYNERGY argues that it's test results, evidencing that the 60 UNITS properly conformed to contract specifications, were properly admitted into evidence, that SYNERGY provided testimony as to the circumstances of the testing, what was tested, the type of equipment that was used and that the machines were properly calibrated, and that consequently, the only proven conclusion at trial was that SYNERGY delivered all 60 UNITS according to contract specifications. Based on the foregoing, SYNERGY is entitled to judgment in its favor in the amount of Five Thousand One Hundred Fifty-Nine and 82/100 ($5,159.82) Dollars, which reflects the balance due on sixteen (16) IQ Modulator Units delivered and accepted by the Plaintiff.
2.
Alternatively, even if the court found Plaintiff's Exhibits 4 and 5 to fit within the business records exception, this court none-the-less finds in Defendant's favor because NORSAL failed to properly utilize its remedy of rejection under the UCC Article 2, and therefore NORSAL accepted the 60 UNITS and is liable to SYNERGY for the full purchase price of the goods sold and delivered.
Upon delivery and acceptance of the 16 UNITS in December of 2000, and delivery and acceptance of the repaired 44 UNITS in late January, 2001, which corrected the output impedance problem, NORSAL accepted all 60 UNITS, and is liable to SYNERGY for the remaining invoiced amount of Five Thousand One Hundred Fifty-Nine and 82/100 ($5,159.82) Dollars. Moreover, since NORSAL failed to prove any non-conformity with the 60 UNITS, as detailed supra because the test results are inadmissible hearsay, the weight of the credible evidence suggests that there was no basis on which to reject the 60 UNITS. Henceforth, the Court should only address the issue of whether or not NORSAL properly rejected the 60 UNITS if and only if it concludes that the 60 UNITS shipped by SYNERGY were non-conforming goods. Notwithstanding, it is submitted that pursuant to the guidelines established by Article 2 of the Uniform Commercial Code, NORSAL failed to effectively reject either the 16 UNITS shipped in December, 2000, or the delivery of the repaired 44 UNITS in January, 2001.
UCC § 2-601 entitled "Buyer's Rights on Improper Delivery" provides in pertinent part that "if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may: (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest." UCC § 2-602 further clarifies the manner and effect of rightful rejection, it provides in pertinent part as follows: "(1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. [Further] (a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller."
NORSAL did not provide seasonable notice to SYNERGY of rejection and, further, exercised ownership over the 60 UNITS which precluded rejection. Notice of any problems, defects, or non-conformity with the 60 UNITS did not occur until after all 60 UNITS were shipped to NORSAL, sometime in March, 2001 - nearly three months after delivery of the [*6]contracted for items commenced. Consequently, any problems relative to the "phase problem" could have been discovered sooner if tests had been performed on those units when received by NORSAL. See Shokai Far East Ltd. v. Energy Conservation Systems, Inc., 628 F. Supp. 1462 (1986) (notice of rejection of capacitors was not timely since several months passed since seller had begun shipping capacitors); Dailey Mills v. State, 104 N.Y.S.2d 31 (Sup.Ct. 1951) (hold that letter of rejection sent 45 days after goods were received was unreasonable delay); Milz & Cie v. Bloomfield, 262 N.Y.S. 580 (Sup.Ct. 1932) (holding that buyers retention of goods for 36 days after delivery and 3 weeks after inspection constituted acceptance of the merchandise). The failure to make a proper rejection and seasonably notify SYNERGY constitutes acceptance of the 60 UNITS by NORSAL. See UCC § 2-606(1)(b).
Assuming arguendo that the Court concluded that seasonable notice was given to SYNERGY, NORSAL's rejection was also improper because NORSAL's acted a manner inconsistent with SYNERGY's ownership. UCC § 2-606(1)(c) provides that any act inconsistent with the seller's ownership, constitutes acceptance. See UCC §2-606(1)(c). NORSAL's resale of the 60 UNITS to Mitron constituted an act inconsistent with the seller's ownership. See Gem Source Ltd. v. Gem Works N.S., LLC, 685 N.Y.S.2d 682 (1st Dept. 1999); Sunkyong America, Inc. v. Beta Sound of Music Corp., 605 N.Y.S.2d 62 (1st Dept. 1993) (holding that buyer's resale of goods to its customers constituted acceptance as an act inconsistent with seller's ownership); Reichbart v. Smith Eisemann Corporation of America, 210 N.Y.S. 414 (1st Dept. 1925) (negotiating resale constituted acceptance); Kienle v. Klingman, 53 N.Y.S. 788 (Sup.Ct. 1898) (resale of goods was an act inconsistent with seller 's ownership and constituted acceptance). In Gem Source Ltd. the Appellate Division concluded that the act of a manufacturer reselling diamonds received from a supplier, extinguished any objection the manufacturer may have had to its receipt of diamonds. The resale of the diamonds was an act inconsistent with the supplier's ownership of the diamonds and constituted acceptance by the manufacturer. See id. Similarly, NORSAL's resale of the 60 UNITS to Mitron was an act inconsistent with SYNERGY's ownership. NORSAL's resale constituted acceptance.
CONCLUSION
Based on the foregoing, the Defendant is entitled to a judgment dismissing the complaint in its entirety and judgment on its counterclaim in the amount of Five Thousand One Hundred Fifty-Nine and 82/100 ($5,159.82) Dollars.
This constitutes the decision and order of this Court.
So ordered:
________________________
DISTRICT COURT JUDGE
Dated: August 4, 2004
CC:Kushnick & Associates(Attorneys for Plaintiff)
[*7]
Weinberg & Kert, LLP (Attorneys for Defendant)
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