BMC Industries v. Barth Industries

Citation: 160 F.3d 1322Docket: 95-5137

Court: Court of Appeals for the Eleventh Circuit; November 18, 1998; Federal Appellate Court

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The case involves a contractual dispute between BMC Industries, Inc. and Barth Industries, Inc. regarding the design, manufacture, and installation of equipment for automating BMC's eyeglass lens production line. BMC sued Barth for breach of contract after the agreed delivery date had passed by eighteen months, prompting Barth to counterclaim for breach. BMC also claimed against Barth's parent company, Nesco, Inc., based on an alleged oral promise by Nesco to ensure Barth's performance, invoking promissory estoppel. The jury found in favor of BMC, awarding $3 million against Barth and $2.1 million against Nesco. The district court upheld the jury's verdict but denied motions from Barth and Nesco for judgment as a matter of law and for a new trial.

On appeal, the court affirmed the district court's denial of Barth's motion but found that the jury had been incorrectly instructed on contract issues, leading to a vacated judgment against Barth and a remand for a new trial. For Nesco, the court concluded that the district court should have granted judgment as a matter of law, directing dismissal of Nesco from the case. The original contract, governed by Florida law, was valued at $515,200 and required delivery of four automated production lines by June 1987, with subsequent amendments extending the deadline due to design changes.

After the second amendment to the contract, Barth faced ongoing technical issues and design challenges that led to multiple delays, but neither party extended the original delivery date of October 1987. Notably, in June 1987, Belcan identified a potential explosion risk due to equipment design, prompting Barth to revise its delivery estimate to December 1987 after redesigning the equipment. BMC's response to this schedule revision is not documented. By October 1987, Barth projected a further delay, estimating that the equipment could not be delivered until April 1988, despite BMC's eagerness to proceed with the automation project. 

In June 1988, Barth completed the delivery of four automated machines to BMC, but BMC could not fully test them without the entire production line. By August 1988, BMC's concerns about Barth's performance led to a meeting with Barth's officer, Robert Tomsich, who reassured BMC of Barth's commitment to the project and suggested future dealings with Nesco, Barth's parent company. Although BMC contemplated terminating the contract, it opted to continue collaboration with Barth, offering design suggestions and inquiring about additional funding for expedited completion.

By January 1989, Barth had not delivered a functioning automation system and had incurred over $1 million in additional costs, which BMC had previously agreed to cover. Tomsich requested $250,000 from BMC to address these overruns, but BMC only provided $100,000 while asserting its expectation for Barth to meet the revised schedule and reserving its rights for any breaches. Barth's latest delivery date was projected for June 1989, but delays persisted into spring 1989, leading to increased frustration from BMC as they continued to assist Barth’s engineers in resolving issues.

In late May 1989, Barth informed BMC that the mold assembly filling machine was complete and ready for delivery per their contract. BMC refused delivery and filed a lawsuit on June 5, 1989, which initially included fourteen counts. These counts included seven related to representations made by Barth and Nesco before and during the contract's performance, six targeting the liability of Barth’s and Nesco’s successors, and one against Barth’s directors under Delaware law. By the final pretrial conference, BMC's claims were narrowed to three: breach of contract against Barth, fraudulent misrepresentation against Barth, and promissory estoppel against Nesco.

BMC's breach of contract claim asserted that a second contract amendment set an October 1987 deadline for delivery. BMC argued that Barth's failure to meet this deadline constituted a default, seeking $6.4 million in damages. This amount included labor cost savings that BMC would have realized had the automated equipment been delivered on time, calculated over a projected ten-year lifespan, and a "working capital effect," reflecting lost investment opportunities due to higher labor costs.

In defense, Barth contended that BMC had waived the delivery deadline through its actions following the missed deadline, including encouraging Barth to continue work and agreeing to raise the purchase price. Barth also counterclaimed for breach of contract, asserting that BMC’s conduct rendered the delivery deadline indefinite and that its subsequent delivery attempt in May 1989 was timely, seeking $1.13 million in damages.

BMC's fraudulent misrepresentation claim alleged that Barth made false statements to induce BMC into signing the contract, particularly regarding its experience and ability to deliver functioning equipment per contract specifications, for which BMC sought $6.4 million in compensatory damages and additional punitive damages.

Barth asserted an affirmative defense against BMC, claiming that BMC fraudulently concealed issues in its manual lens production and misrepresented the performance of its automated equipment. Barth contended that these misrepresentations influenced its decision to enter into the Contract, thereby preventing BMC from recovering on its claims. Barth also counterclaimed for fraud, seeking compensatory and punitive damages. 

BMC's promissory estoppel claim against Nesco stemmed from an August 1988 promise by Nesco to commit resources to the project, which BMC alleged induced it to delay action on Barth’s breach, thereby making Nesco liable for the breach. Nesco countered that BMC's claim was barred by Florida's statute of frauds, as it implied an oral guarantee of a past-due debt, which must be in writing to be enforceable. 

At a pretrial conference, the district court determined that the Contract was primarily for services, thus the UCC did not apply, and Florida common law would govern. Under common law, a waiver of contract terms requires proof of detrimental reliance or consideration. The trial focused on breach of contract, fraudulent misrepresentation, and promissory estoppel. The court dismissed fraud claims from both parties due to insufficient evidence.

The jury found that Barth breached the contract and awarded BMC $3,001,879 in damages. It also determined Nesco was liable under promissory estoppel, awarding BMC an additional $2,137,453. The jury, however, ruled against BMC on Barth’s counterclaims. On appeal, Barth argued that the district court erred by not applying the UCC, which could have led to a conclusion that BMC waived the delivery date, thereby entitling Barth to damages of $1.13 million or necessitating a new trial on the breach of contract issues.

Nesco argues that BMC's promissory estoppel claim constitutes an oral guarantee of a past-due obligation, which is prohibited by the statute of frauds. Nesco asserts that the district court incorrectly denied its motion for judgment as a matter of law and requests the case be remanded for dismissal. The court's analysis reveals that the Contract is predominantly a transaction in goods, thereby governed by the UCC, rather than services. The court also finds that BMC waived the October 1987 delivery date, although there is a factual issue regarding whether Barth tendered the equipment in a reasonable time. Consequently, the judgment against Barth is vacated, and a new trial is mandated on the reasonableness of the tender. Furthermore, the court concludes that BMC’s promissory estoppel claim is indeed barred by the statute of frauds, directing the district court to rule in favor of Nesco. The district court had initially categorized the Contract as predominantly for services, which the court disputes, emphasizing that the predominant factor test should classify the transaction as one for goods. Factors such as contractual language, billing practices, and the mobility of goods are significant in this classification, supporting the assertion that the fabricated pipe is properly deemed goods under the UCC.

A Florida court determined that a contract for editing and publishing printed materials constituted a contract for goods due to the mobility of the items involved, assessed at the time they were specified in the contract. Even if materials become immobile through installation, they can still be considered "movable" under the UCC. Contracts for equipment sales and installations are often categorized as transactions in goods, while construction contracts (e.g., for pools or houses) are typically seen as service-oriented, despite involving goods such as concrete. In this case, the district court referenced the Lincoln Pulp & Paper decision, which similarly recognized a contract as primarily for services due to its design and construction obligations without distinguishing costs for materials and services. When factual disputes are absent, a court can conclude whether a contract is for goods or services as a matter of law. 

Upon reviewing the contract in question, the court found it predominantly a transaction for goods, supported by its title as “PURCHASE ORDER,” the use of "Buyer" and "Seller" terminology, and the specification of “fabrication and installation of automated equipment." The movable nature of the equipment, which Barth manufactured and planned to transport to BMC's facility upon completion, further reinforced this classification. Although BMC noted that movable goods alone do not define a contract as a goods transaction, the court distinguished this case by emphasizing that the goods were indeed movable at the time of contract identification, unlike contracts that lead to immovable fixtures.

Mobility of completed goods is a relevant factor, but not decisive in determining the nature of the Contract. The district court noted the Contract price does not distinguish between services and goods, yet it overlooked that payments are tied to the delivery of automated equipment, with BMC obligated to pay $70,050 for each equipment line delivered. If the Contract were primarily for Barth’s design and engineering services, payments would likely align with the completion of those services rather than equipment delivery. In this case, over half of the contract price, totaling $280,200, is linked to equipment delivery, contrasting with the Lincoln Pulp & Paper case, where service costs predominated.

The court’s ruling in Lincoln Pulp & Paper emphasized that a sale of specially designed equipment remains under Article 2 of the UCC, regardless of design and installation by the supplier. The significant services component in the Barth-BMC Contract stemmed from the unique nature of the machinery, which required extensive design efforts due to the absence of prior successful automation in eyeglass lens production. 

BMC's references to other cases are distinguished; Wells v. 10-X Mfg. Co. involved a contract for services where the buyer supplied most materials, while Inhabitants of the City of Saco v. General Elec. Co. pertained to a construction contract for an immobile facility, clearly identified as a service transaction. 

Having established that the UCC governs the case, the application of Article 2's waiver provision is essential. A signed agreement that excludes modifications or rescission without written consent cannot be altered otherwise, but an attempt to modify can still result in a waiver. Waiver requires: 1) the existence of a waivable right at the time of waiver; 2) knowledge of that right; and 3) an intention to relinquish it. Implied waiver may occur through conduct that contradicts the retention of the right, necessitating clear evidence of such actions.

Waiver under the Uniform Commercial Code (UCC) does not require consideration or detrimental reliance, differing from Florida common law, which mandates these elements. The contract in question included a provision that modifications must be in writing, yet the conduct of the parties may indicate a waiver of this requirement. According to UCC § 672.209, an unsuccessful modification may still lead to a waiver, which can be retracted unless the non-waiving party has relied on it. This interpretation clarifies the distinction between subsection (4), allowing for waivers without reliance, and subsection (5), which addresses retractable waivers.

In Linear Corp. v. Standard Hardware Co., a Florida court found that a contract term was waived despite a lack of demonstrated detrimental reliance, allowing for an oral modification contrary to the written requirement. This case illustrated that waiver can occur without reliance, contradicting other courts that impose such a requirement under the UCC. The leading case advocating for reliance as a condition for waiver is Wisconsin Knife Works v. National Metal Crafters, which addressed the prohibition of oral modifications, highlighting the ongoing debate regarding the interpretation of waiver under the UCC.

Judge Posner determined that UCC subsection (2), which enforces "no oral modification" provisions, would be rendered ineffective if contract terms could be waived without requiring detrimental reliance. He argued that if oral modifications deemed unenforceable by subsection (2) could nonetheless be enforced as waivers under subsection (4), then subsection (2) would lose its significance. This led him to assert that a distinction must exist between modification and waiver to give meaning to both subsections, specifically highlighting the requirement of detrimental reliance for waivers.

Despite the retailer's claim that an oral agreement from the manufacturer to repurchase unsold units at the time of the contract signing supported a waiver due to detrimental reliance, the court ruled that evidence of this agreement was excluded by the parol evidence rule, preventing it from satisfying any reliance requirement. 

The court clarified that while a modification to a contract cannot be canceled without consideration, a waiver can be unilaterally retracted with reasonable notice, underscoring the necessary difference between the two concepts. Ultimately, the court found that BMC had waived the October 1987 delivery date, as it was a waivable right of which BMC had actual knowledge and its actions indicated an intent to relinquish that right.

Judge Posner's assertion that a reliance requirement for waivers aligns with subsection (5) was countered by Judge Easterbrook, who argued that subsection (5) is narrower than subsection (4) and does not encompass express written waivers, which fall under subsection (2) as modifications. The strongest evidence of waiver was BMC's acknowledgment that Nesco assumed responsibility for the project in August 1988, after the October 1987 delivery date had elapsed.

If BMC's assertion of a contract breach is accurate, Nesco could not have fulfilled its obligations, implying that Nesco was in breach upon making its promise. For Nesco's commitment to hold value, BMC needed to grant additional time for performance, effectively waiving the October 1987 delivery deadline. BMC contends it delayed enforcing its rights against Barth in exchange for Nesco's promise but did not waive those rights, a position deemed illogical. This interpretation suggests BMC could arbitrarily sue Barth and Nesco while Nesco could claim it could have completed the project immediately after its promise, creating an untenable situation for Nesco. BMC's own complaint supports the conclusion that it waived the delivery date, as it acknowledged that Nesco would ensure timely completion and delivery despite the deadline having passed. BMC's actions, including its failure to promptly demand compliance or terminate the contract after the missed delivery, further indicate a waiver. Legal precedent dictates that a buyer must object to a seller's failure to deliver within a reasonable timeframe. BMC did not express intent to terminate the contract until May 1989, with the first indication of such intent occurring in August 1988, which instead resulted in an extension of the delivery date. BMC's warnings to Barth regarding the intent to hold it accountable for breaches did not occur until early 1989, underscoring the argument that BMC had waived its rights associated with the October 1987 deadline.

BMC acted as if the Contract with Barth remained in effect until 1989, despite Barth missing the October 1987 delivery date. BMC provided ongoing technical support and even made a purchase of $71,075 for project materials in December 1987, indicating no intention to terminate the Contract. Although BMC expressed concerns about delays in letters, it never officially declared Barth in default or terminated the Contract, instead urging Barth to continue work on the equipment. After 18 months, when Barth was ready to deliver, BMC unexpectedly decided to terminate the Contract. Under the Uniform Commercial Code (UCC), a waived delivery date requires delivery within a reasonable timeframe, which means Barth was only obligated to deliver the machines reasonably after the October date. The case is remanded for a new trial to determine if Barth's delivery was within a reasonable time. BMC's promissory estoppel claim against Nesco stems from a representation made in August 1988 regarding Nesco's commitment and Barth's performance. If the jury finds Barth did not deliver within a reasonable time, BMC will succeed in its breach of contract claim; if it finds BMC terminated the contract prematurely, Barth will prevail and can recover $1.13 million as stipulated by BMC. Additionally, BMC's claim references a promise made by Nesco in 1986 prior to the Contract signing.

BMC asserted that Nesco induced it to sign a Contract by promising to support Barth's work on the project in 1986. BMC provided promotional materials about Nesco, which highlighted its engineering capabilities and detailed its subsidiaries, including Barth. Barth’s personnel allegedly assured BMC that Nesco backed Barth’s work, leading BMC to refrain from terminating the Contract despite threats of a lawsuit for breach. However, the district court excluded evidence of Nesco's alleged 1986 promise from BMC’s promissory estoppel claim, determining it lacked legal sufficiency. The court found that any assurance regarding support came from Barth, not Nesco, and that the brochures did not constitute an actual promise from Nesco. BMC's interpretation that the brochures indicated Nesco would assist Barth in machine design was deemed unfounded, as they merely provided information about the subsidiaries without suggesting collaboration on contracts. Consequently, the evidence did not support any representation or promise from Nesco prior to the Contract's execution. Additionally, Nesco argued that BMC's claim was barred by the statute of frauds.

A guarantee of a past-due debt is unenforceable under the statute of frauds unless it is in writing. Nesco contends that BMC's claim, termed “promissory estoppel,” effectively asserts that Nesco guaranteed Barth's performance after Barth defaulted. Evidence shows that Tomsich's promise was made nine months after Barth breached the contract, and BMC has maintained this position throughout the litigation. By asserting that Barth was in default when it failed to deliver equipment in October 1987 and that BMC did not waive this breach, BMC implicitly treated Nesco’s subsequent promise as a guarantee. 

In August 1988, Tomsich allegedly promised BMC that Nesco would ensure Barth's performance, leading BMC to delay its breach of contract suit against Barth. Tomsich's dual role as an officer of both Barth and Nesco introduces three legal possibilities: (1) a new three-party agreement replacing the original contract, (2) a novation where Nesco assumes Barth’s liabilities, or (3) a guarantee of Barth’s past-due performance. If either of the first two occurred, Barth would be released from liability, which BMC denies by pursuing Barth for breach. 

BMC's refusal to accept the first two options leaves the only viable interpretation as a guarantee, which, being oral, is unenforceable under Florida law. Thus, BMC’s claim against Nesco is barred. The document concludes by referencing the "duck test," affirming that if something appears to be a guarantee, it is treated as such despite BMC's denials.

Florida's statute of frauds mandates that a promise to answer for the debt of another must be in writing and signed to be enforceable. BMC's claim, characterized as promissory estoppel, centers on Nesco's alleged promise to assume liability for Barth's past-due debt. However, because there was no adequate consideration, BMC refrained from labeling it a contractual guarantee. The court notes that the assumption of liability for a debt already in default is highly unlikely to be enforceable without written evidence. 

Under the criteria for promissory estoppel, BMC's claim fails for two reasons: first, it was unreasonable for BMC to rely on an unwritten promise, especially given the substantial amount of $6.4 million involved; second, BMC did not demonstrate detrimental reliance, as its actions, like delaying the lawsuit and paying Barth additional funds, did not incur any detriment that could not be recovered from Barth. 

BMC also argues that Nesco's promise was "direct," thus exempt from the statute of frauds. However, this exception applies only if the guarantor's main purpose is to benefit itself, not merely to assist the debtor. Without clear evidence that Nesco's motivation was self-serving, BMC's claim remains barred by the statute.

Nesco's guarantee of Barth’s performance lacked a reasonable expectation of benefit because Barth was already in default, a situation BMC did not waive, allowing BMC to sue both Barth and Nesco immediately after the guarantee was made. Nesco's only incentive was the hope that BMC would not file suit if equipment was delivered soon, which does not equate to a reasonable expectation of benefit. As a result, Nesco's guarantee is governed by the statute of frauds, requiring a written agreement; BMC's claim against Nesco fails without such a writing. The judgment against Nesco is vacated, and the case is remanded to the district court to enter judgment for Nesco. Additionally, the district court erred by not applying the UCC to the Contract, and BMC waived the October 1987 delivery date. The judgment against Barth is also vacated and remanded for retrial of BMC's claims and Barth's counterclaims under the UCC. BMC's claim regarding Nesco’s guarantee is void due to the lack of writing and Barth’s prior default.