Appeal from the Circuit Court of Lake County; the Hon. Harry
D. Strouse, Judge, presiding.
JUSTICE HOPF DELIVERED THE OPINION OF THE COURT:
Defendant, Container Technologies, Inc. (CTI), entered into an agreement with Printpack, Inc. (Printpack). Printpack was to provide CTI with coated materials from which CTI would then make metallized toy balloons. After delivering its product and not being paid for its services Printpack sued CTI for $20,379.75. CTI counterclaimed, alleging Printpack had breached the contract and warranties contained therein. After a bench trial before the circuit court of Lake County the court denied damages for CTI and entered judgment in favor of Printpack on its counterclaim, awarding it $6,481.43 in damages. CTI appeals, and Printpack cross-appeals.
On appeal CTI contends that the trial court erred in awarding damages to Printpack after it found that Printpack had breached the contract in issue. CTI contends the trial court should have awarded it damages under the contract, as well as out-of-pocket expenses and lost profits.
In its cross-appeal, Printpack urges that the trial court erred in awarding it only 30% of the amount it had sought. Rather, Printpack urges on appeal, it is entitled to the full contract price. Printpack also contends that CTI waived strict compliance and any implied warranties of fitness because it instructed Printpack to proceed and use material it knew to be defective, and failed to provide specifications. Printpack also argues that CTI failed to reject the materials and, therefore, it cannot defend or recover on a breach of warranty theory.
CTI points out that in 1980 it was the sole producer of metallized balloons in the world. In October of that year, Larry Anderson, general manager of CTI's Dallas plant, contacted Printpack and inquired if it would be interested in extrusion coating for CTI balloons. Prior to this only one other company had provided this service for CTI. Printpack, which had experience in extrusion coating for food packaging, agreed to do a trial run.
Michael Fisher, a sales manager for Printpack, testified that he had the initial contact with Larry Anderson. CTI placed an initial order to have Printpack coat 2,000 pounds of material with polyethylene. Fisher testified that he received a specification sheet from Anderson, and that with the exception of what came to be known as exhibit No. 4, he received no additional instructions before Printpack entered into an agreement to do a second batch of work. Fisher also testified that the instructions he did receive from CTI included a request that the printer or converter, such as Printpack, review the specifications with them and help them to develop formalized specifications. He indicated there were no formal specifications on the bond strength and that plaintiff's exhibit No. 4 contained the only written specifications received from Anderson.
Howard Schwan, plant manager for CTI, testified that Tom Brown came in from Printpack to pick up some materials. Schwan gave him some samples of the test batch and advised him the bond level was substandard. In mid-November of 1980 Brown and James Hartzfield visited CTI again. During the second visit the men from Printpack were shown that the balloons would not hold air and therefore were unacceptable. Brown testified that the balloon would break where a wrinkle ran through the seal. Brown also testified that he did not receive any specifications while he visited CTI's plant. Patrick Winters, vice-president and general manager for CTI, testified that he had met with Brown and Hartzfield and had discussed the need for having a certain destruct level bond for the balloons. Winters also testified that Brown or Hartzfield indicated to him that the problem with the heat seal could be corrected. Brown indicated that CTI placed a second order for material with Printpack after their meeting, and that when they received that material they were continuing to have sporadic problems with it. Winters testified that 70% of material that they had run was "dubious and couldn't be shipped."
Printpack was paid for coating the initial order on December 8, 1980. According to Fisher, regional sales manager for Printpack, there had been an initial complaint regarding the material not sealing properly but after subsequent follow-up they were told the material in fact performed satisfactorily. At that point CTI issued a check for approximately $4,000 to Printpack. Also on December 8, 1980, Larry Anderson placed an additional order for 2,000 pounds of material with Fisher.
CTI relates that due to problems with the seals approximately 5,000 pounds of Printpack coated material remains at CTI because it could not be made into balloons. Roughly, 30,000 balloons were returned to CTI from customers.
Printpack stresses the contention that the material delivered to it was defective. Some of it would not go through Printpack's equipment and according to Allan Gastinger, plant manager for Printpack in Grand Prairie, Texas, 13 rolls of material were defective and had to be returned. Gastinger testified that their concern was with the wrinkles on the material. According to Gastinger and Perry Fowler, quality control and customer service supervisor, Anderson was present when concern regarding wrinkles in the material was discussed. Anderson acknowledged the condition of the material but indicated that since it had already been metallized and printed it should be coated — otherwise it would be unusable to CTI. According to Fisher, sales manager for Dallas, Gastinger told Anderson that if there were wrinkles on the material the extrusion coating on the film would not provide the type of sealant web that CTI had required. At this time a piece of material was pulled off the roll and an attempt was made to pull apart the bond between the extrusion coating and the polyethylene. The bond could not be pulled apart and Anderson indicated that the material would be acceptable. When he was advised that some of the material might not go through the Printpack machinery Anderson stated that the investment had already been made in the film and the only way it would be salvageable would be if it was coated. Thus, Printpack went ahead and processed the material.
According to Tom Brown, technical manager for Printpack, Printpack received no complaint about the material it had shipped to CTI. The complaint did not arise until Printpack requested payment for the services. In fact according to the testimony of Fisher, Printpack's sales manager, in January of 1981 he spoke with Anderson, CTI's general manager in Dallas, and asked him if there was a reason why the invoices had not been paid. Anderson advised him that he knew of no reason for the nonpayment.
Printpack subsequently filed a complaint against CTI seeking $20,279.75 due for the coating materials for CTI. CTI filed affirmative defenses as well as a counterclaim and alleged that Printpack had breached its agreement and warranty with CTI. CTI claimed it was Printpack's responsibility to cover CTI's costs for the coated material which it could not sell or use and that Printpack should bear the burden for loss of profits arising from the materials that could not be used.
As indicated, the trial court ruled that Printpack was entitled to an award of $6,481.43, an amount equal to 30% of the amount charged by them for the coating, plus $525 for other services Printpack provided. The trial court ultimately found that a three- or four-page specification provided by CTI was never delivered to the plaintiff in this case. The court found that, at best, Printpack had a simple order form which ordered that 15,000 pounds of nylon be processed.
The first contention raised on appeal is that the trial court erred as a matter of law in awarding damages to Printpack after ruling that ...