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Continental Sand & Gravel Inc. v. K & K Sand & Gravel Inc.

February 1, 1985

CONTINENTAL SAND & GRAVEL, INC., AN ILLINOIS CORPORATION, PLAINTIFF-COUNTERDEFENDANT-APPELLEE,
v.
K & K SAND & GRAVEL, INC., AND INDIANA CORPORATION, CURTIS KAMMINGA, AND SHIRLEY KAMMINGA, DEFENDANTS-COUNTERPLAINTIFFS-APPELLANTS. (NO. 83-2923); CONTINENTAL SAND & GRAVEL, INC., AND ILLINOIS CORPORATION, PLAINTIFF-COUNTERDEFENDANT-APPELLANT, V. K & K SAND & GRAVEL, INC., AND INDIANA CORPORATION, CURTIS KAMMINGA, AND SHIRLEY KAMMINGA, DEFENDANTS-COUNTERPLAINTIFFS-APPELLEES (NO. 83-3013)



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 80 C 377- Susan Getzendanner, Judge.

Bauer and Cudahy, Circuit Judges, and Doyle, Senior District Judge.*fn*

Author: Cudahy

CUDAHY, Circuit Judge.

Plaintiff Continental Sand & Gravel Inc. ("Continental") sued for breach of express warranties made by defendants K & K Sand & Gravel, Inc. and Kurt and Shirley Kamminga in a written agreement for the sale of certain real and personal property. The defendants counterclaimed for the balance due on a related consulting agreement. At issue in this appeal are the trial court's determinations regarding the defendants' breach of various warranties, the appropriate measure of damages and the plaintiff's liability under the consulting agreement. We affirm the judgment of the district court and remand for consideration of attorneys' fees.

I.

The defendants owned and operated a sand and gravel pit near Demotte, Indiana. In 1979, they agreed to sell the pit, together with various inventory and mobile equipment, to plaintiff Continental's parent company, which assigned all its rights under the agreement to Continental. After initial negotiations between the parties, Continental offered to purchase the defendants' assets for a total price of $650,000, which consisted of $320,000 for real estate and inventory, $280,000 for plant equipment, and $50,000 for mobile equipment. The final agreement was the same, except that the purchase price $280,000 and, to offset this, a consulting agreement was added under which Continental would pay defendants $60,000 per year for four years.

The mobile equipment, which was sold for $50,000, consisted of a 120B pay front-loader, a 120C pay frontloader, two cranes, a truck, a tractor, a trailer and a dredging barge. The defendants made various express warranties in the agreement, including that "the Purchased Assets are all in good order, condition and repair" and that "there are no defects in the Purchased Assets which would materially affect the use thereof for the purpose for which the Purchased Assets are now used."

Continental purchased the sand and gravel business in March of 1979. Soon thereafter, when Continental began operations, one of its employees found that the mobile equipment was in poor repair and had been poorly maintained. In April, Continental's president visited the operation, and then wrote to one of the defendants, Mr. Kamminga, stating that the equipment was in poor condition. Between March and June 26, 1979, Continental incurred repair bills totaling more than $23,000. on June 26, a federal inspector found that one of the cranes was unsafe to operate, and shut production down. The plaintiff then rented a replacement crane and used it throughout the summer. In July, Continental wrote to defendants that in light of the poor condition of the mobile equipment, it believed the warranties pertaining to the equipment had been breached. It also submitted repair estimates on certain pieces of equipment, which totaled about $164,000.

The defendants apparently did not respond to Continental's letters. Continental subsequently decided to change its basic dredging operation rather than expend more money on repairing the equipment. Continental bought equipment that allowed it to pump sand and gravel out of the lake bed rather than digging the material out, and began the new operation in the spring of 1980. Also, based on its belief that defendants had breached the warranties pertaining to the mobile equipment, Continental refused to pay the $240,000 balance due to defendants under the Consulting Agreement.

II.

The first set of issues involved in this appeal relates to whether defendants breached the warranties they made with respect to the condition of the mobile equipment. The district court found that during the first three months of operation, most of the mobile equipment was in working condition, but that certain pieces of equipment did not conform to the warranty that the equipment was in good condition and repair. In particular, the court found that the warranty was breached with respect to the dredging barge, which had been submerged in water and inoperable for several years, and the crane, which had been condemned by the federal inspector in June of 1979. The court also found that the warranty was breached as to the 120B pay loader.

The defendants contend that the lower court's finding that the warranties were breached was clearly erroneous because the evidence indicated that the equipment met the trade usage definition of equipment in "good" condition. The defendants placed in evidence a printed document distributed in the heavy equipment industry which they assert established that the trade usage definition of "good" equipment is that the equipment must be: "in operating condition. However, may have some worn parts that require repairing or replacing soon. No known mechanical defects except any that may be described." Defendants claim that this definition was clearly met as to the crane and the pay loaders, since witnesses testifying about the condition of each responded affirmatively when asked whether those pieces of equipment were in operating condition, though they may have had worn parts that required repairing or replacing soon. In addition, defendants argue that most of the equipment functioned during the first three months of the plaintiff's operation.

The district court's opinion does not indicate whether the court accepted defendants' proposed trade usage definitions of "good," "fair," etc. as controlling. We do not find this question particularly important, however, in light of the fact that the court expressly decided that the warranties made here were far broader than the mere representation that the equipment was in good condition and repair as of the date of sale; rather, the warranties extended beyond the date of purchase, and taken together were clearly intended to guarantee the continued operation of the sand and gravel equipment for an indefinite period. Thus, even if it were established that the equipment met the trade definition of "good" at the time of sale this fact alone would not demonstrate that the warranties were not breached.*fn1 The trial court carefully considered the language of the warranties as well as the used condition of the equipment in interpreting the warranties.*fn2 Moreover, the court extensively discussed conflicts in the evidence relating to the condition of each piece of equipment on the date of purchase, the length of time it remained operation if it ever ...


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