Opinion
No. 179 C.D. 2014
09-25-2014
New Country Cleaners, Inc. v. Permagro, Inc., Appellant
BEFORE: HONORABLE DAN PELLEGRINI, President Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE ROBERT SIMPSON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY PRESIDENT JUDGE PELLEGRINI
Permagro, Inc. (Permagro) appeals from an order of the Court of Common Pleas of Lehigh County (trial court) denying its post-trial motion following a judgment entered in favor of New Country Cleaners, Inc. (New Country). For the reasons that follow, we affirm.
Permagro erroneously appealed this matter, a contract action between two private parties, to this Court. However, New Country did not object to this Court's jurisdiction. Accordingly, jurisdiction has been perfected pursuant to 42 Pa. C.S. §704(a).
At a trade show in Atlantic City, New Jersey, in the fall of 2010, Young Ju Chung, New Country's president, entered into an oral agreement with Frank Kang, Permagro's CEO, to purchase a new 60-pound "Prima" dry cleaning machine for use by New Country at its facility located in Emmaus, Pennsylvania. The agreed-upon price was $53,000.00 plus 6% sales tax for a total of $56,180.00.
In addition to the purchase price, New Country paid $4,000.00 for the installation of the machine and $2,400.00 for a solvent and waste disposal fee.
On November 19, 2010, New Country issued a check to Permagro in the amount of $27,000.00 toward the purchase of the dry cleaning machine. On December 28, 2010, pursuant to an invoice from Nuclean Supply, Inc. (Nuclean), a dry cleaning equipment dealer that was Permagro's Pennsylvania agent, New Country issued a check to Nuclean in the amount of $57,000.00 for the remaining balance on the dry cleaning machine and other equipment unrelated to this case. Nuclean subsequently paid Permagro $17,000.00 for the Prima machine, retaining $9,000.00 of the $53,000.00 purchase price as its commission for the sale.
Permagro is located in Buena Park, California.
The dry cleaning machine was installed at New Country's Emmaus facility in early 2011 but failed to perform properly. New Country timely notified Permagro which made numerous attempts to repair the machine to no avail. After New Country demanded a refund or a new machine and Permagro refused, New Country filed a complaint in the trial court against Permagro for breach of contract, breach of oral contract, breach of good faith and fair dealing, unjust enrichment and fraud. The complaint alleged, inter alia, that Permagro sold a defective dry cleaning machine, that the machine was not the same machine displayed at the trade show, and that the machine was not new when it was delivered. Permagro filed an answer and new matter denying the allegations in the complaint and arguing that New Country contracted with Nuclean and not Permagro to purchase the dry cleaning machine at issue. A non-jury trial was then held.
At trial, Frank Choe (Choe), Nuclean's owner, testified that he was an agent for Permagro in charge of Pennsylvania sales. He explained that his responsibilities as an agent included visiting Permagro's customers whenever they had problems with their equipment and reporting the issues to Permagro. He further explained that Permagro directed him to make such visits and instructed him on how to address the problems with the machinery. Choe testified that New Country purchased the Prima dry cleaning machine from Permagro in November 2010, and made the initial payment for the machine directly to Permagro. He stated that after the machine was installed in January 2011, he visited New Country once or twice every week to address various issues with the machine. He summarized New Country's complaints about the machine and introduced a series of emails between himself and Frank Kang (Kang), Permagro's CEO, discussing these issues. He also confirmed that Young Ju Chung, New Country's president, emailed Kang demanding a replacement machine due to the problems with the 60-pound Prima machine, but Kang refused to replace the machine and stated that Permagro would instead repair the machine. Choe stated that he has sold approximately ten dry cleaning machines, and that in his 19 years in the dry cleaning business, he has never seen a machine with as many repair issues as the Prima dry cleaning machine purchased by New Country. Finally, he testified that Permagro provided a one-year warranty to New Country for the machine and denied that Nuclean provided any warranty.
The complaints about the machine included a defective air hose discovered during the machine's trial operation on February 14, 2011; the water separator appeared to be used at the time of the machine's trial operation; leakage in the steam chamber discovered on March 22, 2011; a contaminated filter and broken drum belt cover discovered on May 3, 2011; the discovery that solvents in the spin filter were not being filtered on May 24, 2011; the freezing compressor stopped operating in December 2011; a solvent inlet problem discovered on February 28, 2012; and the discovery that Tonsil powder was not being completely drained from the machine on April 10, 2012.
Sangil Lee (Lee), the owner of Ziontech, LLC, testified that he has been repairing and installing dry cleaning machines for approximately ten years. He testified that he went to New Country's facility on March 6, 2013, to inspect the Prima dry cleaning machine. Lee stated that when he inspected the machine, its computer button appeared to be used because it had several scratches; solvent was leaking due to a bad gasket; Tonsil powder was leaking into the solvent storage tank; and the machine's freezer was overheating. He explained that several of these issues could not be repaired because there were structural problems with the machine. He also testified that he reviewed the machine's service records at the time of his inspection. Lee opined that the dry cleaning machine appeared to be more than five years old at the time of his 2013 inspection. He based this opinion on the condition of the freezer and the fact that Tonsil powder was leaking into the storage tank as a result of a damaged steam filter, which he explained occurs after a machine is used for a long period of time.
Young Ju Chung, New Country's president, testified that he met Kang at the trade show in 2010 and agreed to purchase the Prima dry cleaning machine from Permagro at that time. He also testified that there was no representative from Nuclean present at the trade show. He explained that when he purchased the machine, it was his understanding that it would be covered by a one-year warranty, for which Permagro would be responsible. He confirmed that he made the initial $27,000.00 payment for the machine directly to Permagro, and paid the remaining balance to Nuclean per Nuclean's instruction. Young Ju Chung stated that New Country had continuous problems with the machine since the first day it was installed, and that he believed the machine was used because it had scratches when it was first removed from its packaging. He testified that he first asked Permagro to replace the machine between February and March 2011, shortly after the machine's trial operation, because it appeared to be used, but Permagro continually refused and instead insisted on attempting to repair the machine.
Young Ju Chung discussed the machine's problems and described a series of photographs taken beginning in early 2011 depicting these issues. The photographs depict several articles of clothing damaged by Tonsil powder from the machine; a crumpled Prima sign that was packaged with the machine; the machine's worn buttons; and various parts of the machine that are stained, covered in rust and broken.
Shinwon Chun (Chun), an employee of Permagro, testified that Kang approached him after the trade show in 2010 and asked him to hold the Prima dry cleaning machine on the East Coast rather than shipping it back to California because New Country intended to purchase it. Chun explained that the machine was then delivered to Nuclean, which subsequently delivered it to New Country. He testified that the machine's manufacturer, Renzzacci, provides the warranty for the machine. Chun confirmed that New Country's president repeatedly contacted Permagro regarding problems with the machine, but stated that despite these issues, New Country never sent the machine back or stopped using it. In deposition testimony presented during cross-examination, Chun acknowledged that Nuclean lacked the resources to directly purchase the dry cleaning machine from Permagro in order to resell it to an end user, and that Permagro knew when it sold the machine that New Country, not Nuclean, would be the end user.
The trial court found that New Country credibly established that it contracted for a new machine with Permagro, but Permagro instead delivered a used and defective machine which it continued to misrepresent as a new machine. The trial court also found that Permagro warranted the machine for one year from the date of New Country's purchase. The trial court explained that Permagro could not credibly dispute the terms of the oral agreement made between New Country and Permagro at the 2010 trade show or the terms of the warranty because its only witness, Chun, was not present at the trade show. Accordingly, the trial court entered judgment for New Country in the amount of $62,580.00, which comprised the purchase price of $53,000.00; 6% sales tax in the amount of $3,180.00; installation costs of $4,000.00; and waste and solvent disposal fees of $2,400.00. Regarding the calculation of damages, the trial court explained:
The appropriate measure of relief in these circumstances is ... derived by according a rescissory remedy in conjunction with restitution of all other out-of-pocket expenditures incurred in reliance upon Permagro's misrepresentations so as to make New Country whole. See 13 Pa. C.S. §2721 (claim for rescission based on fraud not inconsistent with claim for damages or other remedy under U.C.C.) ... Moreover, even in the absence of a finding of misrepresentation, in light of the continuous malfunction of the machine and the outright damage it has caused to the clothing of New Country's customers, the machine has failed of its essential purpose and has provided no benefit to New Country so as to
militate any offset from a full refund of all monies expended by New Country in reliance on the parties' agreement.(Trial Court's April 23, 2014 Opinion at 3). Permagro then filed a motion for post-trial relief, which the trial court denied. This appeal by Permagro followed.
When reviewing the trial court's denial of post-trial motions, our scope of review is limited to determining whether the trial court abused its discretion or committed an error of law. Commonwealth ex rel. Corbett v. Manson, 903 A.2d 69, 73 n.4 (Pa. Cmwlth. 2006).
On appeal, Permagro first argues that there was no privity of contract between Permagro and New Country because New Country actually contracted with Nuclean to purchase the machine as evidenced by the sales invoice from Nuclean to New Country and subsequent payment by New Country to Nuclean. Permagro further alleges that the agreement between New Country and Permagro was invalid because it was not in writing in violation of the "statute of frauds".
13 Pa. C.S. §2201, "Formal requirements; statute of frauds," provides, in relevant part:
(a) General rule.-Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. (Emphasis added).
For parties to be considered to be in privity, a contractual relationship must exist between them. Phillips v. Cricket Lighters, 841 A.2d 1000, 1006 (Pa. 2003). Here, two of New Country's witnesses provided testimony, which the trial court found credible, that New Country agreed to purchase the dry cleaning machine from Permagro, and Permagro's witness could not credibly dispute this assertion. The testimony also establishes that Permagro provided a one-year warranty on the machine and took responsibility for making repairs to the machine. The $27,000.00 check issued by New Country to Permagro further demonstrates privity between the parties. Although Nuclean sent an invoice to New Country for the machine and New Country subsequently issued a check to Nuclean, the testimony clearly demonstrates that Nuclean was acting as Permagro's agent and that Permagro knew the machine would ultimately be used by New Country. This evidence supports the trial court's finding that Permagro and New Country had a contractual relationship and, therefore, were in privity.
It is within the province of the trial judge, sitting without a jury, to determine the credibility of witnesses and weigh their testimony. Roman Mosaic and Tile Co. v. Thomas P. Carney, Inc., 729 A.2d 73, 76 (Pa. Super. 1999).
With respect to Permagro's contention that the agreement was invalid because it was not in writing, under the statute of frauds, a contract for the sale of goods is enforceable if there is some writing sufficient to indicate that a contract for sale has been made. Here, the $27,000.00 check from New Country to Permagro with a note on the memo line; the invoice from Nuclean, Permagro's agent, to New Country for several items, including the Prima machine at issue; and the second check from New Country to Nuclean evidence that a contract for the sale of the Prima dry cleaning machine between Permagro and New Country was, in fact, made. Therefore, the statute of frauds does not bar the parties' agreement.
Next, Permagro contends that there was not substantial evidence to support the trial court's finding that the machine was not new. Specifically, it argues that the testimony of New Country's witnesses was insufficient in this regard, and that the trial court erred in admitting certain undated photographs into evidence because the relevant issue was the condition of the machine at the time of purchase in 2010.
Contrary to Permagro's claim, New Country's witnesses provided ample testimony to support the contention that the machine was not new when it was delivered to New Country. Lee, who has repaired and installed dry cleaning machines for ten years, opined that the machine was more than five years old when he inspected it in 2013, based on the worn condition of certain parts and his review of the service records. Moreover, New Country's other witnesses both testified that the machine had problems from the day it was installed, which was confirmed by various emails and by Permagro's own witness. Young Ju Chung also credibly testified that the machine appeared to be a used machine when he removed it from its packaging. This evidence alone would have been sufficient to support the trial court's finding that the machine was not new when it was delivered in 2010.
Permagro argues that Lee's testimony is barred by Pennsylvania Rule of Evidence (P.R.E.) 602 because Lee did not have personal knowledge of the status of the machine when it was purchased in 2010. Permagro failed to raise this objection at trial and, therefore, it is waived.
With respect to the photographs admitted at trial, Young Ju Chung testified that he began taking the photographs in early 2011, shortly after the machine had been installed at New Country's facility. While some photographs were undated or taken well after the machine had been installed and, thus, were not relevant to the issue of whether the machine was new in 2010, these photographs were nonetheless relevant for other purposes, such as establishing that the machine was defective and that the problems had never been fixed. Accordingly, we find no abuse of discretion by the trial court in admitting any of the photographs into evidence.
Finally, Permagro contends that New Country is not entitled to damages under Section 2-711 of the Uniform Commercial Code (UCC) because it did not immediately reject the Prima dry cleaning machine but instead kept it and continued to use it. We disagree. The credible testimony of Young Ju Chung establishes that he made continuing demands for a replacement machine, beginning immediately after the machine was installed and a trial operation was conducted. Despite these repeated requests, Permagro refused to replace the machine and, instead, insisted on repairing it but never effectively did so. Given those facts, we find no error in the trial court's remedy.
13 Pa. C.S. §2711, "Remedies of buyer in general; security interest of buyer in rejected goods," provides, in relevant part:
(a) Cancellation and additional remedies.-Where the seller fails to make delivery or repudiates or the buyer rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract ... the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid:Our Supreme Court has explained that "prompt action ... is a prerequisite to the remedy of rescission." Schwartz v. Rockey, 932 A.2d 885, 894 (Pa. 2007). See also Galati v. Potamkin Chevrolet Co., 181 A.2d 900, 902 (Pa. Super. 1962) ("When a party discovers facts which warrant rescission of his contract, it is his duty to act promptly, and, if he elects to rescind, to notify the other party within a reasonable time so that the rescission may be accomplished at a time when the parties may still be restored, as nearly as possible, to their original positions.")
(1) "cover" and have damages under section 2712 (relating to "cover"; procurement by buyer of substitute goods) as to all the goods affected whether or not they have been identified to the contract; or
(2) recover damages for nondelivery as provided in this division (section 2713 (relating to damages of buyer for nondelivery or repudiation)).
Accordingly, the trial court's order is affirmed.
Permagro also argues that there was no breach of an express or implied warranty. However, the credible testimony clearly demonstrates that Permagro provided a one-year express warranty on the dry cleaning machine at issue and made repairs to the machine pursuant to that warranty. Accordingly, Permagro's argument is without merit. --------
/s/_________
DAN PELLEGRINI, President Judge ORDER
AND NOW, this 25th day of September, 2014, the order of the Court of Common Pleas of Lehigh County, dated January 8, 2014, at No. 2012-C-3400, is affirmed.
/s/_________
DAN PELLEGRINI, President Judge