Opinion
C.A. No. 98C-09-203-JEB
Submitted: January 23, 2001
Decided: June 20, 2000
Decision after Trial on Stipulated Record.
Richard D. Abrams, Esquire, Attorney for Plaintiffs.
Denise T. DiPersio, Esquire, and Staurt M. Grant, Esquire, Attorneys for Defendant.
OPINION
I. FACTS
This is a breach of contract action for damage to computer servers. Government Technology Services, Inc. ("GTS") sought to purchase eight IBM model 720 personal computer servers for a GTS customer, the Mason and Hangar Corporation ("M H"). Kevin Savignac was a product manager for GTS in charge of the IBM product line. After discovering that IBM did not have the eight computer servers available for purchase, Mr. Saviguac found the name Optional Systems Resource, Inc. ("OSR") on IBM's "transship list" identified as a company who may have the eight computer servers in its stock.
On December 12, 1996, Mr. Savignac phoned OSR's sales department and spoke to OSR employee Gerry Bermudez, who infonned Mr. Savignac that OSR had the needed IBM computer servers. Mr. Savignac told Mr. Bermudez that he would send OSR a purchase order for the servers. The servers were to be delivered by OSR directly to a United States Department of Energy facility in Amarillo, Texas, which was managed by M H.
On December 12, 1996, Mr. Savignac faxed to OSR the front side of GTS's purchase order for eight computer servers at a cost of $146,896.00. Mr. Savignac, testifying on behalf of GTS, admitted faxing only the front side and not the back side of the purchase order to OSR and explained that "that's our normal procedure." The front side the purchase order states that the goods are to be shipped "F.O.B. destination," or "Freight On Board destination," meaning under the Uniform Commercial Code that the seller bears the risk and expense of transporting the goods to the specified destination. The front side of the GTS purchase order states: "This order is subject to the terms and conditions on the reverse side. Acceptance of this order is to be acknowledge by return mail." The reverse side of the GTS purchase order containing the sales terms and conditions was never sent to OSR. OSR never acknowledged acceptance of the order by return mail as requested on the GTS purchase order.
See App. Vol. 1 to Pl.'s Trial Br., Exhibit 4, pgs. 10-11.
The parties have agreed that the Uniform Commercial Code ("UCC" or the "Code") governs this case, as it involves the sale of goods between merchants, and that under choice of law considerations, the virtually identical UCC Article 2 provisions from Virginia, Arizona, and Delaware, together with supporting case law, may be cited.
OSR had the eight computer servers stored in OSR's original equipment manufacturer ("OEM") inventory. The servers were packed in the OEM containers. On December 12, 1996, OSR "blind-shipped" by Federal Express the computer servers to the facility managed by M H in Amarillo, Texas. GTS requested that the goods be "blind-shipped" with GST's Federal Express account number on the purchase order, so that GTS's customer (here, M H) would not know that the servers had been sent from someone other than GTS.
On December 13, 1996, OSR sent its invoice to GTS, which provides for shipment "F.O.B. Our Plant." On the reverse side of OSR's invoice, the terms and conditions of the "DELIVERIES"section states that: "[D]elivery of the Products to a carrier shall constitute delivery to Buyer, and risk of loss shall thereupon pass to Buyer. . . ."
At some point in time, the servers were discovered to be severely damaged. The parties disagree as to when the damage occurred, and it is not at all clear who at GTS first discovered the damage.
On December 17, 1996, Federal Express shipping records show that the computer servers arrived at the U.S. Department of Energy Facility in Amarillo, Texas. That same day, the shipment was accepted by M H employee Travis Askew, who at the time was the manager of the shipping and receiving department at M H. Mr. Askew testified that while he normally didn't sign for shipments as a part of his duties, he admitted that he signed the Federal Express signature record for this shipment. Mr. Askew had no independent recollection of any details about that particular shipment, or why he would have signed for the shipment on that date. Mr. Askew testified that M H's normal practice upon receipt of goods that appeared to be damaged was to instruct the carrier driver to annotate the specific damage on the "hard" or paper copy of the freight bill, and then accept the shipment. There was no damage annotation requested or made for this shipment by Mr. Askew or anyone else at M H.
When Federal Express was the canier (as in this case), M H's normal procedure regarding goods that appeared damaged was to alert the Federal Express delivery employee, who would make a damage notation on the automated electronic barcode reader. Federal Express keeps damage notations in its computer memory for thirty days. No records by Federal Express of any damage to the eight computer servers were provided in this case by any of the parties, if any ever existed.
If upon arrival goods appeared to have "massive" damage, under normal protocol M H employees were instructed to contact their site supervisor. The supervisor would then decide whether to accept or reject the goods in their totality. Mr. Askew testified that he personally rejected shipments in their totality several times each year in such a manner. Mr. Askew was asked to describe the condition of shipments that he recalled rejecting outright in the past. He was also asked if a box that would be described as "very badly crushed" would fit the description of damaged goods requiring absolute rejection. He replied:
Well, badly crushed . . . [I]f you can see inside the box through cracks and things and see that it's more than just the shipping container that's crushed, that — actually the contents of the box are damaged, you know pretty much that this is not what you want for your plant because you ordered new equipment. . . ."
See App. Vol. 3 to Pl.'s Trial Br., Exhibit 14, p. 13.
When a shipment had sustained such "massive" damage, Mr. Askew explained that an Over, Short, Damaged or Discrepant ("OSDD") report would be filled in lieu of a regular receiving report. No OSDD report was filed for the damaged servers in this case. No other internal records of any shipments that were rejected outright by M H are kept on file by M H.
Joe Sexton, a computer buyer in the purchasing department of M H, testified that he had no knowledge as to when this particular shipment was delivered to M H. Mr. Sexton did not recall learning about any damage to the computer servers in December 1996. Mr. Sexton recalled only that there was a rejection of the servers at some point in time, and that in his capacity as a buyer he helped procure replacement goods. He did not know why the eight servers were rejected. Mr. Sexton testified that his handwriting appeared on a fax sales quote dated March 12, 1997, discussing replacement goods with GTS. Mr. Sexton testified that he did not recall any conversations with anyone at GTS about the eight servers. Mr. Sexton testified that Prince Anand was his only contact person at GTS.
Mr. Anand testified that in December 1996, he was a GTS "team leader" for the sellers of a specific territory. His duties included managing the M H account. Mr. Anand testified that Mr. Sexton called him and told him that the servers were "really banged up . . . [a]nd some of the boxes they could even see through . . . in some cases, you know, all the way down to the machine." Mr. Anand testified that he contacted Mr. Savignac and told him of the problems with the shipment.
See App. Vol. 1 to Pl.'s Trial Br., Exhibit 5, pgs. 7-9.
Mr. Savignac testified that he contacted Gerry Bermudez at OSR. Mr. Savignac further testified that Mr. Bermudez was non-responsive to Mr. Savignac's complaints, allegedly telling Mr. Savignac that the damaged computers were not OSR's problem. There are no other letter, phone, or e-mail records of GTS contacting anyone at OSR regarding the damage. GTS did not return the servers to OSR. GTS did not ask OSR to provide substitute goods.
GTS paid for the servers by a check dated January 16, 1997 in the amount of $146,896.
In April 1997, the computers were inspected by Mr. Juan Nole Ochoa, who reported that parts of the computers could be sold at salvage prices of between $40,000 to $50,000.
In March 1998, OSR received notice of damage to the computer servers by letter from GTS's counsel.
II. DISCUSSION
First, I find that there is insufficient evidence to show that the servers were damaged when they arrived at M H.
There are no eyewitnesses to any damage to the servers when they reached the M H facility. The testimony of Mr. Askew shows that he accepted the shipment by signing for the servers when they arrived at M H by Federal Express. There are no Federal Express records of damage; if there were for a thirty-day period on Federal Expresses computer memory, it is astounding that GTS did not obtain a copy noting the same. Mr. Askew has no recollection of any damage observed at any time when the servers arrived. He made no notation of damage to the servers anywhere. He described that an example "massive damage" requiring outright rejection of goods would be the type of damage where one could see through the packing box to the machinery below. He did not reject the this particular shipment outright in whole or in part as damaged or non-conforming goods.
Mr. Sexton had no memory of whether or when the servers were damaged. Mr. Sexton only recalled that at some point in time his job required him to find replacement servers.
Mr. Anand's knowledge of the damage comes from Mr. Sexton, who had no independent recollection. Although Mr. Anand claims that he was told that the server boxes were so "banged up" that an observer could "see through . . . all the way down to the machine," (exactly the type of damage Mr. Askew testified would demand immediate rejection), the conduct of the M H employees in accepting the goods at the warehouse counsels the Court against such an interpretation of the facts.
Mr. Savignac was informed about the damage to the servers from Mr. Anand. Mr. Savignac claims to have made one phone call to Gerry Bermudez at OSR, where Mr. Bermudez allegedly refused to deal with the situation. Neither OSR nor GTS have any other hard-copy record of this complaint being lodged. Apparently Mr. Savignac (and everybody else at GTS) failed to complain to OSR by letters, further phone calls, e-mails, or returning the computer servers to OSR for replacement or inspection by OSR.
Because there is a total lack of credible evidence that the servers were damaged when they reached the M H facility, I find that GTS has not breached any contract by shipping non-conforming goods.
Second, putting aside the complete dearth of evidence surrounding GTS's claim that the servers where damaged upon arrival to M H, I find that GTS's one-sided purchase order was not a contract. OSR was never given an original, complete contract when GTS faxed its one-half of a purchase order to OSR. It is apparent that OSR's copy of GTS's purchase order is on its one-sided face incomplete. The purchase order stated on the faxed front side that the order was subject to terms and conditions contained on the reverse side of the purchase order. The reverse side was never sent to OSR. Thus, the one-half of a purchase order does not constitute a final and enforceable agreement between the parties for the purchase and sale of eight computer servers.
Beudry Motor Co. v. Truax, Ariz. Supr., 324 P.2d 1008, 1008-09 (1958) (where plaintiffs carbon copy of a purchase order specifically provided that defendant would not be bound unless the order was accepted by defendant's signature, and signature line was blank, parol evidence was properly admitted because the purchase order did not embody the final and complete agreement of the parties).
Further, OSR never accepted the purchase order by acknowledging the order through return mail, as instructed on the front of the GTS purchase order. According to 6 Del. C. § 2-206(1)(b), an order to buy goods for prompt shipment is construed as inviting acceptance by the prompt shipment of conforming or non-conforming goods, unless otherwise unambiguously indicated by language or circumstances. Here, the GTS purchase order unambiguously specified that the purchase order must accepted by return mail. This was not done; thus, OSR's shipment of the servers did not constitute acceptance of GTS's purchase order by "prompt or current shipment . . . of goods" under 6 Del. C. § 2-206(1)(b).
III. CONCLUSION
Judgment is for Optional Systems Resource, Inc.