U.S. District Court in South Dakota Denies Summary Judgment on Contractor’s Set-off Defense Based on Delay in Delivery to Supplier’s Claim for Payment On Grounds That Material Issues of Fact Existed Regarding Time for Delivery and UCC Notice to Supplier

Blesi-Evans Co. v. Western Mechanical Service, Inc.
2010 U.S. Dist. LEXIS 36302 (S.D. April 13, 2010)

Defendant Western Mechanical Services, Inc. entered into a contract with the state of South Dakota to replace boilers on the South Dakota School of Mines and Technology campus Western, in turn, solicited bids for the boilers. Western accepted Plaintiff Blesi-Evans Co.’s proposal to supply one of the boilers. A dispute arose out of the delay in the production and delivery of that boiler.

Neither Blesi’s proposal, nor Western’s purchase order, contained an expected shipment or delivery date for the boiler. Western’s contract with the state of South Dakota provided that the work would be substantially completed by October 13, 2006. Western asserted that Blesi promised to deliver the boiler by September 23 or 28, 2006. Blesi’s supplier was unable to provide the boiler by any of those dates. As a result, Western had to furnish a temporary boiler, at its own cost, for the Boiler Project. Finally, in December 2006, Blesi supplied the boiler, but it was not up and running until January 2007.

Blesi sent Western an invoice for the boiler and related work. Western refused to pay on that invoice, but sent its own invoice to Blesi for all of the costs Western incurred in installing, maintaining, and returning the temporary boiler. Blesi brought suit against Western for failing to pay for the boiler after Blesi delivered it. Western asserted that, if Blesi were entitled to damages, then Western had right to set-off the amount of the expenses that Western incurred as a result Blesi breaching its obligation to provide the boiler by the agreed-upon delivery date. Both parties moved for summary judgment on their claims.

The United States District Court for the District of South Dakota denied both motions for summary judgment. The court determined that the parties agreement was predominantly a contract for the sale of goods and therefore governed by Article 2 of the Uniform Commercial Code (“UCC”). The court noted that, under the UCC, parties may agree on a definite time for shipment or delivery, but in the absence of such an agreement, Article 2 provides that the time for shipment or delivery shall be a “reasonable time. Reasonable time, stated the court, depends upon what constitutes acceptable commercial conduct in view of the nature, purpose, and circumstances of the action to be taken, and therefore evidence as to a definite date of delivery can be found in the contractual circumstances and course of performance.

In reaching a decision on Blesi’s motion, the court found that disputed issues of material fact existed regarding whether Blesi delivered the boiler on time under the parties agreement. According to the court, although the delivery date was not specified in the proposal or purchase order, after contract formation, various correspondence between the parties discussed delivery times which suggested that the parties possibly reached an oral agreement on delivery time. On the other hand, the court noted that Western’s correspondence to South Dakota’s agent on the Boiler Project used conditional language regarding delivery dates suggesting that the parties had not reached an agreement. Taken as a whole, the court found that the correspondence created a factual question regarding whether the parties agreed to a delivery time.

The court rejected Blesi’s argument that the post-purchase correspondence was barred by the parol evidence rule, because the correspondence could show that the parties modified their agreement to add a specific delivery date. Even if Blesi were to prevail on its argument that the correspondence is barred, the court stated that a question will remain for the jury to determine what is a “reasonable time” for shipment or delivery.

In denying Western’s motion, the court found that Western was not entitled to a set-off as a matter of law. It reached that conclusion because recovery depended on several disputed facts. First, whether Western provided the UCC required notice to Blesi of its intent to seek a set-off. Second, whether Western rightfully revoked its acceptance of the boiler. Third, whether Western obtained the temporary boiler in good faith and without unreasonable delay. Finally, whether Western rented the boiler as an intended substitute for the boiler ordered from Blesi.

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