Blesi-Evans Company v. Western Mechanical Service, Inc.

Filing 69

ORDER denying 55 Motion for Summary Judgment; denying 59 Motion for Summary Judgment. Signed by Chief Judge Karen E. Schreier on 4/13/2010. (KC)

UNITED STATES DISTRICT COURT D I S T R I C T OF SOUTH DAKOTA W E S T E R N DIVISION B L E S I - E V A N S COMPANY, Plaintiff, vs. W E S T E R N MECHANICAL S E R V I C E , INC., Defendant. ) ) ) ) ) ) ) ) ) ) C I V . 07-5061-KES

O R D E R DENYING MOTIONS FOR S U M M A R Y JUDGMENT

P la in t iff, Blesi-Evans Company (Blesi), brought this action to recover a m o u n t s due under a contract with defendant, Western Mechanical Services, I n c . (Western). Blesi moves for summary judgment on its breach of contract c la im . Western has not responded to Blesi's motion, but moves for summary ju d g m e n t on its defenses that Blesi breached the parties' contract and that W e s t e r n is entitled to reduce Blesi's claim by the amount of the expenses W e st e r n incurred as a result of Blesi's breach. Blesi opposes Western's motion. BACKGRO UND T h e facts, as relevant to the pending motions,1 are as follows: in the s p r in g of 2006, Western entered into a contract with the state of South Dakota
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On a motion for summary judgment, the nonmoving party is entitled to t h e benefit of all reasonable inferences to be drawn from the underlying facts in t h e record. Vette Co. v. Aetna Cas. & Sur. Co., 612 F.2d 1076, 1077 (8th Cir. 1 9 8 0 ). Because the court is considering both parties' motions for summary ju d g m e n t , the court states the undisputed facts and notes the disputed facts w i t h o u t drawing reasonable inferences in favor of either party.

t o replace the boilers on the South Dakota School of Mines and Technology (S D S M & T ) campus. Skyline Engineering, LLC, acted as an agent for the state of S o u t h Dakota on this job. Under this contract, Western agreed to pay $500 per d a y in liquidated damages if the project was not substantially completed by O c t o b e r 13, 2006. Docket 58-6 at 4, 7, 14. In February and March of 2006, Western solicited bids from s u b c o n tr a c t o r s , including Blesi, for the boiler project. On March 14, 2006, B l e s i submitted a proposal to supply one Superior Boiler Works Model W7-52 5 0 0 - S 1 5 - W B C F - G A 2 Mohican Warrior, 4-pass wetback, 500 HP, Scotch M a r in e , steam boiler, along with freight costs, start-up, and training for $ 1 2 5 ,5 0 0 . Docket 61-1 at 1-3. On March 28, 2006, Mike Guyse, Senior A p p lic a t io n Engineer at Blesi, sent a fax to Western saying, "I am checking up to s e e what is happening with the School of Mines boiler project. Do you have y o u r order yet? . . . PS: Deliveries are now into July for orders released this w e e k . I also need to get this boiler on order to avoid an upcoming price i n c r e a s e . " Id. at 4. On April 6, 2006, Western faxed a purchase order to Blesi ordering one " S u p e r io r Boiler Works Model W7-5-2500-S15-WBCF-GA2 Mohican Warrior, 4p a ss wetback, 500 HP, Scotch Marine, steam boiler" with the notation, "[p]er q u o t e attached dated March 14, 2006." Docket 58-5 at 17. Western listed the p r ic e as $125,500. Id. Western attached a copy of the bid submitted by Blesi

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o n March 14, 2006, to the purchase order. Docket 58-5 at 18-20. Paul Jody I s e m in g e r , president of Western, testified that Western accepted Blesi's proposal t o sell the Superior boiler with the purchase order. Deposition of Paul Jody I s e m i n g e r (Iseminger Dep.), Docket 58-5 at 25-26. Blesi ordered the boiler from the manufacturer, Superior Boiler Works, I n c . (Superior), on or about March 31, 2006, and requested that Superior r e le a s e the boiler for production on April 6, 2006. Dockets 61-2 & 61-4. The o w n e r and president of Blesi, Mark Evans, knew the boiler would be used to h e a t the SDSM&T campus. Deposition of Mark Evans (Evans Dep.), Docket 613 0 at 12. The present dispute arises out of a delay in the production and delivery of t h e boiler. The parties dispute whether they agreed on a delivery date for the b o il e r . It is undisputed that neither Blesi's March 14, 2006, bid nor Western's p u r c h a s e order contained an expected shipment or delivery date. Western's p r e s id e n t testified that Blesi's proposal did not contain a proposed date of d e liv e r y and that Blesi had not confirmed a delivery date in writing at the time W e s t e r n sent its purchase order. Iseminger Dep. at 26-27. Rick Gienapp, W e s t e r n 's project manager, testified that Western sent several of its s u b c o n tr a c t o r s a contract form providing that the work must be completed by O c to b e r 13, 2006. Deposition of Rick Gienapp (Gienapp Dep.), Docket 58-4 at 6 6 ; see also Docket 58-4 at 12 (contract between Western and Checker Electric,

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I n c . ) . Western did not send this subcontract form to Blesi. Gienapp Dep. at 67. An undated Superior document indicates that the boiler should be shipped to t h e SDSM&T campus the week of September 30, 2006. Docket 61-31 at 4. A ft e r Blesi ordered the boiler from Superior, a series of emails, faxes, and le t t e r s regarding the shipment and delivery dates for the boiler began. Blesi c o n t a c te d Superior on April 28, 2006, to get information on the delivery date of t h e boiler. Docket 61-5. Guyse testified that he checked with Superior to make s u r e there was a firm delivery date for the boiler on this day. Deposition of D a v i d Michael Guyse (Guyse Dep), Docket 61-29 at 8. On May 1, 2006, Blesi sent a fax to Western saying, "I have some VERY b a d news; delivery of your boiler has been pushed back to 9/23/06. . . . T h e r e f o r e , if you need to cancel this order I will regrettably understand." Docket 61-6 (emphasis in original). Blesi had confirmed the September 23, 2 0 0 6 , delivery date with Superior. Guyse Dep. at 10. Also on May 1, 2006, W e st e r n sent a letter to Skyline informing Skyline that the shipment date of the b o ile r had been pushed out until "approximately September 23, 2006." Docket 5 8 - 6 at 16. Western explained that it had "contacted various boiler m a n u fa c t u r e r s and they are all experiencing delivery times of the same m a g n it u d e ." Id. Western requested an extension of the completion date for the S D S M & T project and relief from the liquidated damages penalty of the contract, s t a t i n g , "IF the boiler arrives around September 23rd as estimated, that only

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le a v e s us about 2 ½ weeks to set the equipment, connect it and do the factory s t a r t up." Id. On May 4, 2006, Skyline denied Western's requests for an extension and relief from the liquidated damages provision of the contract. Skyline stated, " t h e State expects a fully functional boiler to be installed and online at the p h y s ic a l plant by the scheduled completion date of October 13, 2006. . . . If r e a s o n a b le assurance of an on time project delivery cannot be made, the State w ill pursue damages." Docket 61-7. That day, Western wrote a letter to Blesi in fo r m in g Blesi that Skyline and the State Engineer were adamant that the p r o j e c t be completed by October 13, 2006. Western requested, p]lease contact the factory and see if there is anything we can do to e x p e d i t e this. . . . [T]he State Engineer is asking for reassurance t h a t we can complete this project on time. We need an immediate r e s p o n s e from you on a locked in delivery date that we can forward t o Skyline and the State Engineers office before they will allow us to s ta r t removal of the existing boiler. D o ck e t 61-8. Western also reminded Blesi that the $500 per day liquidated d a m a g e s would add up quickly. Blesi, in turn, informed Superior that Western w o u ld face liquidated damages if the boiler was delivered after the scheduled d e l iv e r y date. Evans Dep. at 38. Superior indicated that it firmly believed it w o u ld meet the scheduled delivery date and would try to improve on it. Docket 6 1 - 9 . Western asserts that Blesi passed on Superior's statement to Western, b u t Blesi asserts that nothing in the record documents such a correspondence.

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O n May 5, 2006, Western informed Skyline that Western had been in c o n t a c t with Blesi about the delivery date of the boiler. Western reported that b o i l e r delivery dates had been extended from 16-20 weeks to 24 or more weeks. Western indicated that it had requested that Superior forward a definite delivery d a t e to Western. Western also stated that "[p]roviding the factory can supply t h e boiler to us prior to September 23rd, as stated, we guarantee we will be able t o have the equipment up and functioning by the October 13th completion d a t e . " Docket 58-4 at 10. On May 15, 2006, Western faxed a letter to Skyline stating that Western w o u ld provide, furnish, and maintain a temporary boiler at its own cost if the t e m p e r a t u r e s required and the boiler did not arrive on schedule. Docket 61-11. Western asserts that Skyline demanded that Western agree to provide a t e m p o r a r y boiler if the boiler did not arrive on time. Blesi disputes that Skyline e v e r demanded that Western provide a temporary boiler. On July 25, 2006, Blesi informed Western that "[s]hipment of your boiler fo r the School of Mines project is still 9/28/06" and indicated that Blesi hoped t h e date would be even earlier. Docket 61-11. On September 14, 2006, Blesi corresponded with Superior about the b o ile r . Superior stated that it could not remember a guarantee date for s h ip m e n t of the boiler and would get back to Blesi when its engineering d e p a r tm e n t knew when it would begin the cutting phase for the boiler. Docket

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6 1 - 1 2 . On September 15, 2006, Blesi informed Western that the boiler was s c h e d u l e d to be delivered on November 3, 2006. Blesi acknowledged, "[t]his is o b v io u s ly not acceptable and Superior Boiler Works has been working the past s e v e r a l days to see what they can do to improve this delivery date." Docket 611 3 . On September 18, 2006, apparently after discussions between Blesi and W e s t e r n , Blesi informed Superior that Western was facing expenses of $6,000 p e r month to rent a temporary boiler, $3,000 in freight charges, and $3,000 to in s t a ll the temporary boiler. Blesi indicated that these expenses were in lieu of t h e $500 per day fine Western would otherwise face. Docket 61-14.

On October 5, 2006, Skyline wrote a letter to Western stating that the c o n t r a c t for the SDSM&T project provided that the work would be substantially c o m p le te d by October 13, 2006, and there would be liquidated damages in the a m o u n t of $500 per calendar day for delay in completion of the work. Skyline r e f e r r e d to Western's May 15, 2006, letter indicating that Western would furnish a temporary boiler if the boiler did not arrive on schedule and stated, "[t]his le tt e r serves as formal notification that a temporary boiler, equal in size and b u r n e r efficiency to the project boiler shall be installed and maintained at your c o s t until the new boiler has been installed and is in operational condition." Docket 61-15. On October 10, 2006, Western notified Skyline that the t e m p o r a r y boiler would arrive on October 13, 2006, and would be operational, if

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n e e d e d , by October 24, 2006. Docket 61-17. The temporary boiler was d e liv e r e d to the SDSM&T campus on October 14, 2006. Docket 64-1. O n October 18, 2006, Blesi informed Superior that Western had to rent a t e m p o r a r y boiler because of Superior's delays. Blesi requested that Superior w r it e a letter explaining and apologizing for the delays. Docket 61-18. On O c t o b e r 20, 2006, Blesi again contacted Superior and stated that Blesi would n o t continue to lie and cover for Superior. Blesi asked how many other boiler o r d e r s came in after Blesi's but were constructed before the boiler for the S D S M & T project and requested a " `REAL' ship date, not a wish date." Docket 6 1 -1 9 . On October 23, 2006, Blesi informed Western that the delivery date for t h e boiler had been pushed back to December 9, 2006. Blesi indicated that its o w n e r and president could not take the delays any longer and was flying to K a n s a s to see what was happening at the Superior factory. Docket 61-20. Evans did travel to Kansas to talk with the president and sales manager of S u p e r io r about the delivery date of the boiler. Evans Dep. at 12. T h e boiler was delivered to the SDSM&T campus on or about December 7, 2 0 0 6 , but due to shortcomings in the boiler's construction, it was not up and r u n n i n g until January of 2007. After the boiler was up and running, Blesi sent Western an invoice for $ 1 4 0 ,0 7 8 . 6 8 for the boiler and related work. Docket 58-5 at 29. Western has

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n o t paid any monies on this invoice, but sent its own invoice to Blesi for $ 1 1 9 ,3 4 0 . 8 8 , which represented all of the costs Western incurred in installing, m a in t a in in g , and returning the temporary boiler due to Blesi's failure to deliver t h e boiler as promised. Blesi brought suit against Western on August 30, 2007, alleging that W e s t e r n 's failure to pay Blesi for the boiler and related services and materials c o n s tit u t e d a breach of Western's contractual obligations to Blesi. Western d e n ie d Blesi's allegations and raised the affirmative defenses that Blesi b r e a c h e d its contractual obligations when it failed to provide the boiler by S e p t e m b e r 23, 2006, causing Western to cover the breach by obtaining a t e m p o r a r y boiler, and that all of Blesi's damages were caused by Superior's fa ilu r e to deliver the boiler by September 23, 2006. Now both parties move for s u m m a r y judgment on their claims. S T A N D A R D OF REVIEW R u l e 56(c) of the Federal Rules of Civil Procedure provides that summary ju d g m e n t "should be rendered if the pleadings, the discovery and disclosure m a t e r i a ls on file, and any affidavits show that there is no genuine issue as to a n y material fact and that the movant is entitled to judgment as a matter of la w . " Fed. R. Civ. P. 56(c). Only disputes over facts that might affect the

o u t c o m e of the case under the governing substantive law will properly preclude s u m m a r y judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

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S u m m a r y judgment is not appropriate if a dispute about a material fact is g e n u in e , that is, if the evidence is such that a reasonable jury could return a v e r d i c t for the nonmoving party. Id. The moving party bears the burden of bringing forward sufficient evidence t o establish that there are no genuine issues of material fact and that the m o v a n t is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U .S . 317, 322 (1986). The nonmoving party is entitled to the benefit of all r e a s o n a b l e inferences to be drawn from the underlying facts in the record. Vette Co. v. Aetna Cas. & Sur. Co., 612 F.2d 1076, 1077 (8th Cir. 1980). The n o n m o v i n g party may not, however, merely rest upon allegations or denials in it s pleadings, but must set forth specific facts by affidavits or otherwise showing t h a t a genuine issue exists. Forrest v. Kraft Foods, Inc., 285 F.3d 688, 691 (8th C i r . 2002). D IS C U S S IO N I. B r e a c h of Contract B le s i and Western both move for summary judgment on their claims that t h e other party breached the contract. Blesi alleges that Western breached the c o n tr a c t by failing to pay for the boiler after Blesi delivered it. Western alleges t h a t Blesi breached the contract by failing to deliver the boiler by the agreedu p o n delivery date of September 23, 2006, or September 28, 2006. In this d iv e r s it y case, the court applies the substantive law of South Dakota. See

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G e n e r a l Elec. Capital Corp. v. Union Planters Bank, 409 F.3d 1049, 1053 (8th C i r . 2005) ("In diversity cases, we apply the substantive law of the state in w h i c h the district court sits."). Under South Dakota law, "[i]n contracts for the s a le of goods, a general precept exists which states that the seller must make t im e ly delivery and transfer goods to the buyer, while the buyer has a duty to a c c e p t the goods and pay the seller." Atwood-Kellogg, Inc. v. Nickeson Farms, 6 0 2 N.W.2d 749, 752 (S.D. 1999); see also SDCL 57A-2-301. Thus, the present d i s p u t e comes down to whether Blesi was obligated to deliver the boiler by a c e r t a in date under the contract. If Blesi delivered the boiler on time, then W e s t e r n breached the parties' contract by failing to pay for the boiler. But if B le s i did not deliver the boiler on time, then Blesi breached the parties' co n tr a ct. As an initial matter, the court determines which body of law governs the c o n t r a c t dispute in this case and, as a result, provides the rules for determining w h e n Blesi was obligated to deliver the boiler under the parties' contract. Article 2 of the Uniform Commercial Code (UCC), codified at SDCL 57A-2, g o v e r n s transactions in goods. City of Lennox v. Mitek Indus., Inc., 519 N.W.2d 3 3 0 , 332 (S.D. 1994); see also SDCL 57A-2-102. "Goods" are defined as "all t h in g s (including specially manufactured goods) which are movable at the time o f identification to the contract for sale." SDCL 57A-2-105(1). Here, the boiler

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w a s clearly movable at the time it was identified to the parties' contract and t h u s falls within the definition of goods under the UCC. Blesi also agreed to provide services in relation to the boiler, including s t a r t - u p and training. When goods and services are sold together, Article 2 still g o v e r n s the transaction if the predominant purpose of the contract was the sale o f goods with labor incidentally involved rather than the rendition of a service w i t h goods incidentally involved. Jandreau v. Sheesley Plumbing & Heating Co., I n c ., 324 N.W.2d 266, 268-69 (S.D. 1982) ("The test for inclusion or exclusion is . . . whether their predominant factor, their thrust, their purpose, reasonably s t a t e d , is the rendition of service, with goods incidentally involved (e.g., contract w i t h artist for painting) or is a transaction of sale, with labor incidentally in v o lv e d (e.g., installation of a water heater in a bathroom)." (quoting Bonebrake v . Cox, 499 F.2d 951, 960 (8th Cir. 1974)). Here, the court finds that the p r e d o m in a n t purpose of the contract between Blesi and Western was the sale of t h e boiler, and the start-up and training services were incidentally involved. Indeed, Western's purchase order lists one "Superior Boiler Works Model W7-52 5 0 0 - S 1 5 - W B C F - G A 2 Mohican Warrior, 4-pass wetback, 500 HP, Scotch M a r in e , steam boiler," but does not make reference to the start-up and training s e r v ic e s aside from referring to Blesi's quote dated March 14, 2006. See id. (s t a t in g that court looks first to the language of the sales contract to determine t h e purpose). Further, the present dispute arose because Blesi did not provide

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t h e boiler by a certain time, not because Blesi did not provide the related s e r v ic e s . These facts suggest that the Blesi-Western transaction in all likelihood w o u ld not have taken place but for Western's need for and Blesi's agreement to s e ll the boiler. Thus, the court concludes that the agreement between Blesi and W e s t e r n was predominantly a contract for the sale of goods and therefore is g o ve r n e d by Article 2 of the UCC. See City of Lennox, 519 N.W.2d at 332 (fin d in g that contract was predominantly a contract for the sale of goods where t h e transaction would not have taken place but for the necessity of the goods). B e f o r e determining the terms of Blesi and Western's contract, the court n o t e s that Blesi and Western entered into a binding contract under the rules of c o n tr a c t formation in Article 2. Under Article 2, "[a] contract for sale of goods m a y be made in any manner sufficient to show agreement, including conduct by b o t h parties which recognizes the existence of such a contract." SDCL 57A-22 0 4 (1 ). And, "[a]n agreement sufficient to constitute a contract for sale may be fo u n d even though the moment of its making is undetermined" and "[e]ven t h o u g h one or more terms are left open . . . if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate r e m e d y . " SDCL 57A-2-204(2)-(3). Under these rules, the court finds as a m a t t e r of law that Blesi and Western entered into a contract for sale of the " S u p e r io r Boiler Works Model W7-5-2500-S15-WBCF-GA2 Mohican Warrior, 4p a s s wetback, 500 HP, Scotch Marine, steam boiler," along with freight costs,

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s ta r t - u p , and training, for $125,500. It appears from the parties' statements of fa c t and briefs that both Blesi and Western agree that they entered into a c o n tr a c t with these terms. The contract does not fail because the parties d i s p u t e whether the contract included a term establishing the delivery date of t h e boiler. See SDCL 57A-2-201(1) ("A writing is not insufficient because it o m it s or incorrectly states a term agreed upon."); see also SDCL 57A-2-201 cmt. 1 (stating that the time and place of payment or delivery may be omitted from t h e writing required under the statute of frauds).2 U n d e r Article 2, the parties may agree on a definite time for shipment or d e liv e r y . "Agreement as to a definite time . . . may be found in a term implied fr o m the contractual circumstances, usage of trade or course of dealing or p e r f o r m a n c e as well as in an express term." SDCL 57A-2-309 cmt. 1. In the a b s e n c e of such an agreement, Article 2 provides that the time for shipment or d e liv e r y shall be a "reasonable time." SDCL 57A-2-309. "[R]easonable time . . . d e p e n d s upon what constitutes acceptable commercial conduct in view of the n a t u r e , purpose, and circumstances of the action to be taken." SDCL 57A-23 0 9 cmt. 1. Further, Article 2 provides that the parties may modify their c o n t r a c t as the transaction progresses, and "[a]n agreement modifying a

Under S D C L 57A-2-201, the "statute of frauds," a contract for the sale of g o o d s for the price of $500 or more is not enforceable unless there is a writing s ig n e d by the party against whom enforcement is sought that is sufficient to in d ic a t e that a contract for sale has been made. Neither party alleges that the s t a tu t e of frauds is not satisfied in this case.

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c o n t r a c t . . . needs no consideration to be binding." SDCL 57A-2-209(1).3 The p u r p o s e of this rule is to allow the parties to make "all necessary and desirable m o d ific a tio n s of sales contracts without regard to the technicalities which at [c o m m o n law] hamper such adjustments." SDCL 57A-2-209 cmt. 1. Here, there are disputed issues of material fact regarding whether Blesi a n d Western agreed on a definite time for delivery of the boiler. It is undisputed t h a t neither Blesi's March 14, 2006, bid nor Western's purchase order c o n t a i n e d an expected or definite shipment or delivery date. It is also u n d is p u t e d that Blesi had not confirmed a delivery date in writing at the time W e s te r n sent its purchase order to Blesi. But under SDCL 57A-2-309, evidence o f an agreement as to a definite date of delivery can be found in the contractual c i r c u m s t a n c e s and course of performance as well as in an express written term. On May 1, 2006, Blesi sent a fax to Western saying that the delivery date of the b o ile r had been pushed back to September 23, 2006. This fax may suggest that t h e parties had previously reached an oral agreement as to an earlier delivery d a te 4 or that on May 1, 2006, the parties agreed that the delivery date would be S e p te m b e r 23, 2006. On the other hand, Western informed Skyline that "if" the b o ile r arrived on September 23, 2006, "as estimated," Western would have a

A modification must satisfy the statute of frauds if the contract as m o d i f ie d is within the provisions of the statute of frauds. SDCL 57A-2-209(3). Oral evidence regarding a previous oral agreement is subject to the parol e v id e n c e rule, as discussed in more detail later in the section.
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lim it e d time to set up the equipment. Western's use of conditional language m a y suggest that Blesi and Western had not agreed on a definite delivery date. The May 1, 2006, correspondence creates a factual question regarding whether t h e parties agreed on a definite delivery date of the boiler either at the time of c o n tr a c t in g or through a subsequent modification. Similarly, Blesi's July 25, 2 0 0 6 , fax to Western stating that shipment of the boiler was still scheduled for S e p t e m b e r 28, 2006, may or may not indicate that the parties agreed on this d a t e for the delivery of the boiler. And Blesi's September 15, 2006, letter to W e s te r n stating that the boiler was scheduled for a November 3, 2006, delivery d a t e and acknowledging that this date was not acceptable may suggest that the p a r t ie s had agreed on an earlier delivery date for the boiler. Overall, there are d is p u t e d issues of material fact relating to the question of whether Blesi and W e s t e r n agreed on a definite delivery date for the boiler and incorporated this d a t e into their contract. As a result, the terms of the contract are uncertain a n d neither party is entitled to judgment as a matter of law that the other party b r e a c h e d the contract. B le s i asserts that the parties' correspondence is inadmissible to show that B le s i and Western agreed on a delivery date for the boiler because the parol e v id e n c e rule bars extrinsic evidence of the parties' intent where the language of t h e written contract is unambiguous. But Blesi's formulation of the parol e v id e n c e rule, which applies to cases that do not fall within Article 2 of the UCC,

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s e e In re J.D.M.C., 739 N.W.2d 796, 806 (S.D. 2007), does not reflect the parol e v id e n c e rule under the UCC. Under Article 2, [t ]e r m s with respect to which the confirmatory memoranda of the p a r t ie s agree or which are otherwise set forth in a writing intended b y the parties as a final expression of their agreement with respect t o such terms as are included therein may not be contradicted by e v id e n c e of any prior agreement or of a contemporaneous oral a g r e e m e n t but may be explained or supplemented (a) [b]y course of p e r f o r m a n c e , course of dealing, or usage of trade (§ 57A-1-103); a n d (b) [b]y evidence of consistent additional terms unless the court fin d s the writing to have been intended also as a complete and e x c l u s i v e statement of the terms of the agreement. S D C L 57A-2-202. It is well established that "[g]eneral principles of law will not b e applied where they conflict with particular provisions of the UCC." Arcon C o n s t r . Co., Inc. v. South Dakota Cement Plant, 349 N.W.2d 407, 412 (S . D .1 9 8 4 ); see also SDCL 57A-1-103(b). Article 2 "definitely rejects . . . [t]he r e q u ir e m e n t that a condition precedent to the admissibility of [evidence of c o u r s e of performance, course of dealing, or usage of trade] is an original d e t e r m in a t i o n by the court that the language used is ambiguous." SDCL 57A-22 0 2 cmt. 1(c). Thus, Blesi's argument that evidence of the parties' c o r r e s p o n d e n c e is inadmissible because the language of Blesi's March 14, 2006, b i d and Western's purchase order is unambiguous is unavailing. M o r e o v e r , "[t]he parol evidence rule does not apply to evidence of s u b s e q u e n t agreements or modifications." 1 James J. White & Robert S. S u m m e r s , Uniform Commercial Code (5th ed.), § 2.10; see also SDCL 57A-2-202

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(p r o vid in g that writing intended as final expression of agreement "may not be c o n t r a d ic te d by evidence of any prior agreement or of a contemporaneous o r a l agreement."). Western presents evidence that the parties discussed the d e l iv e r y date of the boiler both orally and through faxes, emails, and letters a f t e r the bid and purchase order were exchanged. This evidence does not fall w it h in the ambit of the parol evidence rule. Western has not proposed evidence o f a "prior agreement" or "contemporaneous oral agreement" that would fall u n d e r Article 2's parol evidence rule. Thus, Blesi's argument that evidence of p o s t - p u r c h a s e order correspondence is barred by the parol evidence rule is u n a v a i lin g . This evidence may show that the parties modified their contract to a d d a specific delivery date at some point after they exchanged the bid and p u r ch a s e order. See SDCL 57A-2-209(1). F u r t h e r , even if Western's proposed evidence does fall under the parol e v id e n c e rule, the court cannot determine that such evidence is barred as a m a t t e r of law at this stage. Under the parol evidence rule, if the court finds that t h e parties intended the writing to be a complete and exclusive statement of the t e r m s of their agreement, then oral evidence relating to contract terms is not a d m is s ib l e unless it is evidence of course of dealing, usage of trade, or course of p e r f o r m a n c e offered only to explain or supplement the writing. SDCL 57A-22 0 2 ; see also Dakota Pork Indus. v. City of Huron, 638 N.W.2d 884, 886 (S.D. 2 0 0 2 ) (holding that evidence of oral understanding regarding additional term is

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n o t admissible where written contract intended to be complete and exclusive s t a t e m e n t of agreement was silent on this term); 1 White & Summers § 2-10. But if the court finds that the parties did not intend the writing to be a complete a n d exclusive statement of the terms of their agreement, then oral evidence of " c o n s is te n t additional terms" is admissible unless the court determines that " t h e additional terms are such that, if agreed upon, they would certainly have b e e n included in the document." SDCL 57A-2-202 cmt. 3; see also 1 White & S u m m e r s § 2-9.5 I n other words, the admissibility of evidence under the parol evidence rule h in g e s on the question of whether the parties intended the applicable writing to b e a complete and exclusive statement of the terms of their agreement. The q u e s t i o n of completeness and exclusivity is for the court. SDCL 57A-2-202(b); s e e also 1 White & Summers § 2-9. Here, the court cannot determine at this s t a g e as a matter of law whether Blesi and Western intended the bid and p u r c h a s e order to be a complete and exclusive statement of the terms of their a g r e e m e n t . Neither party has presented evidence of their intentions regarding t h e bid and purchase order or regarding any issues on which the writings are s ile n t . "Usually a judge should . . . go beyond the four corners [of the writing]

The parol evidence rule also provides that if the parties intended the w r it in g to be a final expression of their agreement with respect to particular t e r m s (rather than the agreement as a whole), then prior or contemporaneous e v id e n c e contradicting those terms is not admissible. 1 White & Summers § 21 0 . This aspect of the parol evidence rule is not in play in this case.

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a n d consider any proffered evidence on the issues of completeness and e x c lu s iv it y . At minimum the judge must learn of the context and of the c h a r a c t e r of the terms not in the writing." 1 White & Summers § 2-10. Further, in some cases, "the judge may need evidence explaining the offered t e r m , the relevant practice on comprehensiveness of writings and the reasons fo r exclusion of the term from the writing." Id. In the absence of such evidence, t h e court cannot determine that Blesi and Western intended the bid and p u r c h a s e order to be a complete and exclusive statement of the terms of their a g r e e m e n t . Thus, Blesi's argument that it is entitled to summary judgment b e c a u s e evidence regarding an unwritten agreement on the delivery date for the b o ile r is inadmissible fails. F in a l ly , even if Blesi were to prevail on its argument that the parties' c o r r e s p o n d e n c e regarding the delivery date of the boiler is inadmissible to show t h a t the parties agreed on a specific delivery date, there would still be an issue o f fact for the jury. When a contract is silent on the time for shipment or d e liv e r y , Article 2 provides that the time "shall be a reasonable time." SDCL 5 7 A - 2 - 3 0 9 . And "reasonable time . . . depends upon what constitutes a c c e p t a b le commercial conduct in view of the nature, purpose, and c ir c u m s t a n c e s of the action to be taken." SDCL 57A-2-309 cmt. 1. In light of t h e evidence that Blesi delivered the boiler as soon as Superior manufactured it, t h a t Western contacted other boiler manufacturers that were all experiencing

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d e l iv e r y times around September 23, 2006, for new orders, that Western in fo r m e d Blesi that Western was required to have the boiler installed and o p e r a t io n a l by October 13, 2006, and that Blesi acknowledged that the N o v e m b e r 3, 2006, estimated delivery date was not acceptable, in addition to t h e other evidence in the record, the question of what is a "reasonable time" for s h i p m e n t or delivery in this case is a question of fact properly left to the jury. See Superior Boiler Works, Inc. v. R.J. Sanders, Inc., 711 A.2d 628, 636 (R.I. 1 9 9 8 ) ("In the usual case the question of what constitutes a reasonable time u n d e r the UCC is one for the finder of fact to determine from the nature, p u r p o s e , and the circumstances surrounding the transaction."); see also Hepper v . Triple U Enters., Inc., 388 N.W.2d 525, 527 (S.D. 1986) (stating that jury was a d e q u a t e l y instructed on how to determine "reasonable time" under SDCL 57A1 - 2 0 4 (2 )) . O v e r a ll, in light of the many questions of fact for the jury relating to the m a t e r i a l terms of Blesi and Western's contract, neither Blesi nor Western is e n t it le d to judgment as a matter of law that the other party breached the con tract. II. W e s t e r n ' s Set-Off Defense W e s t e r n moves for summary judgment on its claim that if Blesi is entitled t o damages for breach of contract, then Western is entitled to reduce Blesi's d a m a g e s by the amount of the expenses Western incurred in renting, installing,

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a n d removing the temporary boiler as a result of Blesi's breach of the parties' co n tr a ct. A. W a iv e r

B le s i argues that Western waived this "set-off" defense by failing to plead it as an affirmative defense or counterclaim. Under Rule 8(c) of the Federal R u l e s of Civil Procedure, "[i]n responding to a pleading, a party must a f fir m a t i ve ly state any avoidance or affirmative defense." Fed. R. Civ. P. 8(c). Generally, failure to plead an affirmative defense results in waiver of that d e f e n s e . First Union Nat'l Bank v. Pictet Overseas Trust Corp., Ltd., 477 F.3d 6 1 6 , 622 (8th Cir. 2007). But "the Rule 8(c) pleading requirement is intended to g iv e the opposing party both notice of the affirmative defense and an o p p o r t u n it y to rebut it." Id. Thus, the Eighth Circuit has "eschewed a literal in t e r p r e t a t io n of the Rule that places form over substance." Id. "When an a f f ir m a t i v e defense is raised in the trial court in a manner that does not result in unfair surprise, . . . technical failure to comply with Rule 8(c) is not fatal." Id. (internal quotation omitted). H e r e , Western explicitly alleged two affirmative defenses in its Answer. First, Western stated, Defendant Western alleges as an affirmative defense that Plaintiff B l e s i breached its agreement when it failed to provide the boiler by S e p te m b e r 23, 2006, as it had promised and that Defendant W e s t e r n covered that breach by obtaining a rental unit until the p r o p e r boiler could be delivered, which rental and installation of the

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t e m p o r a r y unit required replumbing and significant labor and m a t e r ia ls by Defendant Western and additional replumbing, labor, a n d materials when the proper unit was delivered. A n s w e r of Western Mechanical Service, Inc., Docket 6 at ¶ 7. Second, Western sta te d , D e f e n d a n t Western alleges as a separate affirmative defense that all d a m a g e s claimed by Plaintiff Blesi were caused by Plaintiff Blesi's s u p p l ie r 's (Superior Boiler Works) failure to deliver the boiler on t i m e by September 23, 2006. The damages claimed by Plaintiff B l e s i were caused by its supplier, Superior Boiler Works, who s h o u ld be responsible to Plaintiff Blesi for any damage suffered. I d . at ¶ 8. As Blesi points out, Western did not explicitly state that it was e n t it le d to a set-off or a reduction in Blesi's claimed damages in the paragraphs d e n o m in a t e d as "affirmative defenses." But earlier in its answer, Western set o u t its claim for a reduction in Blesi's damages: D e f e n d a n t Western acknowledges that it has not paid Plaintiff Blesi a n y monies because those funds were consumed in the change-out, m o d ific a t io n s , installation, and rental of the temporary boiler, and r e m o v a l of the temporary boiler and modifications and installation o f the proper boiler as a result of Plaintiff Blesi's breach of its c o n tr a c t u a l obligation to deliver the boiler on time. I d . at ¶ 5. Assuming without deciding that Western's set-off defense is an affirmative d e f e n s e subject to Rule 8(c)'s pleading requirement,6 the court finds that

In a diversity action, whether a defense is an affirmative defense is a q u e s t i o n of state law. First Union, 477 F.3d at 621-22. Under South Dakota l a w , "[t]he buyer on notifying the seller of his intention to do so may deduct all o r any part of the damages resulting from any breach of the contract from any p a r t of the price still due under the same contract." SDCL 57A-2-717. The

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W e s te r n 's technical failure to state this defense under the heading of an " a f fir m a t i ve defense" is not fatal. The answer taken as a whole gives Blesi a d e q u a t e notice of Western's defense and an opportunity to rebut it, fulfilling t h e purposes of the Rule 8(c) pleading requirement. In paragraph 7, which sets o u t Western's first affirmative defense, Western alleged that it had to "cover" B le s i's breach by obtaining a temporary boiler. This allegation gives Blesi notice t h a t Western seeks to avoid full liability for Blesi's claimed damages based on t h e expenses Western incurred as a result of Blesi's conduct. Further, in p a r a g r a p h 5, Western alleged that the money it owed Blesi for the boiler was c o n s u m e d by the expenses Western incurred in installing and renting the t e m p o r a r y boiler as a result of Blesi's breach of its contractual obligation to d e l iv e r the boiler on time. Based on these paragraphs, the court finds that W e s te r n raised its set-off defense in its answer in a manner that has not r e s u lt e d in unfair surprise to Blesi. Blesi has not shown that it did not have n o tic e that Western seeks a reduction in Blesi's damages based on the expenses W e s te r n incurred in relation to the temporary boiler, nor has Blesi shown that t h e lack of clarity in Western's allegations has prejudiced Blesi's ability to r e s p o n d . In the absence of a showing of prejudice or unfair surprise to Blesi,

buyer may assert its damages under this provision as an affirmative defense to a n action brought by the seller for the purchase price. 1 James J. White & R o b e r t S. Summers, Uniform Commercial Code § 10-2 n.2 (5th ed.) (citing § 27 1 7 of the Uniform Commercial Code).

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t h e court finds that Western's technical failure to comply with Rule 8(c) is not fa ta l. See First Union, 477 F.3d at 622.7 And there is no authority to suggest t h a t Western was required to raise this defense as a counterclaim under Rule 1 3 . Thus, Western did not waive its set-off defense. B. S u m m a r y Judgment

W e s t e r n , however, is not entitled to summary judgment on this defense b e c a u s e there are disputed issues of material fact relating to the terms of the p a r t ie s ' contract, and consequently, the question of whether either party b r e a c h e d the contract. Western is not entitled to a "set off" as a matter of law. Article 2 provides that "[t]he buyer on notifying the seller of his intention t o do so may deduct all or any part of the damages resulting from any breach of t h e contract from any part of the price still due under the same contract." SDCL 57A-2-717. "This section permits the buyer to deduct from the price d a m a g e s resulting from any breach by the seller." SDCL 57A-2-717 cmt. 1. "The buyer, however, must give notice of his intention to withhold all or part of t h e price . . . [but] no formality of notice is required and any language which

Even if Western's answer did not sufficiently provide Blesi with notice of a n d an opportunity to rebut Western's set-off defense, the court would find that W e st e r n 's explicit assertion of this defense in its motion for summary judgment is sufficient to avoid waiver of the defense. See Stoebner v. Parry, Murray, Ward & Moxley, 91 F.3d 1091, 1093-94 (8th Cir. 1996) (per curiam) (finding that a b s e n t prejudice or lack of notice, affirmative defense may be raised for first t i m e in summary judgment motion). Under the facts of this case, Blesi would n o t be prejudiced by allowing Western to explicitly raise its set-off defense for t h e first time in its motion for summary judgment.

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r e a s o n a b l y indicates the buyer's reason for holding up his payment is s u f fic ie n t ." SDCL 57A-2-717 cmt. 2. Further, under SDCL 57A-2-712(1), if the s e lle r has failed to make delivery or has repudiated the contract, or if the buyer h a s rightfully rejected or justifiably revoked its acceptance of the goods, then " th e buyer may `cover' by making in good faith and without unreasonable delay a n y reasonable purchase of or contract to purchase goods in substitution for t h o s e due from the seller." SDCL 57A-2-711(1); SDCL 57A-2-712(1). If the b u y e r satisfies these requirements, "the buyer may recover from the seller as d a m a g e s the difference between the cost of cover and the contract price together w i t h any incidental or consequential damages . . . but less expenses saved in c o n s e q u e n c e of the seller's breach." SDCL 57A-2-712(2). Whether Western is e n t it le d to a "set-off" under these provisions depends on disputed fa c t s -- in c lu d in g whether Western provided sufficient notice to Blesi, whether B le s i failed to make delivery in accordance with the contract, whether Western r ig h t fu l ly rejected or justifiably revoked its acceptance of the boiler, whether W e s t e r n obtained the temporary boiler in good faith and without unreasonable d e la y , and whether the rental of the temporary boiler was intended as a s u b s t it u t e for the boiler ordered from Blesi--so the court cannot grant summary ju d g m e n t on this defense.8

Western cites a series of South Dakota and non-South Dakota cases h o l d i n g that the plaintiff in a breach of contract case is entitled to foreseeable c o n s e q u e n t ia l damages caused by the defendant's breach. None of these cases

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C O N C L U SIO N O v e r a ll, there are disputed issues of material fact that preclude judgment in favor of Blesi on its claim that Western breached its obligations under the p a r t ie s ' contract. These disputed issues also preclude judgment in favor of W e s t e r n on its defenses that Blesi breached its agreement to provide the boiler b y a specific time and that Western is entitled to reduce Blesi's claim by the e x p e n s e s Western incurred in renting a temporary boiler. Accordingly, it is h e r e by O R D E R E D that plaintiff's motion for summary judgment (Docket 55) is d e n ie d . I T IS FURTHER ORDERED that defendant's motion for summary j u d g m e n t (Docket 59) is denied. Dated April 13, 2010. BY THE COURT:

/s/

Karen E. Schreier

K A R E N E. SCHREIER C H I E F JUDGE

applied the UCC, so it unclear whether they apply to this case, and all of the c a s e s involved fact-specific determinations of whether the particular damages w e r e appropriate in that case. These cases do not support Western's claim that i t is entitled to a set-off of Blesi's damages as a matter of law.

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