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126 P.3d 928

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126 P.3d 928, 2006 WY 16, 24 IER Cases 78

(Cite as: 126 P.3d 928)

435 F.Supp.2d 1160

SCOTWOOD INDUSTRIES, INC., Plaintiffs/Counter-Defendant,

FRANK MILLER & SONS, INC., Defendant/Counter-Plaintiff.

No. 05-2180-JWL.

June 16, 2006.

, District Judge.

This case involves a contractual dispute concerning the sale of goods by Scotwood Industries, Inc. (“Scotwood”)

to Frank Miller & Sons, Inc. (“Miller and Sons”). Scotwood initially sued in Kansas state court for a declaratory

and Sons’ counterclaims (doc. 44). For the reasons explained below, the motion is granted in part and denied in

part. Specifically, the court will grant the motion as to the counterclaims based on the theory of rejection, breach

of express warranty, unjust enrichment, and promissory estoppel; the court will deny the motion as to the

counterclaims based on revocation of acceptance and breach of implied warranty of merchantability.

Background

The specific amount of calcium chloride flake that Miller and Sons received is unclear from the conflicted

record. The type of bags it was delivered in is also unclear. At one point, there is a statement that

Scotwood used bulk bags and 25 lb bags, but that is inconsistent with another statement that refers to

use of bulk bags and 25 kg bags.

Although it paid 35 of the 37 invoices for the 37 shipments it received, Miller and Sons alleges that the calcium

it retained the calcium chloride flake and exercised dominion and control by processing much of it for its own use.

Much of the factual record, in fact, is in dispute. The parties dispute the industry standard for a reasonable

inspection of calcium chloride flake; they also dispute whether in this case Miller and Sons conducted a

reasonable inspection of each delivery. Also, the parties disagree about the timing and the extent of Miller and

Sons’ objections regarding the quality of the 37 shipments of calcium chloride flake. Miller and Sons alleges that

an email from Miller and Sons to Scotwood on October 8, 2004, purportedly revoked acceptance of any calcium

chloride flake that Miller and Sons had previously accepted from Scotwood.

To be clear, Miller and Sons denies acceptance of any of the goods.

Standard for Summary Judgment

Summary judgment is appropriate if the moving party demonstrates that there is “no genuine issue as to any

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the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. . A fact

is “material” if, under the applicable substantive law, it is “essential to the proper disposition of the claim.” (citing

). An issue of fact is “genuine” if “there is sufficient evidence on each side so that a rational trier of fact could

showing that there is a genuine issue for trial.” (citing ); . The nonmoving party may not simply rest upon its

pleadings to satisfy its burden. accord . Rather, the nonmoving party must “set forth specific facts that would

be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.”

(quoting To accomplish this, the facts “must be identified by reference to an affidavit, a deposition transcript, or

a specific exhibits incorporated therein.” .

For purposes of this motion, the parties agree that Kansas law governs their contractual dispute under the UCC.

Because the choice of Kansas law is entirely reasonable, the court will analyze the substantive issues of the case

under Kansas law.

To the extent the court cites case law from other states, the court emphasizes that “[b]ecause the UCC is

intended to be applied uniformly across the various states, courts routinely turn to decisions from other

accepted these offers and delivered 37 shipments between July 19, 2004, and September 3, 2004. After each

shipment, Scotwood forwarded invoices to Miller and Sons that specifically included its “Terms and Conditions” of

sale. Scotwood identifies that paragraph 8(a) of its “Terms and Conditions” states:

Within forty-eight (48) hours after receipt of each shipment of the goods, Buyer shall examine the goods for any

*1165 damage, defect or shortage. Any and all claims for any cause of action whatsoever whether the cause of

receipt of the goods for which the claim was made, or within ten (10) days after Buyer learns of all facts giving rise

to the claim, whichever occurs first. Failure of Seller to receive written notice of any claim from Buyer within the

acceptable time period as previously set forth, shall be deemed an absolute and unconditional waiver by Buyer of

any and all claims, irrespective of whether the facts giving rise to the claim shall have then been discovered or

whether processing, further manufacture, or other use or resale of the goods shall have taken place.

terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such

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terms become part of the contract unless:

(b) they materially alter it; or

them is received.

The parties agree, in fact, that in deciding whether to apply the time limitation provision in each invoice forwarded

2-207(2)(b) is a question of fact that must be determined in light of the facts of the case and the parties’

expectations.” . See also (equating “materially alter” with invoking “hardship or surprise” and urging that this is a

factual question unique to the circumstances of each case) (citing Official Comment 4). To find that paragraph

8(a) does *1166 not “materially alter” the parties’ agreement, the court would have to find, as a matter of law, that

paragraph 8(a) is reasonable and therefore does not alter what Miller and Sons’ duty would have been had it not

chunking. In other words, any testing before processing would be destructive. It is also a fact issue whether

calcium chloride is a perishable good. This, in turn, further undercuts Scotwood’s assertion that its time limitation

provision is reasonable as a matter of law. Therefore, it is ultimately a genuinely disputed issue of material fact

whether paragraph 8(a) of the “Terms and Conditions” of the invoices “materially alters” the contract between

Miller and Sons and Scotwood. The court, therefore, cannot rule as a matter of law that all of Miller and Sons’

Scotwood of its rejection. See ; .

In deciding whether Miller and Sons accepted the calcium chloride, the first step is to define acceptance:

(1) Acceptance of goods occurs when the buyer

(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that

he will take or retain them in spite of their nonconformity; or

calcium chloride flake because it processed many of the shipments it received from Scotwood and then sold this

processed material on its own behalf. See (“A buyer is deemed to have accepted goods when, without making

any effort to reject them, he receives the goods, processes them, and sells the finished product.”) (citation

omitted). Ultimately, Miller and Sons admits that it exercised control over the calcium chloride flake, which

means that “[e]ven if it were said that [it] initially rejected the [goods], [its] continued use of it converted [its]

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its damages, however, is unsupported by any case law. Ultimately, it is undisputed that Miller and Sons

exercised dominion over the shipments of calcium chloride flake by processing them for its own use. This is the

essence of acceptance under § 2-606(1)(c).

Because Miller and Sons cannot meet the first element of rejection, the court need not continue in its analysis of

the rejection counterclaim. In sum, because Miller and Sons accepted the goods and acceptance precludes

little practical significance between revocation and rejection because “[a] buyer who properly revokes has the

same rights with regard to the goods involved as if he had rejected them.” ; see also (“A buyer who so revokes

has the same rights and duties with regard to the goods involved as if he had rejected them.”).

Revocation is governed by , which states:

(1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs

their own defects. It is not effective until the buyer notifies the seller of it.

Id.

Thus, a buyer may revoke acceptance when (1) nonconformity substantially *1168 impairs the value of the goods

to the buyer; (2) the buyer revokes within a reasonable time based on difficulty in discovering defects or because

the seller provided assurances; and (3) the buyer revokes before any substantial change in the goods not caused

nonconformity of the goods, the needs and circumstances of the buyer (subjectively), and that the nonconformity

in fact (objectively) impaired the value of the goods to the buyer.” , Kansas Comment 2.

In applying this test, however, “[n]onconformity, the needs and circumstances of the purchaser and substantial

impairment of value to a purchaser are all issues to be determined by a trier of fact.” Syl. 2 (1982); see also

(same).

usable flake and that only 50% of the processed 25 kg bags was usable flake. Miller and Sons also alleges that

Scotwood knew that it required a much higher purity level of flake than it received. Thus, there is a genuine issue

of material fact regarding substantial impairment of the value of the goods to Miller and Sons.

b. Reasonableness of the Timing of Revocation and the Difficulty of Discovering the Alleged Defects

Similarly, the reasonableness of the timing of revocation on October 8, 2004, is a genuinely disputed issue of

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material fact. When asked to decide whether a party pursued an “objectively reasonable” course, the Tenth

Circuit recently instructed that “we leave that determination for the jury.” . In this case, Scotwood cannot

demonstrate, as a matter of law, that Miller and Sons delayed its revocation for an unreasonable amount of time.

See (“The question of whether a buyer’s revocation of an acceptance is timely is, as with rejections, a question of

various employees of Scotwood, primarily Carl Wetzel and Chase Wilson. In the first email on August 5, 2004,

Mr. Miller informed Scotwood: “We have had problems on the last three shipments of Flake…. If this cannot be

corrected we will want to stop all shipments. The mess is too much to deal with!!!” Then, on August 13, 2004,

he notified Scotwood in an email: “We continue to have problems…. If this cannot be immediately corrected I

want to stop all further shipments.” He continued to alert Scotwood of defects, as evidenced in a September 1,

instances and that it continually alerted Scotwood numerous times that it was receiving substantially defective

shipments of calcium chloride flake.

The parties agree that Mr. Miller’s October 8, 2004, email was intended to revoke acceptance. Scotwood alleges

that this date was unreasonably untimely because of the perishable nature of calcium chloride flake, but this is a

disputed issue of fact based on the opinions of Miller and Sons’ experts indicating that, ordinarily, calcium chloride

from it quotes selectively, but this is unavailing. Questions of material fact remain.

Finally, the time frame for a reasonable revocation is further extended where, as here, the alleged defects were

latent, particularly where the buyer could not inspect the goods before beginning production without contaminating

them. Miller and Sons presents evidence that it is not practical to inspect calcium chloride flake until the

beginning of actual production. Its experts have opined that visual inspections are insufficient to identify

its acceptance based on a substantial change in the goods. The court is precluded from ruling as a matter of law

on this issue, however, because “[w]hat constitutes ‘substantial change’ is a question of fact.” (citing § 2–

608(2)). And it is largely disputed whether Miller and Sons revoked its acceptance before a substantial change in

the flake occurred. As the October 8, 2004, email from Mr. Miller quoted above explicitly indicates, Miller and

Sons early on attempted to arrange for Scotwood remove the goods from Miller and Sons’ possession, but

stored the flake outdoors, these assertions do not even warrant discussion, particularly given Scotwood’s

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