Lead Opinion
This appeal involves a default judgment granted Tyson Foods, Inc. in its suit against Kohlenberger, Inc. to recover damages allegedly resulting from operational failures of a “KR 60-A Kraki.ce Maker” purchased by Tyson from Kohlenberger. Kohlenberger relies upon the following points for reversal:
I. The court erred in refusing to set aside the default judgment awarded appellee.
II. The court erred in awarding judgment to appellee because the complaint does not state a cause of action.
III. The court erred in awarding more than nominal damages to plaintiff-appellee.
We will first discuss point I and then treat points II and III together.
Appellant is a foreign corporation, not authorized to do business in Arkansas. Its principal place of business is in Fullerton, California. The complaint was filed on November 8, 1972. Service was had under the “Long Arm Statute,” Ark. Stat. Ann. § 27-2501 — 2507 (Supp. 1973) by a letter dated November 11, 1972, from the Sheriff’s Department, Washington County, Arkansas, addressed to Mr. Allan A. Morris, President, Kohlenberger, Inc., enclosing a copy of the complaint and a summons. In the letter, sent by certified mail, the sheriff stated that answer would be due 30 days from receipt of the letter. Based upon the postmark on the return receipt, the sheriff’s return showed November 16, 1972, as the date of service.
On December 29, 1972, before judgment was entered, Kohlenberger, appearing specially, filed a motion to quash the summons and its service, upon jurisdictional grounds now immaterial. In the judgment entered February 22, 1973, after a hearing on February 8, 1973, the circuit court denied the motion to quash, held that the failure of Kohlenberger to appear or plead within the time allowed by law was not due to excusable neglect, unavoidable casualty or other just cause, and entered judgment against Kohlenberger for $84,-060.86 and costs. Kohlenberger then filed a motion to set aside and vacate the judgment. One of the grounds of this motion relates to the failure to timely appear and plead. In the motion Kohlenberger alleged as excusable neglect, unavoidable casualty, or just cause for its default, that summons was served on November 16, 1972, and on December 13, 1972, first placed in the hands of its California attorney, who called Tyson’s attorney, and requested that a default judgment not be taken. It was also alleged that the California attorney, being under the impression that the time for answer had already expired because the sheriff’s letter was dated November 11, 1972, and for “other reasons,” took no immediate steps to either file a pleading or apply for an extension of tin» within which to do so. Kohlenberger relied upon the pleadings and documents, testimony, evidence and statements of counsel at the hearing on February 8, 1973. This motion was denied.
The hearing on February 8 came upon regular call of the docket. Even though no allegation of unavoidable casualty, excusable neglect or other just cause was made in the motion to quash, it seems that the hearing was directed to the propriety of entry of a default judgment. In attempting to meet its burden Kohlenberger showed:
Robert J. DeMarco, a member of the litigation department of the California firm of Hill, Farrer and Burrell, consisting of 40 attorneys, received the summons which came to his firm’s office by mail on December 13, 1972, about 4:30 p.m. in the afternoon. On the next morning he had a telephone conversation with Mr. Dickson, the attorney who had filed the complaint. Dickson declined to give any assurance that a default judgment would not be entered because of acrimony engendered between the parties through controversy about the icemaker. There was no further communication between DeMarco and Dickson until after December 22, 1972, the date on which Kohlenberger employed the Little Rock firm of Eichenbaum, Scott, Miller, Crockett and Bryant. DeMarco was unaware of the date his client had actual ly received the summons, and of the fact that the return receipt had gone to the sheriff’s office rather than to Dickson’s office. He had assumed, since the letter was dated November 11, it would have been received by his client on November 13 in the usual course of the mails, and that Dickson had seen the return receipt. The name of the president of Kohlenberger, Inc. was Arval, not Allan, Morris. The company had no record indicating the time of receipt of the summons and complaint and had given DeMarco no explanation why it took nearly a monthto get them to him. DeMarco did not inquire of the Clerk of the Circuit Court of Washington County about the service and it did not occur to him that he might have had a Fayetteville attorney to check to determine whether Kohlenberger was in default or to seek an extension of time within which to plead. On the advice of a member of his firm, DeMarco sought to reach Mr.Charles Eichenbaum on December 14, but, finding that he was out of town and thinking that time was no longer of the essence because Dickson would seek a default judgment, did not talk to Eichenbaum until the following week. Dickson did not misrepresent the facts to DeMarco, but simply accepted DeMarco’s statement that Kohlenberger was in default.
After the circuit judge announced that the motion to quash was denied, Kohlenberger requested permission to file an answer on the ground that the failure to plead earlier was due to excusable neglect or other just cause. This permission was denied, but the court permitted Kohlenberger’s attorney to dictate its proposed answer into the record.
Appellant admits that there was neglect in this case, but asserts that it was excusable. It relies upon cases wherein we have held that neglect on the part of a defendant’s attorney was excusable because of some justification in his belief either that the pleading had been or would be timely filed or that the time for filing had not expired. See Fitzwater v. Harris,
II. and III.
We treat these points together, because the arguments, pro and con, seem inextricably intertwined. In support of point II appellant contends that the complaint stated no cause of action because under the allegations of the complaint there was an unrevoked acceptance of the icemaker by Tyson, there having been no allegation of either rejection or revocation of acceptance prior to the filing of the complaint, and no allegations pertaining to cover. Appellant’s argument under point III also depends, to some extent, upon the premise
Appellant admits that the complaint alleges notification of breach of warranty. Consequently, appellant argues there was no basis for the recovery of special, incidental or consequential damages prayed for in the complaint. This argument brings us to a consideration, first, of the damages recoverable for a breach of warranty and, then, of the right to recovery of special, incidental and consequential damages in the light of the facts alleged and those not alleged. In passing, however, we must say that appellee’s positive, but unsupported, assertion that Kohlenberger’s default bars it from raising these questions is without merit. A default admits only those facts alleged in the complaint and if they are insufficient to support the judgment, it will be reversed. Arkansas Bond Co. v. Harton,
Insofar as a breach of warranty is concerned, the buyer may recover the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner that is reasonable, the measure of which is the difference at the time and place of acceptance between the value of the goods and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. In a proper case any incidental and consequential damages may be recovered as provided in Ark. Stat. Ann. § 85-2-715 (
The buyer must pay at the contract rate for goods accepted, but this does not impair any other remedy he may have. Ark. Stat. Ann. § 85-2-607(1) and (2)
We have held that failure to allege that a properly verified account had been filed in the office of the clerk required reversal of a judgment for enforcement of a materialman’s lien. Chaffin v. McFaddin,
When we examine the complaint in the light of well-established rules requiring allegations to support a default judgment, we find defects fatal to the relief sought and granted. Tyson sought to allege three causes of action. The first was based upon breach of express warranty, the second on breach of implied warranty of merchantability and the third on breach of implied warranty of fitness. The allegations are sufficient to support relief by way of judgment on these causes of action for damages allowed in the case of accepted goods. There were sufficient allegations of notice of breach of warranty, but none whatever of notice of rejection or revocation. Plaintiff, however, sought to recover, on account of the breach of express and implied warranties, the purchase price paid for the icemaker and an additional sum of $57,873.40 for ice purchased, the cost of dismantling, removing and storing the defective equipment, loss of profits, good will, customers ind business. The judgment rendered was for the purchase price of the icemaker and associated equipment “as a result of the failure of the machine to operate as warranted,” $48,969.89 as “consequential damages” for ice purchased as a result of breach of warranty and $8,090.97 as “consequential damages” for expenditures for labor to grind and auger the ice purchased.
In the absence of any allegations of any effective rejection or revocation of acceptance, Tyson was not entitled to recover the purchase price. Its damages in this respect were limited to the difference at the time and place of acceptance between the value of the icemaker if it had been as warranted and its actual value. There were no allegations
The judgment was based on evidence heard by the court as well as the allegations of the complaint. Even if the evidence supplied the deficiencies, it would not support the judgment. The allegations of a complaint cannot be enlarged by evidence introduced to support a judgment by default. Kerr v. Kerr,
In order to properly approach answers to these questions, it is necessary that we consider the status of a defaulting defendant insofar as his participation in a hearing on application for default judgment is concerned. The plaintiff, of course, must introduce evidence to support any judgment for damages, in excess of nominal damages. Ark. Stat. Ann. § 27-1151 (Repl. 1962); Ferri v. Braun,
We indicated in Clark v. Collins, supra, that a defendant could also offer proof as to an adjustment of the amount claimed. While a defaulting defendant cannot introduce evidence to defeat plaintiff’s cause of action or to avoid it, any evidence that would tend to mitigate or minimize the damages or reduce the amount claimed, even to nominal damages, is admissible on behalf of a defaulting defendant. Mizell v. McDonald,
Kohlenberger contends that Tyson was not entitled to recover either incidental or consequential damages because there was no allegation in its complaint as to cover. It is true that a buyer can recover as consequential damages losses resulting from his general or particular requirements and needs only if the seller, at the time of contracting, had reason to know them and which could not reasonably have been prevented by cover or otherwise. Ark. Stat. Ann. § 85-2-715(2). It is also true that the burden of proving the loss is on the buyer, but this does not necessarily mean that he must first prove the negative of the proposition, i.e., that his loss could not have been prevented by cover. A plaintiff is not ordinarily required to plead matters relating to mitigation, minimization or reduction of his damages. 22 Am. Jur. 2d 388, Damages, § 292. See Annot.,
The burden of proof is on the employer to show that the servant might have obtained similar employment, for the failure of the servant to obtain other employment does not affect the right of action, but only goes in reduction of damages, and if nothing else is shown “the servant is entitled to recover the contract price, upon proving the employer’s violation of the contract, and his own willingness to perform.” The fact that the servant might have obtained new employment does not constitute a defense. It is one of the facts to be considered in estimating the servant’s loss.
Requiring a plaintiff to plead relating to these matters would be inconsistent with the traditional placing of the burden of proof. While we do not think that Tyson’s complaint was deficient in this respect or that Tyson bore the burden of proof as to cover, this does not mean that a defaulting defendant cannot offer evidence on this score. The right to offer such evidence, or to have evidence offered by either party considered by the factfinder in considering damages, is clearly indicated by the quotation from Van Winkle. It has been held that regardless of the rules of pleading, such matter may be shown in evidence if it tends to show that the damages claimed were never suffered or that they could have been diminished. See McClelland v. Climax Hosiery Mills,
As a further argument that Tyson was not entitled to the damages allowed, Kohlenberger relies upon clauses in the contract between the parties setting out an express warranty and a limitation of liability. They are:
1. WARRANTY. Kohlenberger warrants products herein described, so far as the same are of Kohlenberger’s own manufacture, to be free from defects in materials and/or workmanship for a period of eighteen months from date of shipment, or for twelve months from date of startup, whichever is shorter. If within the period of such warranty, purchaser promptly notifies Kohlenberger of any claimed defect . . . Kohlenberger will, at its option, repair or replace the same with like or similar part or parts or allow credit for the purchase price of the part, provided, however, that the purchaser shall be responsible for all transportation and labor charges relating to the repair, installation or removal of the same.
THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS,AND OF ANY OTHER OBLIGATION ON THE PART OF KOHLENBERGER.
The allowance of credit or repair or replacement of defective part or parts of Kohlenberger shall constitute the sole remedy of purchaser and sole liability of Kohlenberger whether on warranty, contract or negligence.
Upon the expiration of such warranty period, or in the event such products are subjected to misuse, negligence, alteration, accident, improper repair, or operated contrary to Kohlenberger's printed instructions or brochures, all liability of Kohlenberger shall cease.
With respect to any part or parts supplied hereunder which are not manufactured by Kohlenberger, the warranty of the manufacturer thereof shall apply and be exclusive. . . .
* * *
4. LIMITATION OF LIABILITY. Kohlenberger's liability on any claim of any kind, including negligence, for any loss or damage arising out of or connected with, or resulting from this proposal or from the performance or breach thereof, or from the manufacture, sale, delivery, resale, repair, or use of any product covered by or furnished under this proposal shall in no case exceed the price allocable to the product, part or parts thereof which give rise to the claim. Purchaser agrees that Kohlenberger shall not be liable for any damages to purchaser or to a third party arising out of the presence of the products of Kohlenberger on purchaser's promises or out of the use or operation thereof. In no event shall Kohlenberger be liable for any special, consequential or incidental damages.
Appellant urges that Tyson was limited to nominal damages by each clause. In considering this argument, we must recall that, in its complaint Tyson alleged breaches of both express and implied warranties. The contract between the parties was not set out in or exhibited to the complaint.
It has been held that evidence to show that no right of action existed is inadmissible. Garrard v. Dollar,
By default Kohlenberger admitted allegations of the complaint that warranties were made, that they were breached and that Tyson suffered damages. Hallett Construction Co. v. Iowa State Highway Commission,
Not only do the two clauses in question show the extent of the warranty breached, but they are certainly attendant circumstances which give character to the transaction and are relevant to the amount of Tyson's recovery.
By clause one, Kohlenberger sought to negate implied warranties of merchantability and of fitness, as well as to limit the remedy and recovery for any breach of its express warranty. Obviously, the negation of warranties would be a bar to an action for breach of those warranties and should have been pleaded as a defense which is not now available to Kohlenberger due to its default. It remains to be seen whether this clause and clause four are valid in respect to limitation of the remedy.
We have held an effort to limit recovery on breach of warranty to a refund of the purchase price of the goods to be unreasonable, unconscionable and against sound public policy when negligence on the part of the warrantor was clearly established. Dessert Seed Co. v. Drew Farmers Supply, Inc.,
1. Under this section parties are left free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect.
However, it is of the very essence of a sales contract that at least minimum adequate remedies be available. If the parties intend to conclude a contract for sale within this Article they must accept the legal consequence that there be at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract. Thus any clause purporting to modify or limit the remedial provisions of this Article in an unconscionable manner is subject to deletion and in that event the remedies made available by this Article are applicable as if the stricken clause had never existed. Similarly, under subsection (2), where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article.
* * *
3. Subsection (3) recognizes the validity of clauses limiting or excluding consequential damages but makes it clear that they may not operate in an unconscionable manner. Actually such terms are merely an allocation of unknown or undeterminable risks. The seller in all casesis free to disclaim warranties in the manner provided in Section 2-316.
The question of unconscionability must be determined in the light of general commercial background, commercial needs in the trade or the particular case, the relative bargaining position of the parties and other circumstances existing when the contract was made. This would seem to require that evidence be heard in this case. Ark. Stat. Ann. § 85-2-302, Committee Comment 1; Dow Corning Corporation v. Capitol Aviation, Inc.,
It would seem that the evidence introduced on this trial conclusively showed that the attempted modification and limitation failed of its essential purpose, as a matter of law. It has been held, properly we think, that when there is substantial evidence, as there is here, tending to show that a particular piece of machinery obviously cannot be repaired or its parts replaced so that the same is made free of defects, a jury verdict, which implicitly concludes that a limitation of the remedy to repair arid replacement of non-conforming parts deprived the purchaser of the substantial value of the bargain, should be sustained. Riley v. Ford Motor Co.,
In this respect, an Illinois appellate court, in sustaining the allegation of a complaint against a motion to dismiss which had the same effect as a demurrer in Arkansas, very aptly said in Adams v. J. I. Case Company,
Plaintiff does not plead any coercive, fraudulent, overreaching or unconscionable sales tactics so presumably the original limitation of liability was not unreasonable, and from all that appears the plaintiff made his purchase with full knowledge of the limitations. But plaintiff could not have made his bargain and purchase with knowledge that defendants would be unreasonable, or, in the words of his complaint, wilfully dilatory or careless and negligent in making good their warranty in the event of its breach. The manufacturer and the dealer have agreed in their warranty to repair or replace defective parts while also limiting their liability to that extent. Had they reasonably complied with their agreement contained in the warranty they would be in a position to claim the benefits of their stated limited liability and to restrict plaintiff to his stated remedy. The limitations of remedy and of liability are not separable from the obligations of the warranty. Repudiation of the obligations of the warranty destroy its benefits. The complaint alleges facts that would constitute a repudiation\by the defendants of their obligations under thé warranty, that repudiation consisting of their wilful failure or their careless and negligent compliance. It should be obvious that they cannot at once repudiate their obligation under their warranty and assert its provisions beneficial to them. Thus, the allegations of Count II ofplaintiff’s complaint invoke other provisions of the Uniform Commercial Code. Section 2-719(2) provides:
“Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act.”
Failure of the exclusive remedy provided in the warranty is readily found in the allegation that defendants were wilfully dilatory or careless and negligent in complying with their obligations under the warranty.
But we have ne assurance that the evidence will be the same either as to unconscionability or failure of purpose on a new trial.
Appellant argues that appellee was not entitled to recover for costs of labor in grinding ice purchased after the failure of the icemaker. The judgment was for $8,090.97 for sums expended by Tyson for labor to grind and auger ice purchased by it. There was no allegation pertaining to this item of damage in the complaint. The only allegation we can relate to this item of the judgment is that stating that Tyson expended $8,091.77 in labor costs in attempting to repair the equipment. Consequently, we find no basis for the award of this item of damages as a separate item.
Appellant also argues that Tyson was not entitled to recover $48,969.89 for ice purchased by it. Appellant states first that this is not the proper measure of damages because there was no deduction for expenses Tyson would have incurred if it had manufactured the ice itself. This question may well arise on a new trial, if the limitation on damages be found ineffective. Since damages to be awarded are intended to be compensatory, not punitive, if Tyson is entitled to recover special damages, it would be entitled to recover only the amount by which the cost of purchasing ice and preparing it for use exceeded its cost of manufacture by use of the machinery if it had performed properly. See Restatement of the Law, Contracts, § 329, p. 503, Illustration 4, p. 508.
Appellant also argues that the evidence was insufficient to support the full amount of $48,969 for ice purchased because of a failure of proof and because of the admission of incompetent evidence in support of this item. This evidence consisted of various invoices introduced through the president of the processing division of Tyson. Appellant points out that one invoice is for storage or purchase of frozen foods, rather than for purchase of ice. While we have been unable to connect such an item with the breach of warranty, the only objection made to the introduction of this and other invoices on which the judgment was rendered was that they constituted hearsay. Of course, if the invoices were records of Tyson made in the regular course of its business, and their relevance is shown, they are admissible as against the objection made. Ark. Stat. Ann. § 28-928 (Repl. 1962); Rogers v. Frank Lyon Company,
Notes
We recognize that the contract may furnish the guide to measurement of damages. St. Louis, I. M. & S. Ry. v. Mudford,
Dissenting Opinion
dissenting. I must disagree with the majority opinion in so far as it holds that Kohlenberger, Inc., can prove its contractual limitation of damages and modification of remedy.
Our decisions consistently hold that in the absence of a plea of payment, proof thereof is inadmissible. See Arkansas Power & Light Company v. Liebe, Admix.,
“There are several reasons why the Court was correct in this ruling. The first relates to the rules of pleading: i.e.., under a general denial testimony of confession and avoidance cannot be heard such as here: the defendant confesses his act of signing the note but seeks to avoid the effect by claiming he signed, as an officer of a corporation. Some of our cases showing the limited evidence that may be offered under a general denial are: Grier v. Yutterman,102 Ark. 433 ,145 S.W. 194 ; and Shirk v. Williamson,50 Ark. 562 ,9 S.W. 562 . Our cases are in accord with the general rules as regards pleadings. In41 Am. Jur. 396 , ‘Pleadings' § 149, the text reads: ‘Like the general issue, the general denial operates as a denial of every material allegation of the complaint as fully as if it had been specifically and separately denied. . . .It covers defenses which go to destroy the plaintiff’s cause of action, but not those which are grounded on new matter or matters in avoidance or other defense that must he specially pleaded.’’ (emphasis supplied.) And in § 155 of the same text the general holdings are summariz.ed: 'Since the plaintiff must apprise the defendant in the beginning as to what he relies upon for a recovery, it is only right that the defendant should be required also to inform the plaintiff of any special or affirmative defense he expects to make by pleading the facts constituting such defenses. ’ ”
Furthermore, in St. Paul Ins. Co. v. Gray,
“A jury trial resulted in a verdict in favor of appellee for $2,575.85, from which appellant prosecutes this appeal, assigning seven separate points for a reversal.
1. In appellant’s answer it admitted owing appellee $190.88 for damage to the tractor, and now contends that is the only amount supported by the evidence. This contention by appellant is based on the assertion that appellee did not offer in evidence the policy provisions relied on to ‘establish the amount ol his loss.’ There is no merit in this contention because appellant, in its answer, admitted issuing the insurance, policy covering the tractor and admitted the tractor was damaged while the policy was in effect. Therefore, if there was any provision in the policy which limited the amount of coverage it was the duty of appellant to plead it affirmatively. Stucker v. Hartford Accident and Indemnity Company,, 220 Ark. 475 248 S.W. 2d 383 and Bankers Insurance Company v. Hemby,217 Ark. 749 ,233 S.W. 2d 637 .”
By the default to the complaint of Tyson’s Foods, Inc., Kohlenberger, Inc., admitted that it breached an express warranty, an implied warranty of merchantability and an implied warranty of fitness. Yet, as I understand the majority opinion, it is permitting Kohlenberger, Inc., who defaulted, to prove in mitigation of damages not only that it contractually excluded any implied warranties of merchantability or fitness but also that it limited its liability for breach of the warranty including an exclusion of all consequential or incidental damages. To me these are either new matters or matters by way of confession and avoidance, and when we place a defaulting defendant in a better position on proof of damages than we would one who had filed a general denial, we are placing an undue burden upon both the plaintiff and the trial court. Under the majority view the plaintiff, just to prove his damages, would have to anticipate every conceivable affirmative defense and have the witnesses available in court to make the necessary proof to overcome the defaulting defendant's evidence.
Since I consider payment, exclusion of implied warranties of merchantability or fitness and a contractual limitation of liability as matters that must be specifically pleaded, it follows that 1 find that the trial court was correct in allowing “(b) $48,969.89, as consequential damages resulting from defendant's breach of warranty as the result of ice purchased by plaintiff [Tyson’s Foods, Inc.| to perform its operations during times said machinery was either partially or totally inoperative." Under those circumstances it would appear that Tyson's Foods. Inc., upon the entering of a remittitur for all amounts in excess of $48,969.89 would be entitled to an affir-mance as modified.
For the reasons herein stated I respectfully dissent.