Title Tigg Corporation v. Dow Corning Corporation
Date 1992
By Alito
Subject Misc
Contents
Page 1
218 of 238 DOCUMENTS
TIGG CORPORATION, Appellant in 91-3345 v. DOW CORNING CORPORATION, Appellant in 91-3232 and 91-3344
Nos. 91-3232, 91-3344 and 91-3345
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
962 F.2d 1119; 1992 U.S. App. LEXIS 8454; 17 U.C.C. Rep. Serv. 2d (Callaghan) 730
December 12, 1991, Argued
April 29, 1992, Filed
PRIOR HISTORY: **1 ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 84-01736)
CASE SUMMARY:
PROCEDURAL POSTURE: Defendant buyer appealed a decision of the United States District Court for the Western District of Pennsylvania, which entered judg- ment on a jury verdict for plaintiff seller in an action for breach of a requirements contract. Defendant sought reversal on the ground that the jury instructions were er- roneous.
OVERVIEW: Plaintiff seller alleged breach of a require- ments contract through defendant buyer's bad faith failure to purchase the minimum amounts stated in the contract. Judgment was entered on a jury verdict for plaintiff, and defendant appealed claiming errors in the jury instruc- tions on the burden of proof and measure of damages. The court affirmed the judgment on liability, but reversed and remanded on damages. The district court did not mis- lead the jury on plaintiff's burden of proving bad faith when it gave an instruction that defendant was required to conduct its business in good faith because that instruc- tion referred to the obligation under the contract, not the burden of persuasion. Taken as a whole, the liability in- structions did not recast the burden of proof, and presented no ground for reversal. It was error to instruct the jury that plaintiff's lost profits were the proper measure of damages because under Michigan contract law the general measure was the contract price less the market price, unless that remedy was inadequate. Because the jury was not asked whether that measure was inadequate, the instruction was reversible error that required a new trial on damages.
OUTCOME: The court affirmed the district court's judg- ment on the issue of liability, but found error in the in-
structions regarding damages, and remanded the case for a new trial on damages.
LexisNexis(R) Headnotes
Civil Procedure > Jury Trials > Jury Instructions
HN1 Jury instructions are reviewed on appeal to deter- mine whether, if taken as a whole, they properly apprised the jury of the issues and the applicable law. The charge, taken as a whole and viewed in light of the evidence, must fairly and adequately submit the issues in the case to the jury.
Civil Procedure > Appeals > Standards of Review > De
Novo Review
HN2 Questions of law are subject to plenary review.
Civil Procedure > Jury Trials > Jury Instructions
HN3 While jury instructions must fairly and adequately submit the issues in the case to the jury, a trial judge has broad discretion concerning the particular language used in a jury instruction.
Commercial Law (UCC) > Sales (Article 2) > Obligation
& Construction
HN4 The obligation to use best efforts to resell a product is imposed upon those buyers engaged in exclusive deal- ing in the kind of goods concerned. Mich. Comp. Laws
§ 440.2306(2). This obligation is intended to protect the original seller, who in an exclusive arrangement depends solely upon the buyer to resell the goods.
Commercial Law (UCC) > Sales (Article 2) > Obligation
& Construction
HN5 In a non-exclusive arrangement the buyer's efforts in reselling the product may have little effect on the orig- inal seller. If the buyer does not resell the product, the seller, without breaching the contract, may solicit orders from other potential buyers. By contrast, in an exclusive dealing arrangement the seller has only one outlet for its goods. It is obligated not to sell to anyone except the
962 F.2d 1119, *; 1992 U.S. App. LEXIS 8454, **1;
17 U.C.C. Rep. Serv. 2d (Callaghan) 730
Page 2
buyer. In such a situation, the seller's interests are inextri- cably bound up with the success of the buyer in reselling the product. The obligation placed on the buyer to use best efforts reflects its monopoly power; the exclusivity arrangement makes the seller as subject to the decisions of the buyer as a subsidiary within the buyer's firm. The obligation of best efforts forces the buyer/reseller to con- sider the best interests of the seller and itself as if they were one firm.
Commercial Law (UCC) > Sales (Article 2) > Obligation
& Construction
HN6 The obligation to use best efforts is implied un- der Mich. Comp. Laws § 440.230(2), unless otherwise agreed, whenever the parties have made a contract to re- frain from supplying any other dealer or agent. Mich. Comp. Laws § 440.2306. In order for an obligation to use best efforts to be implied, the contract need not involve special kinds of parties or goods; the contract need only preclude the seller from selling goods to any other buyer while the contract is in force.
Commercial Law (UCC) > Sales (Article 2) > Breach, Repudiation & Excuse
HN7 Under the Uniform Commercial Code, a require- ments buyer may have a good faith reason for demanding no goods from the seller. In such a case, the buyer does not breach by ordering no goods.
Civil Procedure > Appeals > Standards of Review > Standards Generally
HN8 In a civil case, an erroneous jury instruction pro- vides a basis for reversal only if it was inconsistent with substantial justice, Fed. R. Civ. P. 61, or affects a substan- tial right of a party, Fed. R. Evid. 103(a).
Commercial Law (UCC) > Sales (Article 2) > Remedies
HN9 A seller's damages for non-acceptance or repudia- tion are generally measured by the difference between the market price at the time and place for tender and the un- paid contract price together with any incidental damages provided in Article 2 of the Uniform Commercial Code, but less expenses saved in consequence of the buyer's breach. Mich. Comp. Laws § 440.2708(1).
Commercial Law (UCC) > Sales (Article 2) > Remedies
HN10 Mich. Comp. Laws § 440.2708(2) provides for damages measured by the profit (including reasonable overhead) which the seller would have made from full per- formance by the buyer, together with any incidental dam- ages provided in Article 2 of the Uniform Commercial Code, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. Commercial Law (UCC) > Sales (Article 2) > Remedies
HN11 A lost volume seller is one who upon a buyer's breach of contract, resells the article to a second purchaser
at the price agreed to by the first purchaser. The second purchaser, however, would have purchased a similar ar- ticle notwithstanding the first purchaser's breach. Under such circumstances, when the seller resells the article, he is still not made whole because he will have lost one sale, one profit, over the course of the year.
Commercial Law (UCC) > Sales (Article 2) > Remedies
HN12 Contract market damages are inadequate in cases involving specialty items because of the difficulty in re- selling unique products that have been manufactured for and have special value to certain buyers. The determina- tion whether the goods are specialty items is properly for the finder of fact.
COUNSEL: R. DELL ZIEGLER, ESQ. (Argued), ANTHONY J. GUIDA, JR., ESQ., BUCHANAN INGERSOLL PROFESSIONAL CORP., 58th Floor,
600 Grant Street, Pittsburgh, PA 15219, Attorneys for
Appellee and Cross-Appellant, TIGG Corporation. WILLIAM T. COLEMAN, JR., ESQ. (Argued), DEBRA A. VALENTINE, ESQ., NANCY E. MC FADDEN, ESQ., JOHN A. ROGOVIN, ESQ., O'MELVENY & MYERS, 555 13th Street, N.W., Suite 500 West, Washington, D.C. 20004-1109, JAMES R. JENKINS, ESQ., GREGORY G. THIESS, ESQ., JAMES J. HAYES, IV, ESQ., OFFICE OF THE GENERAL COUNSEL, DOW CORNING CORPORATION, 2200 W. Salzburg Road, Auburn, Michigan 48611, Attorneys for Appellant and Cross-Appellee, Dow Corning Corporation. JUDGES: Before: BECKER, GREENBERG and ALITO, Circuit Judges
OPINIONBY: ALITO
OPINION:
*1122 OPINION OF THE COURT
ALITO, Circuit Judge:
This is a breach of contract case. Following a jury verdict, the district court entered judgment for the plaintiff, Tigg Corporation, and against the defendant, Dow Corning Corporation, for more than $17.5 million, plus interest. Dow Corning appealed, and Tigg cross-appealed, alleg- ing error in the determination **2 of interest. We will affirm on all issues related to liability, but we will reverse and remand for a new trial on the question of damages.
I.
The contracts in question concerned a new product developed to remove polychlorinated biphenyls ("PCBs")
962 F.2d 1119, *1122; 1992 U.S. App. LEXIS 8454, **2;
17 U.C.C. Rep. Serv. 2d (Callaghan) 730
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from electrical transformers. PCBs are toxic, and in 1982 the Environmental Protection Agency issued final reg- ulations restricting the use, servicing, and disposal of transformers containing PCBs. At that time, thousands of existing transformers contained askarel fluid, a coolant rich in PCBs. The EPA regulations created an incentive for owners to remove the PCBs from existing transform- ers rather than replacing them. In order to accomplish this task, it was necessary, not only to replace the fluid with a substitute, but to remove the PCBs that had been absorbed over the years by the wood and paper products in a transformer's core.
To satisfy the anticipated demand for a product ca- pable of removing these PCBs, Tigg and Dow Corning entered into a joint development agreement for a new product known as "RetroSil." This product, which con- sisted of a pumping unit (called a control station) and a filter component (called the adsorber unit), was **3 intended to work as follows. After the askarel fluid was drained from a transformer and replaced with a different coolant, Dow Corning 561 Silicone Transformer Fluid, the PCBs in the core would leach into the new fluid. The new fluid would be pumped through the adsorber unit, and the PCBs would be removed.
In June 1982, Tigg and Dow Corning entered into two agreements under which Tigg was to supply Dow Corning with its requirements of control stations and adsorbers. For the years 1982, 1983, and 1984, the agreements speci- fied Dow Corning's "minimum" and "expected" purchases of control stations and adsorbers. The agreements did not specify figures for 1985 and 1986, but stated that these were to be provided by July 1, 1984. Under the agree- ments, if Dow Corning did not purchase the minimum adsorber units during a particular year, Tigg could sell these units to other customers.
Dow Corning bought the stated minimum for 1982. The minimums for 1983 were reduced by agreement of the parties, n1 but Dow Corning's purchases still fell short. Dow Corning purchased 102 control stations (instead of the reduced minimum of 480) and 500 adsorbers (instead of the reduced minimum of 1750).
n1 Tigg claimed that this agreement was un- enforceable for a variety of reasons. App. at 38
(Amended Complaint, Count Two).
**4
In April 1984, Dow Corning claimed a "technical fail- ure" in the product pursuant to a provision of the agree- ments and notified Tigg that it was suspending purchases. Dow Corning eventually terminated the agreements. For the entire year of 1984, Dow Corning bought no control
stations and only 105 adsorbers; the minimums in the contract were 825 control stations and 2500 adsorbers. Dow Corning made no purchases for 1985 and 1986.
Tigg sued Dow Corning for breach of contract in the United States District Court for the Western District of Pennsylvania based on diversity of citizenship. Count One of the amended complaint alleged that *1123 the contracts required Dow Corning to purchase the stated minimums in 1983 and 1984 but that Dow Corning had failed to do so. Count Two alleged that Dow Corning had wrongfully reduced the stated minimums for 1983. Count Three alleged that Dow Corning had acted in bad faith in setting its requirements (at nothing) for the years 1985 and 1986. Dow Corning contended that the minimums were not binding and that it had acted in good faith in setting its requirements.
The district court originally granted partial summary judgment for Tigg, holding that the contracts **5 un- ambiguously required Dow Corning to purchase the min- imums set out in their provisions. The district court cer- tified this question for interlocutory review, and we re- versed, holding that there was a genuine issue of material fact concerning the intended meaning of the term "mini- mum." Tigg Corp. v. Dow Corning Corp., 822 F.2d 358
(3d Cir. 1987).
The case was then tried before a jury. Dow Corning contended that the minimums were not binding and that RetroSil was a flawed product that was rejected by the market. Dow Corning's position was that RetroSil could not reduce PCBs to acceptable levels any sooner than the leaching process itself allowed -- about three to five years after the initial draining and flushing of a transformer. Since competing products cleansed transformers more ef- ficiently and quickly, Dow Corning argued, RetroSil was a failure.
Tigg, on the other hand, argued that RetroSil was tech- nologically sound. Tigg blamed any problems on other causes, such as the failure to change filters frequently enough and the use of Fluid 561 rather than allegedly better fluids. Tigg claimed that Dow Corning decided to abandon RetroSil, not because of defects in the **6 product, but for other reasons, such as Dow's inability to produce enough Fluid 561 to meet the demand that existed even without RetroSil sales.
The jury returned verdicts for Tigg. The court then entered a judgment for Tigg in the amount of approxi- mately $10 million, plus interest. In response to a motion by Tigg, the court later amended the judgment to add post-complaint interest so that the judgment exclusive of post-judgment interest was approximately $17.5 million.
II.
962 F.2d 1119, *1123; 1992 U.S. App. LEXIS 8454, **6;
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Dow Corning argues that the judgment should be re- versed based on several alleged errors in the jury instruc- tions. HN1 We review jury instructions to determine whether, if taken as a whole, they properly apprised the jury of the issues and the applicable law. Gutzan v. Altair Airlines, Inc., 766 F.2d 135, 138 (3d Cir. 1985). "The charge, taken as a whole and viewed in light of the ev- idence, must fairly and adequately submit the issues in the case to the jury." Link v. Mercedes-Benz of N. Am., 788 F.2d 918, 920 (3d Cir. 1986). Several of Dow Corning's arguments involve questions of Michigan con- tract law. HN2 These questions are subject to plenary review. Compagnie des Bauxites v. Insurance Co. of N. Am., 724 F.2d 369, 371 (3d Cir. 1986). **7
A. Instructions Concerning the Burden of Persuasion With Respect to Dow Corning's Alleged Bad Faith in Count Three. Dow Corning's first set of arguments con- cerns the burden of persuasion on an element of Tigg's Count Three claims. As previously noted, Count Three claimed that Dow Corning acted in bad faith by not pur- chasing any control stations and adsorbers during 1985 and 1986, years for which no numerical minimums were specified in the contracts. In a requirements contract for the sale of goods, the Michigan Commercial Code im- poses an obligation on the buyer to exercise good faith in setting its requirements. Mich. Comp. Laws Ann. here- inafter Mich. § 440.2306(1) (corresponding to U.C.C. §
2-306(1)); Lorenz Supply Co. v. American Standard, Inc.,
419 Mich. 610, 358 N.W.2d 845, 855 (1984) (Brickley, J., concurring).
Dow Corning contends, and Tigg does not dispute, that the burden of proving Dow's bad faith should have been placed on Tigg. We agree. Case law implies, but seemingly only implies, that the seller in a *1124 re- quirements agreement case should bear this burden. See Advent Sys. Ltd. v. Unisys Corp., 925 F.2d 670, 680 (3d Cir. 1991) (Pa. Com. Code); **8 Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 (7th Cir. 1988) (Ill. Com. Code); Angelica Uniform Group, Inc. v. Ponderosa Sys., Inc., 636 F.2d 232 (8th Cir. 1980) (Mo. Com. Code)
(motion for new trial on ground that the court erroneously placed the burden regarding bad faith on the requirements seller was denied). Some commentators, however, ad- vance a different theory, viz, that whoever is to benefit from a showing of bad faith must prove that element. See
1 J. White & R. Summers, Uniform Commercial Code §
3-8 (3d ed. 1990). In this case, Tigg would benefit from a showing of bad faith. Thus, under either theory, the district court should have placed the burden on Tigg. We now consider whether the charge adequately instructed the jury regarding the placement of this burden.
1. Dow Corning argues that the jury was misled be-
cause the district court refused to give an instruction ex- plicitly stating that Tigg had the burden of proving bad faith. The court, however, did give a general instruction assigning to Tigg the burden of persuasion on all elements of its claims. The court stated:
The plaintiff has the burden of proving **9 those con- tentions which entitle it to relief. When a party has the burden on a particular issue, its contention on that is- sue must be established by a fair preponderance of the evidence. n2
n2 Likewise, before opening arguments, the court told the jury that "the plaintiff has the bur- den of establishing or proving the issues presented in its case by the fair weight or preponderance of evidence." App. at 881. The court explained that
"fair weight and preponderance . . . means evi- dence which, when weighed against that which is opposed to it, has more convincing force so that the greater probability of truth lies therein." App. at 881.
App. at 2322. A short time later, the court referred to
Tigg's bad faith claim. "In Count Three," the court stated,
"plaintiff claims that defendant did not act in good faith when it failed to buy its requirements for the years 1985 and 1986." Taken together, these two portions of the in- structions meant that Tigg had the burden of proving bad faith; thus these two portions of the instructions **10 conveyed the same message as the specific instruction that Dow Corning sought. To be sure, the specific instruction that Dow Corning requested would have helped to ensure that the jury correctly understood the law, but we can- not say that the omission of such an instruction was error.
HN3 While jury instructions must "fairly and adequately submit the issues in the case to the jury" ( Link, 788 F.2d at 920), a trial judge has broad discretion concerning the particular language used in a jury instruction.
Dow Corning also maintains that the following in- struction erroneously implied that Dow Corning bore the burden of persuasion on this point:
In count three, Plaintiff claims that Defendant did not act in good faith when it failed to buy its requirements for the years 1985 and 1986. The defendant claims that it acted in good faith and had no requirements for the years
1985 and 1986. . . . In this case, the defendant is required to conduct its business in good faith and according to commercial standards of fair dealing in the trade . . . .
962 F.2d 1119, *1124; 1992 U.S. App. LEXIS 8454, **10;
17 U.C.C. Rep. Serv. 2d (Callaghan) 730
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App. at 642 (emphasis added).
We do not believe that this instruction improperly as- signed the burden of persuasion. The critical **11 state- ment -- "In this case, the defendant is required to conduct its business in good faith and according to commercial standards of fair dealing in the trade" -- referred to Dow Corning's obligation under the contracts, not its burden of persuasion in court. Accordingly, we see no error. n3
n3 Dow Corning also contends that the dis- trict court misplaced the burden of persuasion in the special interrogatory submitted to the jury. This special interrogatory asked: "Do you find from a preponderance of the evidence that defendant acted in good faith in buying its requirements during the years 1985 and 1986? App. at 650. We find no in- dication in the record that Dow Corning objected to this wording at trial. Therefore, we will not reverse on this ground.
*1125 2. Dow Corning maintains that the district court erroneously recast the burden of proof when it in- structed the jury as follows:
Good faith imposes upon the defendant an obligation to use its best efforts to promote the sale of the equipment covered by the contracts.
**12
Dow Corning contends that a buyer's duty of "good faith" under a requirements contract (see Mich. § 440.2306(1)) does not include a duty to use "best efforts" to market the product purchased. Accordingly, Dow Corning ar- gues that the instruction was improper. We disagree that the instruction was improper.
First, we do not believe that this instruction placed the burden of proving bad faith (or lack of best efforts) on Dow Corning. The instruction merely said that Dow Corning was obligated under the contract to use its best efforts to promote the sale of RetroSil. The instruction did not say anything concerning which party had the burden of proving lack of best efforts. Indeed, the instruction said nothing at all about the burden of proof.
Second, we agree with the district court that Dow Corning had a duty under the agreements to use its best efforts to promote RetroSil. HN4 The obligation to use best efforts to resell a product is imposed upon those buy- ers engaged in "exclusive dealing in the kind of goods concerned . . . ." Mich. § 440.2306(2) (corresponding to U.C.C. 2-306(2)). See Lorenz, 358 N.W.2d at 854 n.4
(Brickley, J., concurring). This obligation is **13 in- tended to protect the original seller, who in an exclusive arrangement depends solely upon the buyer to resell the
goods. n4 See Wood v. Lucy, Lady Duff-Gordon, 222 N.Y.
88, 118 N.E. 214 (N.Y. 1917).
n4 The seller in such an arrangement must "use best efforts to supply the goods . . . ." Mich. §
440.2306(2) (corresponding to U.C.C. 2-306(2)). Dow Corning has not alleged that Tigg failed in this duty.
HN5 In a non-exclusive arrangement the buyer's ef- forts in reselling the product may have little effect on the original seller. If the buyer does not resell the product, the seller, without breaching the contract, may solicit orders from other potential buyers. By contrast, in an exclusive dealing arrangement the seller has only one outlet for its goods. It is obligated not to sell to anyone except the buyer. In such a situation, the seller's interests are inextricably bound up with the success of the buyer in reselling the product. The obligation placed on the buyer to use best ef- forts reflects its monopoly power; the **14 exclusivity arrangement makes the seller as subject to the decisions of the buyer as a subsidiary within the buyer's firm. The obligation of best efforts forces the buyer/reseller to con- sider the best interests of the seller and itself as if they were one firm.
Dow Corning contends that the agreements in this case were requirements contracts, not exclusive dealing agreements. There is no reason, however, why a require- ments contract may not also involve an exclusive dealing restriction. Such a contract would obligate the buyer to buy its requirements from the seller and obligate the seller to sell only to the buyer. That is precisely the nature of the agreements between Tigg and Dow Corning. Dow Corning was obligated to buy its requirements from Tigg; thus, Dow Corning owed a duty to set its requirements in good faith. Tigg was generally forbidden to sell to any other buyer; thus, Dow Corning owed a duty to use its best efforts to resell the product.
Dow Corning argues that the agreements did not cre- ate an exclusive dealing arrangement because Tigg could sell adsorbers to other buyers if Dow Corning did not buy the stated minimums. However, the jury found Dow Corning in breach for **15 failing to order the stated minimums in 1983 and 1984 and found the minimums to be binding. This means that the provision allowing Tigg to sell to other buyers was operative only in the event of Dow Corning's breach. So long as Dow Corning did not breach, Tigg was obligated to sell to Dow Corning and only Dow Corning. *1126 Accordingly, the provision on which Dow Corning relies is only, in effect, a remedies clause, and we do not believe that such a clause, by itself, destroys the exclusivity of the contract. n5
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17 U.C.C. Rep. Serv. 2d (Callaghan) 730
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n5 The Michigan Commercial Code itself pro- vides a similar remedy for the seller in an exclu- sive dealing agreement. When the buyer in such an agreement breaches, the seller may sell the goods to others. Mich. § 440.2706 (corresponding to U.C.C.
§ 2-706). Since this rule of law does not destroy the exclusivity of the contracts to which it applies, the same must be true of the contract provision here.
Dow Corning suggests that the agreements in this case were not exclusive dealing agreements because Tigg was an "equipment **16 supplier," rather than a manufac- turer, and Dow Corning was not a "distributor." These labels, however, are not dispositive. Nor is it dispositive, as Dow Corning suggests, that the agreements did not expressly require that Dow Corning use its best efforts.
HN6 The obligation to use best efforts is implied under the Mich. § 440.230(2) (corresponding to U.C.C. § 2-
306(2)) "unless otherwise agreed" whenever the parties have made a "contract to refrain from supplying any other dealer or agent . . . ." Mich. § 440.2306 (corresponding to U.C.C. § 2-306) official comment 5. In order for an obligation to use best efforts to be implied, the contract need not involve special kinds of parties or goods; the contract need only preclude the seller from selling goods to any other buyer while the contract is in force. n6 The contract between Tigg and Dow Corning imposed such an obligation, and therefore the district court was correct in charging on best efforts. n7
n6 Dow also argues that because it insisted on the exclusivity arrangement in order to protect its interest in the technology it was to allow Tigg to use in the joint venture no best efforts obligation ought to be implied. We disagree. Mich. § 440.2306(2) imposes this obligation when its terms are met re- gardless of the motivation for agreeing to those terms or the interest the parties seek to protect in agreeing to those terms. Dow has cited no author- ity that suggests that either the exclusive nature of the arrangement is destroyed or that the obligation to use best efforts should not be applied in this circumstance.
**17
n7 The district court erred in suggesting that a requirement buyer's obligation to take requirements in "good faith" under Mich. § 440.2306(1) (corre- sponding to U.C.C. § 2-306(1)) includes a duty to exercise "best efforts" to promote the resale of the product. The obligation to use "best efforts" to re- sell the product exists under Mich. § 440.2306(2)
(corresponding to U.C.C. § 2-306(2)) only in an exclusive dealing contract. Therefore, under a re- quirements contract lacking an exclusive dealing provision, no "best efforts" duty would exist. In the present case, however, the contracts in ques- tion contained both "requirements" and "exclusive dealing" provisions and therefore both obligations applied.
In describing the "best efforts" obligation of a buyer under an exclusive dealing contract, some courts have written that this obligation entails a duty to act in good faith. See, e.g., Gestetner Corp. v. Case Equip. Co., 815 F.2d 806 (1st Cir. 1987) (Me. Com. Code); Hoover's Hatchery, Inc. v. Utgaard,
447 N.W.2d 684 (Ia. App. 1989); Kubik v. J & R Foods of Or., Inc., 282 Ore. 179, 577 P.2d 518 (Or.
1978). While we agree that an exclusive dealing buyer's obligation to exercise "best efforts" proba- bly subsumes an obligation to act in "good faith," it is important to distinguish this obligation, which is a feature of exclusive dealing contracts, from a requirements buyer's obligation to take require- ments in "good faith" under Mich. § 440.2306(1)
(corresponding to U.C.C. § 2-306(1)).
**18
3. Dow Corning next contends that the jury instruc- tions erroneously suggested that its good faith require- ments could not have been zero. As Dow Corning cor- rectly observes, HN7 under the U.C.C., a requirements buyer may have a good faith reason for demanding no goods from the seller. In such a case, the buyer does not breach by ordering no goods. See Advent, 925 F.2d at 680; Empire Gas, 840 F.2d at 1337-38; Fort Wayne Corrugated Paper Co. v. Anchor Hocking Glass Corp.,
130 F.2d 471, 473 (3d Cir. 1942).
Dow Corning requested a specific instruction on this point, but the district court refused. Moreover, the court instructed the jury that Dow had to act "according to commercial standards of fair dealing in the trade so that its requirements will approximate a reasonably obtain- able figure." App. at 642 (emphasis added). Dow Corning maintains that this instruction "improperly suggested that Dow Corning's requirements could not be *1127 zero and must have some reasonable relationship to the 1982-
84 minimum." Appellant's Brief at 28.
Once again, however, we cannot conclude that the dis- trict court erred. The reference to "a reasonably **19 ob- tainable figure" did not suggest that Dow's requirements could not be zero. If Dow Corning reasonably concluded that RetroSil was a commercial failure, its "reasonably ob- tainable" requirements could be zero. Moreover, while the
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17 U.C.C. Rep. Serv. 2d (Callaghan) 730
Page 7
specific instruction Dow Corning requested might have been helpful, it was not obligatory. Dow argued to the jury that its requirements were zero, and the instructions did not foreclose or discourage the jury from choosing that number. Nor was the jury told that good faith re- quired Dow to order goods even if it did not, in good faith, require the goods. Thus, we find no ground for reversal.
B. Other Jury Instructions.
Dow Corning next argues that the district court erred in giving the jury, as part of the instructions on Count One, a charge on the rule of contract interpretation known as contra proferentem. The court charged as follows:
If you, Members of the Jury, are unable to ascertain the intention of the parties from the evidence in the case, you may refer to a rule of interpretation of contracts; that a contract may be interpreted adversely to the party that drafted or wrote the contract.
App. at 2329.
Dow Corning contends that the instruction **20 was erroneous for several reasons. Dow Corning maintains that this rule may be applied only by a court, not a jury. Dow Corning further argues that the rule was inapplicable in this case because Dow Corning and Tigg were roughly equal in bargaining power and because the agreements were drafted collaboratively rather than by Dow Corning alone. It is not apparent that Michigan law provides clear answers to any of these arguments. We do not believe it is necessary, however, to predict how the Michigan Supreme Court would decide these questions because we are convinced that the instruction, even if erroneous, was harmless. HN8 In a civil case, an erroneous instruction provides a basis for reversal only if it was "inconsistent with substantial justice" (Fed. R. Civ. P. 61) or affects "a substantial right of a party" (Fed. R. Evid. 103(a)). See McQueeny v. Wilmington Trust Co., 779 F.2d 916, 923-
28 (3d Cir. 1985). This standard is not met here.
In the first place, the instruction did not identify Dow Corning as the drafter of the agreements, and Dow Corning attempted to portray Tigg as co-drafter. See, e.g., app. at 2275-76. Thus, even if the jury relied on the **21 instruction, it is by no means clear that the instruction benefitted Tigg.
More important, the contra proferentem instruction by its terms applied only if the jury was "unable to ascertain the intention of the parties from the evidence in the case." Here, it seems most unlikely that the jury was unable to reach agreement concerning the meaning of the term
"minimums" based on the contract language and the other
evidence. Although we previously held that the contract language alone was not sufficient to support partial sum- mary judgment for Tigg, that language was indisputably powerful evidence in Tigg's favor. The relevant provision of the control stations agreement read as follows:
1.2 Agreement
DOW CORNING shall purchase from TIGG, and TIGG shall sell to DOW CORNING, the Control Stations specified in Paragraph 1.3 in the quantities specified in Paragraph 1.4.
1.3 Product
RetroSil TM Control produced exclusively for DOW CORNING in accordance with the DOW CORNING specifications attached as Exhibit 1.
DOW CORNING may revise its specifications at any time.
1.4 Quantity
DOW CORNING agrees to purchase annually the mini- mum quantity of RetroSil TM Control Stations **22 to specifications set out in Exhibit 1, indicated in the table below.
*1128 RetroSil TM Control Stations
SEE TABLE IN ORIGINAL
1.10 Remedy for Failure to Supply
In the event that TIGG is unable to supply at least fifty percent of the current annual minimum quantity during any calendar quarter, DOW CORNING may make up the deficiency by purchasing from another source and the quantity so purchased will be deducted from DOW CORNING's annual minimum purchase requirement.
2.5 Entire Amount
The terms and conditions herein represent the entire Agreement between the Parties with respect to the sales of goods indicated above and may be modified only by a writing signed by both Parties.
Each Agreement provided that Dow Corning's "minimum purchase obligations" would be reduced for any period when TIGG's equipment failed to "perform properly for the removal of PCBs from transformer fluid" and the par- ties were attempting to rectify such a deficiency.
Each Agreement also provided that:
962 F.2d 1119, *1128; 1992 U.S. App. LEXIS 8454, **22;
17 U.C.C. Rep. Serv. 2d (Callaghan) 730
Page 8
The parties shall meet annually in November to adjust quarterly forecasts for the next contract year and to adjust annual minimums, if necessary.
(The agreement on adsorbers contained a provision **23 that was identical except for the numbers of units listed.) Both the ordinary meaning of the term "minimum" and the contrast with "expected" purchases weighed heav- ily in favor of Tigg's interpretation. We have reviewed the other evidence on which Dow Corning relied to show that the term "minimum" really meant a "forecast." n8 While this evidence was sufficient to create a jury question, the evidence in favor of Tigg's interpretation of the term "min- imum" was overwhelming, n9 and thus the instruction in
question, even if erroneous, was clearly harmless.
n8 See, e.g., app. at 1096-1229 (cross- examination of Campbell by counsel for Dow), 3313-16 (documents used in that cross- examination). See also app. at 2274-76 (closing arguments by counsel for Dow). Dow called no witness who represented Dow in the contract nego- tiation or drafting.
n9 See, e.g., app. at 2290-94 (closing argument by counsel for Tigg).
2. Dow Corning contends that the trial court erred in giving the following instruction concerning **24 the scales of justice:
You will recall the illustration of the scales of justice which I suggested to you at the beginning of the trial. Onto one side of the scale place all of the evidence favor- able to the plaintiff. Onto the other, place all the evidence favorable to the defendant. If after considering the com- parable weight of the evidence you feel that the scales tip to the slightest degree in favor of the plaintiff, your verdict must be for the plaintiff. If the scales tip in favor of the defendant or are equally balanced, your verdict must be for the defendant.
App. at 2322.
Dow Corning claims that this charge led the jury to disregard Tigg's burden of proving every element of its claims. Instead, Dow argues, this instruction told the jury to "lump all the evidence on all issues into just two piles-- one favorable to the plaintiff, one favorable to the defen- dant, and compare the two piles." Brief for Appellant at
34. We reject this argument. It is doubtful that this portion of the charge, even if viewed in isolation, would consti- tute reversible error, and when this portion is viewed in
the context of the entire charge, we are convinced that no error occurred. The **25 court carefully instructed the jury on the elements of each separate claim. In addition, just four sentences before the portion of the charge quoted above, the court told the jury that "the plaintiff has the bur- den of proving *1129 those contentions which entitle it to relief. When a party has the burden on a particular issue, its contention on that issue must be established by a fair preponderance." App. at 2322 (emphasis added). In addition, the court required the jury to answer ten spe- cial interrogatories rather than merely rendering a general verdict. In order to answer these questions, the jury had to consider the evidence on each point separately. For these reasons, we conclude that the charge did not mislead the jury regarding Tigg's obligation to prove every separate element of its claims.
In sum, we have found no reversible error in any part of the jury instruction relating to liability, and we will accordingly affirm the judgment of the district court with respect to liability.
III.
Dow Corning contends that the district court commit- ted reversible error in a portion of the jury instructions relating to damages. Over objection, the district court in- structed the jury that the **26 proper measure of Tigg's damages was its "lost profit; that is the contract price of each piece of equipment less all expenses not incurred because production never took place." App. at 2332. Dow Corning claims that this charge was incorrect and that the proper measure of damages should have been based on the contract price minus the market price. We agree.
HN9 A seller's damages for non-acceptance or repu- diation are generally measured by "the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental dam- ages provided in U.C.C. Article 2 , but less expenses saved in consequence of the buyer's breach." Mich. §
440.2708(1) (corresponding to U.C.C. § 2-708(1)). In certain circumstances, however, the seller may recover damages in accord with different measures. If the seller has resold the goods, the seller may choose to seek dam- ages based on the difference between the resale price and the contract price. Mich. § 440.2706 (corresponding to U.C.C. § 2-706). Under certain circumstances, the seller may recover the full price under Mich. § 440.2709 (corre- sponding to U.C.C. § 2-709). Tigg has never sought recov- ery under this **27 theory. n10 Finally, HN10 Mich.
§ 440.2708(2) (corresponding to U.C.C. § 2-708(2)) pro- vides for damages measured by "the profit (including rea- sonable overhead) which the seller would have made from full performance by the buyer, together with any inciden- tal damages provided in U.C.C. Article 2 , due allowance
962 F.2d 1119, *1129; 1992 U.S. App. LEXIS 8454, **27;
17 U.C.C. Rep. Serv. 2d (Callaghan) 730
Page 9
for costs reasonably incurred and due credit for payments or proceeds of resale." This is the remedy set out in the challenged instruction, but this remedy is available only
"if the measure of damages provided in subsection (1)
contract/market damages is inadequate to put the seller in as good a position as performance would have done .
. . ." Mich. § 440.2708(2) (corresponding to U.C.C. § 2-
708(2)). Thus, the district court's charge would be correct only if contract/market damages were first found to be inadequate.
n10 Under this provision, the seller generally
"must hold for the buyer any goods which have been identified in the contract and are still in his control." Here, however, Tigg never manufactured the goods for which it recovered. While it is not perfectly clear whether goods not yet manufac- tured may be the basis for an action for the price, damages calculated under Mich. § 440.2708 (cor- responding to U.C.C. § 2-708) are an appropriate remedy when the seller learns of the breach during or before the manufacture of the goods. Detroit Power Screwdriver Co. v. Ladney, 25 Mich. App.
478, 181 N.W.2d 828 (Mich. App. 1970). See also Cesco Mfg. Corp. v. Norcross, Inc., 7 Mass. App. Ct. 837, 391 N.E.2d 270 (Mass. App. 1979). In any event, Tigg did not seek damages under Mich. §
440.2709 (corresponding to U.C.C. § 2-709); nor did Tigg attempt to establish compliance with the requirements of identifying and attempting to resell the goods necessary to maintain an action for the price.
**28
The district court's charge, however, did not ask the jury to determine whether contract/market damages were
"inadequate" as defined by Mich. § 440.2708(1) (corre- sponding to U.C.C. § 2-708(1)), and the district court provided no explanation for this omission. Tigg might have shown that this measure of damages was inadequate under two possible theories: (1) because it was a *1130 lost-volume seller or (2) because it was a producer of specialty goods that could not be resold. Neither theory, however, justified the court's charge.
We have defined a lost-volume seller as follows:
HN11
A lost volume seller is one who upon a buyers breach of contract, resells the article to a second purchaser at the price agreed to by the first purchaser. The second pur- chaser, however, would have purchased a similar article notwithstanding the first purchaser's breach. Under such circumstances, when the seller resells the article, he is still not made whole because "he will have lost one sale,
one profit, over the course of the year." (citation omitted)
Storage Technology Corp. v. The Trust Co. of N.J., 842
F.2d 54, 56 n.2 (3d Cir. 1988) (N.J. Com. Code).
In Ragen Corp. v. Kearney & Treaker Corp., 912 F.2d
619, 627 (3d Cir. 1990), **29 we elaborated:
The key inquiry is the sellers' ability to provide the product to both the breaching buyer and the resale buyer. If a seller could have sold an item to both a subsequent buyer and a breaching buyer, then the seller has suffered damage which can only be remedied by an award of lost profits.
It seems most unlikely that Tigg fits within this definition. Tigg argues strenuously in its brief that there was no mar- ket for the adsorbers and control stations. Appellee's Brief at 28. Accordingly, Tigg cannot contend at the same time that it could have sold additional adsorbers and control stations to others even if Dow Corning had fulfilled its purchase obligations. It therefore appears to follow that Tigg was not a lost-volume seller. However, we will not
(and do not) go so far as to hold that Tigg was not a lost- volume seller. We need only conclude that the district court could not find as a matter of law that Tigg was a lost-volume seller. At the very least, the court was obli- gated to submit this factual question to the jury. See Ragen Corp., 912 F.2d 626-628. n11 It failed, however, to do so.
n11 Although this issue is governed by Michigan law, we have found no Michigan law or cases dealing with the issue of the lost-volume seller. However, courts of other states have been consistent in deciding this question under the U.C.C., and we predict that Michigan would not significantly differ from them.
**30
We therefore turn to the question whether Tigg was a manufacturer of "specialty items." See KLT Indus. v. Eaton Corp., 505 F. Supp. 1072 (E.D. Mich. 1981); Great No. Packaging, Inc. v. General Tire & Rubber Co., 154
Mich. App. 777, 399 N.W.2d 408, 413 (Mich. App. 1986); Detroit Power Screwdriver Co. v. Ladney, 25 Mich. App.
478, 181 N.W.2d 828, 832-33 (Mich. App. 1970). HN12 Contract market damages are inadequate in cases involv- ing specialty items because of the difficulty in reselling unique products that have been manufactured for and have special value to certain buyers. See In re Earle Indus., 88
Bankr. 52, 56 (Bankr. E.D. Pa. 1988); Detroit Power,
181 N.W.2d at 832. The determination whether the goods are specialty items, however, is properly for the finder of fact -- in this case the jury. In Detroit Power, the trial court
962 F.2d 1119, *1130; 1992 U.S. App. LEXIS 8454, **30;
17 U.C.C. Rep. Serv. 2d (Callaghan) 730
Page 10
had awarded lost profit damages. The Michigan Court of
Appeals remanded, stating:
The ruling of the court below did not include a factual determination of whether the product here involved is a specialty item without a reasonably accessible market. It is the function of the trial court ,when **31 sitting without a jury, to make findings of fact. GRC 1963, 517.1.
. . .
We therefore remand the case for further findings. If the trial court finds that the goods are a specialty item without a reasonably accessible market, then it shall award lost profit damages pursuant to § 2-708(2).
181 N.W.2d at 834.
Under Michigan law, therefore, the question whether the goods that Tigg sold to Dow Corning were "specialty items" is one that the jury must determine, unless of course the evidence was so overwhelming that a reasonable jury would have been compelled to conclude that the goods
were *1131 unique and without a resale market. Based on the evidence marshaled by the parties, n12 however, we are unable to hold that a reasonable jury would have to reach that conclusion. While it may well turn out that Tigg did sell specialty items, we cannot reach that conclusion as a matter of law on the present record. Accordingly, we must hold that the district court's instruction on damages was erroneous and that a new trial on damages is required.
n12 See, e.g., Brief for Appellee at 28-29; Reply Brief for Appellant at 7 n.5, 16.
**32 IV.
In conclusion, we will affirm the judgment of the dis- trict court on liability but reverse and remand for a new trial on damages. Since we must vacate the damage award, we do not have to address the parties' arguments regarding interest.
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