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Flag Service and Maintenance, Inc. v. Kirchner Truck & Equipment


July 2, 2010


On appeal from the Superior Court of New Jersey, Law Division, Gloucester County, Docket No. L-1788-03.

Per curiam.


Submitted January 12, 2010

Before Judges Fuentes and Simonelli.

In this breach of contract action, defendants Kirchner Truck & Equipment and Charles Kirchner a/k/a Rusty Kirchner (collectively "Kirchner") appeal from the January 8, 2009 final judgment by default awarding plaintiff Flag Service & Maintenance, Inc. (Flag Service) $67,650 plus costs. Flag Service cross-appeals from the denial of an award for certain consequential damages. We affirm in part, reverse in part and remand for entry of an amended judgment.


Flag Service is engaged in the business of repairing and selling used marine industrial generators. Kirchner is engaged in the business of buying, selling, and acting as a broker for the sale and purchase of used equipment, including generators.

Six years prior to the incident giving rise to the dispute in this case, the parties conducted the first of several informal business transactions involving the purchase and sale of generators. The first transaction involved a 600 kilowatt generator located in South Carolina, which Kirchner advised Flag Service's principal, Thomas Suchocki, was for sale. Prior to Flag Service's purchase of the generator, Suchocki and Kirchner traveled to South Carolina to inspect it. After inspecting the generator, Suchocki agreed to purchase it, and wired money to Kirchner for the purchase.

After this transaction, Kirchner called Suchocki frequently to advise him of other generators available for sale. On two occasions, Flag Service purchased small generator sets to be used for parts, and Suchocki wired Kirchner the money for the purchases. The parties conducted all of these transactions informally, with no written contracts.

On March 23, 2003, Kirchner advised Suchocki about a 1750 kilowatt generator for sale by Equipment Recyclers, Inc. (Equipment Recyclers) in Texas. On March 24, 2003, Suchocki traveled to Texas to inspect the generator. He then called Kirchner and agreed to purchase it. There was a dispute between the parties as to whether Kirchner told Suchocki that he owned the generator.

Suchocki contacted Philips Brothers Electrical Contractors, Inc. (Philips) on March 24, 2003, and offered to sell it the generator for $165,250. Flag Service memorialized Philips's acceptance of that offer in an invoice dated March 25, 2003 (the Philips contract). Philips, in turn, entered into a contract to supply the generator to a mushroom farm. Suchocki admitted that he never told Kirchner prior to May 1, 2003, that he intended to re-sell the generator or that he had entered into the Philips contract.

On May 1, 2003, Equipment Recyclers sent Kirchner an invoice to purchase the generator for $115,000. The invoice required a $15,000 deposit with the balance due ten days prior to the removal of the generator. Approximately $5,000 was added to the price for shipping costs.

That same day, Kirchner sent Flag Service an invoice, which was on letterhead containing Kirchner's name and address, and which included a description and number of items that were the subject of the transaction and the purchase price of $120,000 (the May 1 invoice). The invoice also indicated that the generator was being "Sold To" Flag Service by Kirchner, and that Comp USA would schedule the loading of the generator within ten days and ship it within thirty days.

The May 1 invoice did not include a $5,000 commission or indicate that Kirchner was a "broker" rather than a seller. Also, Kirchner admitted that the parties never discussed a broker fee, and that he was ultimately the "seller" of the generator.

Suchocki wired Kirchner a $20,000 deposit on May 1, 2003. Soon thereafter, Suchocki told Kirchner about the Philips contract. From the $20,000 deposit, on May 5, 2003, Kirchner paid Equipment Recyclers the $15,000 deposit and paid himself $5,000.

The deal then began to deteriorate. Equipment Recyclers became involved in a dispute with Comp USA over ownership of the generator, which resulted in prolonged arbitration. When it became clear that the generator would not be available any time soon, Kirchner suggested that the parties request the return of the $15,000 deposit. Suchocki declined because he needed the generator to satisfy the Philips contract. Kirchner continued to pursue the sale through September 2003, and also tried to obtain the return of the deposit.

Because large generators were scarce at the time, Suchocki had difficulty finding a replacement generator. He eventually found one in May 2003; however, it would not be available for twelve to fourteen months. Philips advised Suchocki that it would rent a generator in the meantime and that Flag Service would have to pay the rental costs. Suchocki agreed to do so because Philips was a valued customer who represented a significant portion of Flag Service's sales. Suchocki did not advise Kirchner of the rental costs until June 2003. Suchocki paid Philips a total of $170,800.75, representing fourteen months of Philips's rental costs.

On December 5, 2003, Equipment Recyclers filed for bankruptcy. It never shipped the generator or returned the $15,000 deposit. Kirchner never returned the $5,000 he had paid himself from Flag Service's $20,000 deposit.

Flag Service filed a complaint against Kirchner, seeking $50,250 for lost profit from the sale to Philips, $20,000 for the deposit, $3,200 for travel expenses to Dallas, and $170,800.75 for Philips's rental costs. After a proof hearing,*fn1 the trial judge found, in relevant part, that (1) Article Two of Uniform Commercial Code, N.J.S.A. 12A:2-101 to -725, applied to the transaction between the parties, who were merchants; (2) the Statute of Frauds, N.J.S.A. 12A:2-201(1), required a signed writing because the transaction was for more than $500; (3) no signed writing existed on March 24, 2003; and (4) the exception to the Statute of Frauds, N.J.S.A. 12A:2-201(2), and the course of performance, N.J.S.A. 12A:2-208(1), did not apply. The judge also found, however, that an enforceable contract existed as of May 1, 2003, when Kirchner gave Flag Service the May 1 invoice and accepted the deposit (the May 1 contract).

As to damages, the judge concluded that because there were no similar generators available, Flag Service was entitled to lost profits of $45,250 pursuant to N.J.S.A. 12A:2-713, which she erroneously found to be the difference between the purchase price in the May 1 contract and the purchase price in the Philips contract. The judge also awarded Flag Service the $20,000 deposit and incidental damages of $2,400 for travel expenses to Dallas to inspect the generator pursuant to N.J.S.A. 12A:2-715(1). The judge declined to award Flag Service consequential damages pursuant to N.J.S.A. 12A:2-715(2) for the Philips rental costs, concluding that there is no evidence that [Kirchner] was aware at the time of the May 1, 2003 contract or anytime before Equipment Recyclers' breach in June 2003 that Flag Service was paying to rent a generator for Phillips. The rental payments made by Flag Service are not consequential damages for Flag Service's breach of its March 25, 2003 enforceable contract with Phillips....

Flag Service entered that contract before it had an enforceable contract with Kirchner[.]

The judge entered a default judgment in favor of Flag Service and against Kirchner in the amount of $67,650. This appeal and cross-appeal followed.


Kirchner does not dispute that he is a merchant. Rather, he contends that the trial judge erred in awarding Flag Service the $20,000 deposit and incidental damages of $2,400 for travel expenses because no contract satisfying the Statute of Frauds existed between the parties, and the May 1 invoice indicated that he did not own the generator and was merely acting a broker for the transaction. Kirchner also contends that the judge erred in awarding $45,200 for lost profits because he was unaware of the Philips contract prior to May 1, 2003. We disagree with the former contention, and agree with the latter.

Our review of a trial judge's findings is a limited one. Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963). We will defer to the trial judge's factual findings that are well-supported by competent evidence in the record. Brunson v. Affinity Fed. Credit Union, 199 N.J. 381, 397 (2009). "However, '[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference[,]'" and is subject to de novo review. Mt. Hill v. Twp. Comm. of Middletown, 403 N.J. Super. 146, 193 (App. Div. 2008) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), certif. denied, 197 N.J. 475 (2009)). Applying these standards, we review Kirchner's contentions.

"A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." N.J.S.A. 12A:2-204(1). As to the formal elements of memorialization, N.J.S.A. 12A:2-201(1) requires that to be enforceable, "a contract involving the sale of goods for the price of $500 or more" must have "some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker." N.J.S.A. 12A:201(1).

A valid contract may exist even without strict compliance with the requirements imposed by the Statute of Frauds. Those contracts that fail to satisfy the requirements stated in N.J.S.A. 12A:2-201(1) that are also "valid in other respects [are] enforceable" under certain circumstances. One such circumstance is when "payment has been made and accepted or [the goods] have been received and accepted." N.J.S.A. 12A:2-201(3)(c).

An unsigned invoice on a letterhead containing the name and address of the seller, which clearly delineates the number of items that are the subject of the transaction, the price terms, and a specific description of each item, has been held to satisfy the Statute of Frauds. First Valley Leasing, Inc. v. Goushy, 795 F. Supp. 693, 696 (D.N.J. 1992) (citing N.J.S.A. 12A:1-201(39)). "Even if the invoice [does] not satisfy the mandate of a 'signed writing,' the seller would be prohibited from invoking the Statute of Frauds defense" where he or she "has received and accepted payment." Ibid. (citing N.J.S.A. 12A:2-201(3)(c)). "Part performance by the buyer requires the delivery of something by him that is accepted by the seller as such performance. Thus, part payment may be made by money or check, accepted by the seller." N.J.S.A. 12A:2-201, comment 2. Accordingly, a deposit or part payment accepted by the seller satisfies the Statute of Frauds. Integrity Material Handling Systems, Inc. v. Deluxe Corp., 317 N.J. Super. 406, 415 (App. Div. 1999); Truex v. Ocean Dodge, Inc., 219 N.J. Super. 44, 51 (App. Div. 1987); Cohn v. Fisher, 118 N.J. Super. 286, 296 (Law Div. 1972).

Here, the record amply supports trial judge's conclusion that an enforceable contract satisfying the Statute of Frauds existed between the parties on May 1, 2003. The May 1 invoice was on a letterhead containing Kirchner's name and address, it clearly described and delineated the number of items that were the subject of the transaction and the price terms, and Flag Service paid a $20,000 deposit pursuant to that invoice, which Kirchner accepted.

Further, the May 1 invoice does not indicate that Kirchner did not own the generator and was merely acting as a broker for the transaction. Kirchner's failure to properly or correctly define his role in the contract should not be fatal to Flag Service's case. Cohn, supra, 118 N.J. Super. at 294. The parties had an enforceable contract for the sale of the generator, which Kirchner breached when he failed to transfer and deliver the contracted-for goods. N.J.S.A. 12A:2-301.

Thus, regardless of whether Kirchner acted as a seller or broker, he did not deliver the generator as promised, and thus breached the contract.

Where a buyer establishes a breach of contract, that party may seek compensatory damages pursuant to N.J.S.A. 12A:2-713. "[T]he measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in [N.J.S.A. 12A:2-715], but less expenses saved in consequence of the seller's breach." N.J.S.A. 12A:2-713(1).

A buyer's incidental damages "resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach." N.J.S.A. 12A:2-715(1). "Consequential damages resulting from the seller's breach include... any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise[.]" N.J.S.A. 12A:2-715(2)(a).

Because Flag Service established a breach of contract, the judge properly awarded it incidental damages for travel expenses to inspect the generator. N.J.S.A. 12A:-715(1). The judge also properly awarded Flag Service the $20,000 deposit. N.J.S.A. 12A:2-711(1) (when the seller fails to make delivery, the buyer may recover "so much of the price as has been paid" toward the undelivered goods).

We do not reach the same conclusion as to the award of lost profits.

In the absence of an available market for the goods in question, recovery may be had for lost profits, if the loss results directly from the breach of the contract, or is such as might reasonably be supposed to have been in the contemplation of both parties at the time of the making of the contract, as the result of non-performance, and if there are any criteria by which probable profits can be estimated with reasonable certainty. [Feldman v. Jacob Branfman & Son, 111 N.J.L. 37, 41-42 (E. & A. 1933).]

The trial judge recognized, and Flag Service concedes, that there was no available market to determine the market price of a large used generator, such as the subject generator. Accordingly, Flag Service was entitled to lost profits, not the difference between the Philips contract and the May 1 contract.

Lost profit damages "'come within the category of consequential damages.'" George H. Swatek v. North Star Graphics, 246 N.J. Super. 281, 285 (App. Div.1991) (quoting Seaman v. United States Steel Corp., 166 N.J. Super. 467, 471 (App. Div.), certif. denied, 81 N.J. 282 (1979)).

Consequential damages are only recoverable where they are reasonably foreseeable at the time the contract was entered into. To impose liability the defendant must have had reason to foresee the injury at the time the contract was made, not at the time of the breach. Plaintiff need only demonstrate, however, that the damage was of a type that a reasonable man would realize to be a probable result of his breach. Plaintiff need not establish that the defendant had reason to foresee the specific injury that occurred. [Ibid. (internal quotations and citations omitted) (emphasis added).]

It is not enough that the seller understand that a buyer is "'purchasing with a general intention to resell[.]'" Gulf Chem. & Metallurgical v. Sylvan Chem., 122 N.J. Super. 499, 505-06 (Law. Div.) (quoting Pope v. Ferguson, 82 N.J.L. 566, 573 (E. & A. 1912), aff'd, 6 N.J. Super. 261 (App. Div. 1973), certif. denied, 64 N.J. 507 (1974)). If there is evidence that the defendant "had reason to know that [the plaintiff] would resell the [goods] contracted for and that [the plaintiff] did, in fact, enter a resale contract, [the plaintiff] would be entitled to any consequential damages, including loss of profits, which it could prove were a result of [the defendant's] breach." Id. at 506.

Applying these principles, we conclude that the judge improperly awarded Flag Service lost profits. Although Flag Service proved it had entered into the Philips contract, it failed to prove that prior to the May 1 contract, Kirchner knew or had reason to know that Flag Service intended to re-sell the generator or that Flag Service had entered into the Philips contract. To be sure, Suchocki admitted her never told Kirchner prior to the May 1 contract that he intended to re-sell the generator or that he had entered into the Philips contract. For this reason also, Flag Service is not entitled to consequential damages for Philips's rental costs, as it failed to prove that prior to the May 1 contract, Kirchner knew or had reason to know that Flag Service had assumed responsibility for those costs.

Further, lost profits must be proved with a reasonable degree of certainty. Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 427 (1997). Lost profits are generally measured by the difference between the contract price and the cost of performance or production. J.L. Davis & Assocs. v. Helder, 263 N.J. Super. 264, 276 (App. Div. 1993). In other words, lost profits represent the "difference between gross income and the costs or expenses which had to be expended to produce the income." Cromartie v. Carteret Savings & Loan, 277 N.J. Super. 88, 103 (App. Div. 1994). Those costs and expenses must be deducted to calculate lost profits. Magnet Resources, Inc. v. Summit MRI, Inc., 318 N.J. Super. 275, 294 (App. Div. 1998). To permit the plaintiff to recover both lost profits and costs and expenses would result in an impermissible "double" recovery. Gardner v. Rosecliff Realty Co., 41 N.J. Super. 1, 11 (App. Div. 1956).

Flag Service presented no evidence of the costs or expenses it had to expend, if any, to perform the Philips contract. Accordingly, it failed to prove its actual lost profits with a reasonable degree of certainty.

Affirmed in part, reversed in part, and remanded for entry of an amended judgment in favor of Flag Service in the amount of $22,400.

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