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Court Error –Damage Award – Breach of Contract

By: Derek Hawkins//March 18, 2019//

Court Error –Damage Award – Breach of Contract

By: Derek Hawkins//March 18, 2019//

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7th Circuit Court of Appeals

Case Name: ARC Welding Supply Co., Inc., et al. v. American Welding & Gas, Inc.,  

Case No.: 18-1546

Officials: EASTERBROOK, ROVNER, and ST. EVE, Circuit Judges.

Focus: Court Error –Damage Award – Breach of Contract 

This case arises from an Asset Purchase Agreement (the “Agreement”) entered into in October 2014 between the plaintiffs, ARC Welding Supply Co. and its owner Charles McCormick (collectively “ARC”), and the defendant American Welding & Gas, Inc. (“American”). ARC was a distributor of compressed gases and welding supplies in Vincennes, Indiana, and sold substantially all of its assets to American including its stock of asset cylinders. ARC filed a complaint alleging that American breached the terms of the Agreement for the purchase of the asset cylinders, and American filed a counterclaim for breach of contract. Following a bench trial, the district court entered judgment in favor of American and awarded damages in the amount of $33,765.52 plus interest, and ARC now appeals.

ARC now appeals the court’s decision. In an appeal from a bench trial, we review the district court’s findings of fact for clear error, and its conclusions of law de novo. Rain v. Rolls Royce Corp., 626 F.3d 372, 379 (7th Cir. 2010). “Under Indiana state law, the court’s goal in interpreting a contract is to ‘give effect to the parties’ intent as reasonably manifested by the language of the agreement.’” Id., quoting Reuille v. E.E. Brandenberger Constr., Inc., 888 N.E.2d 770, 771 (Ind. 2008). Unless terms of a contract are ambiguous, the court will give the terms their ordinary and plain meaning. Id. The district court met that standard in this case, interpreting the contract consistent with the plain and ordinary meaning of the words.

ARC argues that the district court erred in determining that McCormick extended the deadline for the completion of the audit. According to ARC, the Agreement could not be extended by McCormick because it was fundamentally a contract for the sale of goods and the Uniform Commercial Code (UCC) prohibits the oral modification of such contracts, and because the parol evidence rule forbids oral modification of contracts such as the Agreement that are totally integrated and expressly prohibit oral modifications. It further argues that American breached the contract by failing to tender a verified count within the required time period.

Finally, ARC claims that the district court erred in basing its damage award on a $125 valuation for the cylinders. ARC asserts that the valuation cannot be proper because if all 6,500 asset cylinders were valued at $125, the total of $812,500 would greatly exceed the contract price for all of ARC’s fixed assets and asset cylinders of $603,905. As ARC recognizes, however, asset cylinders can vary in value from $30 to $1,200 each, and therefore the value of the asset cylinders which ARC failed to provide would depend on the cylinder type. The parties to the contract determined that the cylinders should be valued at $125, with that amount deducted from the Cylinder Deferred Payment for a shortfall or added to the Cylinder Deferred Payment if the asset cylinder number exceeded 6,500. The court did not err in using the valuation for the cylinders that the parties themselves deemed the proper number.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.

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