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October 5, 1982


The opinion of the court was delivered by: NEAHER


 NEAHER, District Judge.

 Plaintiff Windsor Industries, Inc. ("Windsor"), a New York corporation, brought this action against defendants EACA International Ltd. ("EACA") and E. & P. Electronics (HK) Ltd. ("E&P") to recover damages in the sum of $275,000 for alleged breach of warranties by defendants in their sale of electronic TV games to Windsor. EACA and E&P are foreign corporations organized under the laws of the Crown Colony of Hong Kong, and have appeared herein, with EACA asserting a counterclaim against Windsor for nonpayment for goods sold and delivered by EACA in the amount of $68,600. This Court's jurisdiction is grounded upon the parties' diverse citizenship.

 The action was tried on the facts without a jury. After hearing the testimony of the parties and examining their exhibits and briefs, the Court makes the following findings of fact and conclusions of law.


 1. Windsor is a New York corporation having its principal place of business in Melville, Suffolk County, New York. It has been engaged for many years in the importation of consumer electronic products from the Far East, e.g., Hong Kong, Japan, Taiwan, Philippines and Singapore, and their resale to customer retail outlets throughout the United States. Windsor has 27 employees and its annual volume of business is $15,000,000.

 2. EACA was originally organized in Hong Kong in 1970 as a sole proprietorship by Eric Chung, a mechanical engineer formerly in charge of production for Fairchild Semiconductor, an American company in Kowloon, which manufactured transistors, diodes and integrated circuits, the latter commonly known as "ICs" or "chips." After originally engaging in the purchase and sale of electronic components such as transistors and diodes, EACA was reorganized as a corporation and began in 1973 to manufacture digital clocks and by 1975 had 90 employees and a business volume of US $1,000,000.

 3. E&P was organized in March 1976 as a separate venture of Eric Chung and Paul Yang, a United States citizen residing in Pasadena, California. DX R. *fn1" Their purpose was to develop and market a TV game. After seven months of research by a staff of ten engineers and the expenditure of US $200,000, a TV game was devised which satisfied the United States Federal Communications Commission's ("FCC") regulation regarding radiation.

 4. A TV game is an audio electronic device which, when connected to a standard television receiver, reflects a simulated playing area on the TV screen and provides a means of controlling movement of a reflected point of light on the playing area representing a ball or puck as in a game of ping pong, tennis, squash or hockey.

 5. Windsor's vice-president of sales, Milton Hiller, was the corporate officer responsible for purchasing consumer electronic products overseas. In May 1976, while on a buying trip to Hong Kong, Hiller was introduced to Eric Chung by one of Windsor's suppliers to discuss a purchase of TV games. Following that discussion, during which Hiller was shown a mock-up model submitted to the FCC and made an inspection of the E&P manufacturing facilities, Hiller placed an "opening order" dated May 6, 1976, for 10,000 EP-460 TV game sets at US $27 per set for a total price of $270,000. Payment was to be made by irrevocable letter of credit in favor of E&P and shipment was to be made in July and August 1976 by air. PX 1.

 6. After Hiller's return to the United States, Windsor placed another order with E&P on August 3, 1976, calling for an additional 15,000 TV game sets to be shipped by air in September and October 1976, the total price of US $405,000 to be paid by irrevocable letter of credit. DX C.

 7. Prior to shipment, and as a condition to E&P obtaining payment under the letter of credit, as amended from time to time, the TV games had to pass final inspection by Issei Kotaka and be accepted by him on behalf of Windsor. Tr. 276; 148. Kotaka, also an engineer, was one of Windsor's representatives in the Far East and manager and shareholder of Tamarac Industries, Ltd., in Hong Kong, of which Hiller and David Fink, son of Windsor's president, were co-shareholders. DX W; Tr. 47-49, 67, 79.

 8. Pursuant to Windsor's orders, E&P commenced shipping the TV games to New York in quantity on September 29, 1976, as certified and inspected by Kotaka, and at brief intervals thereafter. As of December 15, 1976, 25,000 sets had been shipped, for which Windsor paid a total purchase price of US $708,099.90 by letters of credit. DX F. All of these shipments were made by air freight and arrived in timely fashion in the United States a week after each shipment left Hong Kong, since they were intended for the Christmas buying season. Tr. 16, 93-94, 99. DX F.

 9. Windsor made no further inspection of the TV games upon their arrival in the United States, the merchandise being transshipped from airport terminals directly to Windsor's retail customers who had previously placed orders based on samples and pictures. Tr. 15-16, 21, 22-23, 93.

 10. In mid-December 1976 Hiller met again with Chung in Hong Kong and placed orders for additional TV games to be shipped to Windsor as soon as possible. Chung informed Hiller that he and Paul Yang were splitting up and that on and after January 1, 1977, Chung's company, EACA International, would take over the E&P production facilities for the manufacture of TV games in addition to EACA's regular line of digital clocks. Since Yang was to receive money for his share of the business, Windsor at Chung's request opened on December 17, 1976, a new irrevocable letter of credit, No. 965625, in favor of "Paul Yang Associates Inc." in the amount of US $133,125 to cover 5,000 TV games to be shipped to Windsor by air. DX E. On December 29, 1976, 3,000 TV games were shipped to Windsor by Yang pursuant to the aforesaid letter of credit. DX F. The value of the shipment was US $79,875, leaving an undrawn balance on the letter of credit of US $53,250. DX F. No further shipments were attributed to Yang.

 11. Windsor's other orders to Chung placed during December 1976 were shipped and apparently paid for pursuant to another letter of credit, No. 965633, in favor of "Karter Appliance Company." DX F. This covered two shipments attributed to Karter totaling 3,000 TV games of an aggregate value of ...

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