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February 24, 1986


The opinion of the court was delivered by: SWEET


Plaintiff Shokai Far East Ltd. ("Shokai"), brought this action to recover the unpaid portion of the agreed price of certain goods ordered by defendant Energy Conservation Systems, Inc. ("ECS"), as well as certain incidental damages and relief pursuant to Rule 11, Fed.R.Civ.P. Upon all the proceedings heretofore had herein, including a bench trial held from November 14 to 19, 1985, and the following findings of fact and conclusions of law, judgment will be entered for Shokai in the amount of $103,832.267 plus incidental damages and interest as set forth below.

Prior Proceedings

 This action was commenced in the Supreme Court of the Statute of New York and removed to this court by ECS. The answer submitted by ECS set forth the events upon which ECS intended to rely to substantiate its claim of defectiveness of certain of the goods purchased form Shokai, namely, certain events occurring in September, 1983. The dates were reaffirmed by defendant's deposition testimony. On the eve of the scheduled trial, counsel to Shokai received a letter dated August 26, 1985 from ECS counsel admitting that certain of the statements in ECS' answer were untrue and withdrawing prior deposition testimony. If these allegations in the affirmative defense of the answer had not been made and then withdrawn at the eve of trial, Shokai might have secured judgment on the pleadings of summary judgment.


 Shokai is a corporation incorporated under the laws of the State of New York with its principal place of business in Hartsdale, New York. It is in the business of importing into the United States electronic component parts manufactured in the orient. it does not manufacture or store goods. The products it sells are manufactured or delivered by vendors at the request of Shokai after Shokai has received an order from its customer. The products are then shipped directly to the customer of Shokai in the manner designated by the customer.

 ECS is a corporation incorporated under the laws of the State of Virginia with its principal place of business in Arlington, Virginia. It is in the business of manufacturing lighting fixtures and related products, including power reducers which are inserted into a fluorescent lighting system to reduce the amount of light emitted and consequently reduce energy costs. The power reducers manufactured by ECS incorporate a component known as a capacitor, the function of which is to reduce the current passing through the flourescent fixture and the thus decrease the light output. ECS used various rated metalized polyester capacitors (collectively "capacitors") in the models of power reducers manufactured by ECS. The rating of a capacitor is designated by microfarad capacitor, 250 volts with a permissible variation from tolerance of 10%.

 The Transaction at Issue

 Prior to March of 1983, ECS had no manufacturing facilities. During that time, it merely distributed power reducers manufactured by a company called Energy Savings Devices ("ESD") in St. Paul, Minnesota, which had used Shokai as a source of capacitors. No complaints were received by Shokai with respect to capacitors used in the power reducers manufactured by ESD. When ECS began production of power reducers at its own facilities in Virgina after March, 1983, ECS submitted orders for capacitors to Shokai. ECS did not provide specifications or information relating to the use to which the capacitors would be put or the conditions in which they would be used. ECS manufactured almost five times the number of power reducers made previously by ESD and ran such tests as it deemed necessary on all capacitors it received. ECS had a supply of power reducers in its possession before delivery to any customers. In the early part of 1983 ECS expected to sell about 400,00 power reducers and forecast a need for an equivalent number of capacitors. Ultimately it sold only about 80,000 and by August of 1983 had begun to reassess its requirements for capacitors. Between April 15, 1983 and July 12, 1983, ECS placed the following written orders with Shokai for capacitors. Date of Order Purchase Order No. Type of Capacitor Quantity April 15, 1983 2.5 MFD 10% 250 VAC 100,000 (No. 4153) 5 MFD 10% 250 VAC 100,000 2.5 MFD 10% 320 VAC 100,000 4 MFD 10% 320 VAC 100,000 June 27, 1983 2.5 MFD 10% 250 VAC 80,000 (No. 6273) 5 MFD 10% 250 VAC 30,000 4 MFD 10% 320 VAC 10,000 July 12, 1983 2.5 MFD 10% 250 VAC 50,000 (No. 7123) 5 MFD 10% 250 VAC 50,000 Shokai followed its customary pattern, notifying its Tawainese manufacturers and arranged for delivery to ECS as follows: Date of Order (Purchase Order No) Date of Delivery Quantity Delivered April 15, 1983 June 10, 1983 20,000 2.5 MFD 10% 250 VAC (No. 4153) 20,000 5 MFD 10% 250 VAC(On or about June 27, 1983, ECS requested Shokai to decrease the number of capacitors ordered under purchase order No. 4153, to which reduction Shokai agreed, resulting in the quantities received by ECS being less than the 400,000 capacitors originally ordered) Date of Order Date of Delivery Quantity Delivered (Purchase order Number) June 27, 1983 10,000 of each of the four (4) tyupes ordered August 9, 1983 10,000 of each of the four (4) types ordered August 11, 1983 20,000 2.5 MFD 10% 250 VAC September 15, 1983 10,000 of each of the four (4) types ordered July 12, 1983 September 7, 1983 17,500 2.5 MFD 10% 250 VAC (No. 7123) 16,500 5 MFD 10% 250 VALC October 4, 1983 32,500 2.5 MFD 10% 250 VAC 33,500 5 MFD 10% 250 VACShokai sent invoices to ECS at the time of each delivery reflecting the agreed upon purchase price and requesting payment net ten days and requiring any claims to be made within five days. ECS made payments to Shokai as set forth below: Amount Invoiced Amount of Date Payment Date of Delivery by Shokai Payment Sent by Energy 1. P/O No.4153 June 10, 1983 $28,992.22 $20,000.00 June 23, 1983 8,992.22 July 1, 1983 June 27, 1983 $30,450.00 $20,000.00 July 15, 1983 10,450.00 July 25, 1983 August 9, 1983 $30,450.00 $15,000.00 August 25, 1983 15,450.00 September 14, 1983 August 11, 1983 $13,720.50 $13,720.50 August 19, 1983 Sept. 15, 1983 $30,450.00 $10,000.00 November 1, 1983 10,450.00 November 14, 1983 BALANCE OWED $10,000.00 2. /O No. 7123 Sept. 7, 1983 $24,534.92 $10,150.00 October 4, 1983 11,797.50 October 25, 1983 October 4, 1983 $47,280.94 -0- /////-- BALANCE OWED 49,866.36

 As reflected above, ECS ordered 100,000 of the 10% 250 VAC capacitors form Shokai on or about July 12, 1983 under purchase order No. 7123, which order, at the request of ECS, was to be shipped by air freight. Shokai caused the goods to be delivered to ECS in two shipments, 34,000 pieces on or about September 7, 1983 and 66,000 pieces on or about October 4, 1983, each shipped by air. By statement No. 9414 dated August 30, 1983, Shokai invoiced ECS $24,534.92 for the first shipment of the goods sold and by statement No. 5809 dated October 3, 1983 Shokai invoiced ECS $47,278.94 for the second shipment. ECS made two payments in the aggregate amount of $21,947.50 to Shokai for the goods delivered to ECS by Shokai in accordance with purchase order No. 7123, and received and accepted the capacitors. No competent proof was adduced to establish that purchase order No. 7123 was either cancelled or modified. ECS made late payments for goods previously received and by the beginning of October 1983, Shokai had claims in excess of $100,000 for goods sold and delivered to ECS.

 When the first shipment of goods ordered by ECS under purchase order No. 6723 with an agreed price of $39,175 arrived in the United States in the middle of October, 1983, Shokai determined to exercise its rights under Section 2-705 of the Uniform Commercial Code, as enacted in New York State, and diverted these goods to its offices. By telephone call, by letter dated October 27, 1983 and by invoice No. 5869 dated October 24, 1983, Shokai advised ECS of this diversion and the concern of Shokai over the delinquency in payment, both in time and amount.

 ECS continued to make payments to Shokai in October and November for goods delivered in August and September, and in fact, as late as November 15, 1983, requested additional merchandize and promised further payments in $10,000 installments "as funds become available and as soon as possible." By late November of 1983, the time when the second shipment of goods ordered by ECS under purchase order No. 6273 arrived in the United States, the ECS unpaid balance totaled $138,622.26. Shokai again diverted the goods under purchase order No. 6273, and informed ECS of the stopping of delivery by telephone call and by invoice No. 9563 dated November 28, 1983.

 The Failure of the Power Reducers

 ECS had never experienced a failure of any of its power reducers prior to the failure in late October, 1983, through over 180,000 of these power reducers were made with capacitors purchased from Shokai. As recently as July and August, 1983, Charles E. Smith and Co., had installed in a large development in Arlington, Virginia, 80,000 power reducers that used Shokai capacitors, none of which failed. In late October, 1983, ECS learned of the first failure of its energy savings device. Additional failures occurred in early November at installations in public schools in ...

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