Scullin Steel Co. v. Paccar, Inc.

748 S.W.2d 910, 6 U.C.C. Rep. Serv. 2d (West) 433, 1988 Mo. App. LEXIS 289, 1988 WL 26319

• Court: Missouri Court of Appeals
• Decided: March 29, 1988
• Docket: 52935, 52938
• Status: Published

Opinions

STEPHAN, Presiding Judge.

In Scullin Steel Co. v. PACCAR, Inc., 708 S.W.2d 756 (Mo.App.1986), hereinafter Scullin I, we affirmed the circuit court’s judgment that PACCAR, Inc. was liable to Scullin Steel Co. for breach of a long-term supply contract. We further determined that had it been correctly applied, the method the circuit court used to compute Scul-lin’s damages would have yielded the lost net profit and reasonable overhead award authorized by § 400.2-708(2), RSMo. We found, however, that the circuit court had not correctly applied the method. Accordingly, we remanded the matter for a recalculation of the lost net profit and reasonable overhead elements of the damages award. Scullin appeals from the judgment as modified on remand. PACCAR cross-appeals. We reverse in part, affirm in part, and remand.

I

PACCAR, Inc. manufactures railroad cars. Until September 18, 1981, when it closed its plant, Scullin Steel Co. manufactured railroad car components called “car-sets”. In 1979, PACCAR contracted to purchase carsets from Scullin. Subsequently, PACCAR breached. The details of PACCAR’s contract with Scullin are set out fully in Scullin I, 708 S.W.2d at 758-761, and need not be repeated here, inasmuch as the only question before us on this appeal is whether damages for the breach have been correctly calculated. Suffice it to say simply that in Scullin I we held that the contract the parties signed in 1979 obligated PACCAR to purchase 1,908 carsets from Scullin during 1981-1983 at a fixed price per carset of $4,048.00; that PAC-CAR breached this obligation; that, as a result, Scullin was, in accordance with § 400.2-708(2), RSMo, entitled to recover from PACCAR the net profit it would have realized if PACCAR had not breached, plus the reasonable overhead it would have satisfied from the contract proceeds; but that the circuit court had incorrectly calculated lost net profit and reasonable overhead.

II

Lost Net Profit

To arrive at lost net profit in the first instance, the circuit court subtracted $3,822.00, what it deemed to be Scullin’s average cost per carset for 1981-1983, from $4,048.00, the fixed contract price per carset, and multiplied the difference by 1,908, the number of carsets PACCAR was contractually obligated to purchase during the 1981-1983 period. In Scullin I, we expressly approved the “average cost per carset” as a component of the lost net profit formula.¹ 708 S.W.2d at 764-765. We found, however, that $3,822.00 did not fairly approximate this cost for contract years 1981-1983. Id.

The flaw in the circuit court’s calculation, as we saw it, was this: From Scullin’s records, the circuit court had determined that $3,822.00 was the average cost per carset during 1980, the last full year of Scullin’s operation. It then simply adopted $3,822.00 as the average cost per carset for contract years 1981-1983. One of the costs included in the $3,822.00 figure, however, was the cost of labor, which was paid in 1980 according to rates prescribed in a union contract. It was undisputed that this contract had been renegotiated for 1981-1983 and would have effected a marked increase in the cost of labor. Nevertheless, the circuit court failed to adjust the $3,822.00 figure to reflect this increased expense. Accordingly, in Scullin I we remanded, directing the trial court to account for the “undisputed increase of direct production cost attributable to the increase in labor costs” that Scullin would have realized during 1981-1983 if it had remained in business. Id.

On remand, the circuit court determined that Scullin’s 1981 labor costs would have exceeded its 1980 labor costs by 5% if Scul-lin had remained in business. The court adjusted the 1981 average cost per carset accordingly, then subtracted that adjusted cost from the fixed contract price per car-set to find that in 1981 Scullin would have realized $126.00 net profit on each carset it sold to PACCAR.

The circuit court then turned to consider what effect increased labor costs would have had on Scullin’s profits in 1982 and 1983. In this regard, it stated:

The Court has considered the effects of increased labor costs, increased efficiencies, changing material and energy prices, taxes, insurance, et al., and concludes that it is not possible to arrive at a precise measure of predicted costs and profits for 1982 and 1983. Therefore, the Court, based upon [Scullin’s] avowed intentions of turning its operations into a profitable entity, will assume that adjustments in cost or price could have been made to retain a level of profits at $126 per carset.

The circuit court then multiplied $126.00 times 1,908, the number of carsets PAC-CAR was contractually obligated to purchase from Scullin during the 1981-1983 period. The product, $240,408.00, became the lost net profit award.

In its first point, Scullin asserts the record does not support the circuit court’s determination that Scullin’s 1981 labor costs would have exceeded its 1980 labor costs by 5%. Scullin is correct. No evidence of a 5% increase was adduced at trial. In a memorandum to the court on remand, Scullin did suggest that an “assumed” 5% increase in labor costs would have been offset by increased productivity. A party’s self-serving suggestion is not evidence, however, and though it might have risen to the dignity of a stipulation if PACCAR had accepted it, PACCAR did not.

To what evidence then were we referring when we directed the trial court to adjust the 1981-1983 average cost per carset to reflect “the undisputed increase of direct production cost attributable to the increase in labor costs”? Plainly, it was the unchallenged testimony of William F. Golus, a Scullin consultant who served as the company’s vice president of manufacturing when the union contract was negotiated for the period 1981-1983.

Golus’s testimony establishes that if Scullin had remained in business after 1980, the renegotiated labor contract would have effected a 10 million dollar increase in the cost of labor over the 1981-1983 period, that at least one-third of that increase would have been realized in 1981, and that, therefore, the cost of labor in 1981 alone would have exceeded the cost of labor in 1980 by at least 67%. When the average cost per carset is adjusted to reflect this 67% increase,² it exceeds $4,048.00, the fixed contract price per carset. We therefore conclude Scullin would have realized no net profit on the sale of carsets to PACCAR after 1980.³

Scullin argues, as it did in Scullin I, that “increased efficiencies” would have offset any increased labor costs. We find no evidence in the record to support this claim, nor can we sustain a finding of increased efficiencies on Scullin’s “avowed intentions of turning its operations into a profitable entity”. The judgment insofar as it awards Scullin lost net profit accordingly is reversed.

Ill

Reasonable Overhead

In Scullin I, we determined that in addition to lost net profit, Scullin was entitled to recover as damages from PACCAR the “fixed” costs, or “reasonable overhead”, it would have satisfied out of the proceeds of the breached contract.⁴ We also found, however, that in calculating reasonable overhead for the period January 1, 1981 through September 18, 1981, the circuit court had erroneously credited Scullin with certain “variable” costs, or costs that were directly affected by rises and falls in Scullin’s productivity. Accordingly, we remanded with directions that only fixed costs be considered in calculating an award of reasonable overhead. 708 S.W.2d at 765-766.

On remand, the circuit court determined that for the six month period ending June 30, 1980, Scullin’s fixed costs⁵ represented 30% of Scullin’s total costs for the period. Implicitly adopting this percentage as a reasonable estimate of the ratio of fixed costs to total costs for the period January 1, 1981-September 30, 1981, the circuit court then determined that Scullin’s fixed costs for January 1, 1981-September 30, 1981 were $6,884,000.00, or 30% of $22,-945,000.00, Scullin’s total costs for the period. This fixed costs figure was then added to the fixed costs Scullin indisputably incurred from October 1, 1981-December 31, 1983. When the sum of these fixed costs was then multiplied by 4.95%, earlier determined to be the percentage of Scullin’s total overhead that would have been satisfied from the proceeds of the PACCAR contract,⁶ it yielded a product of $537,-125.00, which became the “reasonable overhead” award.

We find no fault with the formula the circuit court used to calculate an award of reasonable overhead. In a contract action, damages need not be proved to a certainty. Evidence that enables the trier of fact to make as intelligent an estimate as the circumstances of the case will allow is sufficient. See Morris v. Perkins Chevrolet, Inc., 663 S.W.2d 785, 787-788 (Mo.App.1984). PACCAR, in its cross-appeal, however, apparently asserts the 30% figure the circuit court used to determine Scullin’s fixed costs for January 1981-September 1981 was inflated. We are unconvinced.

To arrive at the 30% figure, the circuit court divided $5,827,000.00, what it deemed to be Scullin’s fixed costs for the six month period ending June 30, 1980, by $19,403,-000.00, Scullin’s total costs for the same period. PACCAR’s position, as we understand it, is that the percentage thus derived is inflated because the fixed costs figure in fact includes costs that are “variable”, or somehow a function of Scullin’s productivity. Whether a cost is fixed or variable, or whether a cost is directly affected by fluctuations in productivity, however, is a question of fact, and the circuit court’s finding with respect thereto is entitled to deference unless there is no evidence to support it. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976).

The circuit court has determined that the payroll, salaries, taxes, utilities, rent and depreciation costs represented by the $5,827,000.00 figure are costs Scullin would have incurred during the six month period ending June 30, 1980 regardless of how many carsets it produced. Nothing in the record and nothing PACCAR raises in its cross-appeal persuades us the circuit court has erred. Costs not directly affected by fluctuations in productivity are, by definition, “fixed” costs. J. White & R. Summers, Uniform Commercial Code, supra, § 7-13, p. 235 (1972). The point is denied. The circuit court’s award of $537,125.00 “reasonable overhead” is affirmed.

IV

Section 512.160(4), RSMo, provides that when a judgment is affirmed “for part of the sum of which judgment was rendered by the trial court, such part of said judgment shall bear lawful interest from the date of the rendition of the original judgment in the trial court”. On July 6, 1984, the trial court awarded Scullin Steel $1,091,860.00 as reasonable overhead. With this opinion, we affirm $537,125.00 of that judgment. In accordance with § 512.160(4), the latter amount shall bear lawful interest from July 6, 1984, the date of the original judgment.

The judgment insofar as it awards Scul-lin Steel lost net profit is reversed. The judgment insofar as it awards Scullin Steel $537,125.00 as reasonable overhead is affirmed. The matter is remanded with directions to award Scullin Steel interest on the overhead award in accordance with § 512.160(4), RSMo.

So ordered.

PUDLOWSKI, J., concurs. DOWD, J., dissents in separate opinion.

1 . In the present appeal, Scullin argues that because PACCAR was only obligated to purchase "basic” carsets, lost net profit per carset is only correctly reflected by the difference between a basic carset’s price and cost. "Average cost per carset” takes the cost of both “basic” carsets and carsets with “extras” into account. Thus, Scul-lin asserts that using "average cost per carset" to calculate lost net profit is error.

Scullin could have raised this issue on the first appeal. It did not. In Scullin I, we approved the average cost per carset as an element of lost net profit. We are not required to, nor will we, reconsider our position. Jones v. Eagan, 715 S.W.2d 596 (Mo.App.1986).

Similarly, we decline to consider Scullin’s claim that the circuit court’s failure to award Scullin "mitigation expenses” was error. This point was raised on the first appeal and rejected. It was not within the scope of the remand and is not cognizable at this point. See State v. Rooney, 402 S.W.2d 354, 361 (Mo. banc 1966).

2 . As we have stated, the trial court determined that the average cost per carset in 1980 was $3,822.00. To arrive at this figure, the court divided Scullin's total costs for 1980 ($36,619,-229.00) by the number of carsets Scullin produced during that period (9,581). The . 1980 total costs figure included a direct labor cost of $4,906,356.00. Golus’ testimony establishes that this direct labor cost would have increased by at least 67% (or by at least one-third of 10 million dollars) in 1981. When this increase is taken into account, the total costs figure for 1981 becomes roughly $39,952,562.00, which when divided by 9,581, the number of carsets Scullin was expected to produce in 1981, yields a 1981 average cost per carset of roughly $4,170.00.

3 . It is the dissent’s position that contrary to Golus’ testimony, "... the new labor contract became effective in 1980 and the sharpest increase in the labor contract (seventy-five cents per hour) was experienced that year and was included in the trial court’s original net profit projection." The labor contract, however, was never properly admitted into evidence. Scullin merely appended it to a memorandum it submitted to the trial court on remand. It is not properly before this court. Neither is there any indication in the record that the trial court took it into account when it fashioned its original net profit award or the net profit award on remand. Because the labor contract is not before us, Golus’ testimony remains unimpeached.

Moreover, even if the labor contract were in evidence, and we were to accept the dissent’s position that the “steepest percentage of the labor cost increase” was realized in 1980, and that the trial court took this into account when it calculated Scullin’s net profit for 1980, by our calculations the labor cost increase to be realized in the years following 1980 could have caused the average cost per carset to exceed the contract price per carset in those years.

4 .Fixed costs, which § 400.2-708(2) denominates "reasonable overhead", commonly include property taxes, salaries, rent, utilities, depreciation, insurance, and other costs not directly affected by fluctuations in productivity. J. White & R. Summers, Uniform Commercial Code, § 7-13, p. 235 (1972).

5 . Denominated “Indirect Production Costs” in ScuIIin’s exhibits.

6 . 708 S.W.2d at 764.