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11.3 Revocation of Acceptance Contract Sales and Lease Contracts: Performance and Breach

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700 P.2d 642
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
(Cite as: 102 N.M. 739, 700 P.2d 642)
Supreme Court of New Mexico.
INTERNATIONAL PAPER COMPANY, Plaintiff-
Appellant and Cross-Appellee,
v.
Roy E. FARRAR, Defendant-Appellee and Cross-
Appellant.
No. 15245.
May 8, 1985.
Rehearing Denied May 31, 1985.
Seller of boxes to be used for packing tomatoes
brought breach of contract action against buyer.
Buyer counterclaimed, alleging that boxes were not
fit for their intended purpose because they col-
lapsed during shipping and storage, thereby dam-
aging fruit. Buyer claimed damages in amount of
$25,000, and for $3,900 worth of boxes remaining
in inventory that were unfit for use. The District
Court, Rio Arriba County, Petra Jimenez Maes,
D.J., entered judgment for buyer on breach of im-
plied warranty claims, but prevented buyer from
claiming portion of his damages, and appeals were
taken. The Supreme Court, Sosa, Senior Justice,
held that: (1) doctrine of collateral estoppel could
not be used to bar buyer from recovering certain
damages; (2) seller breached implied warranties of
merchantability and fitness for particular purpose;
(3) statute governing express warranties by sample
or model could not be used by seller as defense;
and (4) buyer was entitled to recover price of boxes
and consequential damages.
Affirmed in part, reversed and remanded in part.
West Headnotes
[1] Judgment 228 634
228 Judgment
228XIV Conclusiveness of Adjudication
228XIV(A) Judgments Conclusive in Gener-
al
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 1
228k634 k. Nature and Requisites of
Former Adjudication as Ground of Estoppel in
General. Most Cited Cases
Four elements which must be present for collateral
estoppel to be invoked are that parties are the same
or privies of original parties, that cause of action is
different, that issue or fact was actually litigated,
and that issue was necessarily determined.
[2] Judgment 228 956(1)
228 Judgment
228XXIII Evidence of Judgment as Estoppel or
Defense
228k956 Evidence as to Identity of Issues or
Matters Decided
228k956(1) k. Presumption and Burden of
Proof. Most Cited Cases
It is burden of movant invoking doctrine of collat-
eral estoppel to introduce sufficient evidence for
court to rule whether doctrine is applicable; further-
more, if record does not provide sufficient evidence
of elements of collateral estoppel, court cannot in-
voke doctrine.
[3] Judgment 228 956(5)
228 Judgment
228XXIII Evidence of Judgment as Estoppel or
Defense
228k956 Evidence as to Identity of Issues or
Matters Decided
228k956(5) k. Weight and Sufficiency of
Evidence. Most Cited Cases
Where record contained no transcript, record or
judgment from Arkansas suit brought by tomato
packer against growers for nonpayment of packing
charges, court did not know whether issues in
Arkansas suit were same issues as those in breach
of contract action at bar, and only evidence of
Arkansas suit were statements made by attorneys at
oral argument, collateral estoppel could not be ap-
plied to bar tomato packer from recovering certain
damages from box seller incurred when boxes were
700 P.2d 642 Page 2
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
(Cite as: 102 N.M. 739, 700 P.2d 642)

not fit for their intended purpose of shipping toma- Seller of packing boxes for tomatoes breached im-
toes. plied warranty of merchantability, where boxes
were not suitable for packing, shipping or storage
[4] Sales 343 272 of tomatoes, and boxes were not even of type
ordered by buyer. NMSA 1978, § 55-2-314(2, 3).
343 Sales
343VI Warranties [7] Sales 343 273(1)
343k265 Implied Warranty of Quality, Fit-
ness, or Condition 343 Sales
343k272 k. Merchantability. Most Cited 343VI Warranties
Cases 343k265 Implied Warranty of Quality, Fit-
ness, or Condition
Sales 343 273(1) 343k273 Fitness for Purpose Intended
343k273(1) k. In General. Most Cited
343 Sales
Cases
343VI Warranties
Implied warranty of fitness for particular purpose
343k265 Implied Warranty of Quality, Fit-
requires reliance by buyer on seller's skill or judg-
ness, or Condition
ment. NMSA 1978, § 55-2-315.
343k273 Fitness for Purpose Intended
343k273(1) k. In General. Most Cited [8] Sales 343 284(4)
Cases
Implied warranties of merchantability and fitness 343 Sales
for particular purpose are implied by law and are 343VI Warranties
independent of express warranties. NMSA 1978, §§ 343k281 Breach
55-2-314, 55-2-315. 343k284 Warranty of Quality, Fitness, or
Condition
[5] Sales 343 272 343k284(4) k. Fitness for Purpose In-
tended. Most Cited Cases
343 Sales
Seller of boxes for shipping tomatoes breached its
343VI Warranties
implied warranty of fitness for particular purpose,
343k265 Implied Warranty of Quality, Fit-
where buyer relied on skill or judgment of seller to
ness, or Condition
provide boxes that would ship 20 and 30 pounds of
343k272 k. Merchantability. Most Cited
tomatoes and would not collapse during shipping
Cases
and storage. NMSA 1978, § 55-2-315.
It is not necessary for buyer to prove his reliance on
skill or judgment of seller under implied warranty [9] Sales 343 261(7)
of merchantability. NMSA 1978, § 55-2-314.
343 Sales
[6] Sales 343 284(1) 343VI Warranties
343k259 Making and Requisites of Express
343 Sales
Warranty
343VI Warranties
343k261 Statements Constituting War-
343k281 Breach
ranty
343k284 Warranty of Quality, Fitness, or
343k261(7) k. Statements as to Com-
Condition
parison of Goods with Sample or Other Goods.
343k284(1) k. In General. Most Cited
Most Cited Cases
Cases

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

700 P.2d 642
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
(Cite as: 102 N.M. 739, 700 P.2d 642)
Where neither of sample boxes that seller's agent
showed buyer were basis of bargain for sale and
purchase of boxes for packing tomatoes, statute
governing express warranties by sample or model
could not be used by seller as defense to action
based upon breach of implied warranty for fitness
for particular purpose and breach of implied war-
ranty of merchantability. NMSA 1978, §§
55-2-313(1)(c), 55-2-314, 55-2-315.
[10] Sales 343 285(2)
343 Sales
343VI Warranties
343k285 Notice to Seller of Defects
343k285(2) k. Time for Giving Notice.
Most Cited Cases
Where buyer notified seller of boxes used for ship-
ping tomatoes as soon as buyer was aware that
boxes collapsed when shipped, and flaw in boxes
was latent defect and was not apparent nor discov-
erable by inspection when boxes were received,
upon revocation of goods after acceptance, buyer
was entitled to recover prices of box and con-
sequential damages. NMSA 1978, §§ 55-2-315,
55-2-608 comment.
*740 **643 Joseph A. Roberts, Santa Fe, for
plaintiff-appellant and cross-appellee.
Dennis Luchetti, Espanola, for defendant-appellee
and cross-appellant.
OPINION
SOSA, Senior Justice.
This is an appeal from the district court of Rio Ar-
riba County in a breach of contract action. The
plaintiff, International Paper Co. (International)
sold boxes to be used for packing tomatoes to Roy
E. Farrar Produce Co. (Farrar). International sued to
collect the amount of $14,040.34 due and owing
from Farrar on the sale of the boxes. Farrar counter-
claimed, alleging that the boxes were not fit for
their intended purpose (shipping tomatoes) because
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 3
they collapsed during shipping and storage, thereby
damaging the fruit. Farrar claimed damages in the
amount of $25,000.00, and for $3,900.00 worth of
International boxes remaining in his inventory that
are unfit for use.
This case considers the use of the doctrine of collat-
eral estoppel and presents several questions under
Article Two of the Uniform Commercial Code
(UCC), NMSA 1978, Sections 55-2-101 to
55-2-725 (Cum.Supp.1984). Issues raised by the
claim and counterclaim are:
(1) Whether the trial court correctly used the doc-
trine of collateral estoppel to prevent Farrar from
claiming a portion of his damages;
(2) Whether Section 55-2-314 of the UCC, Im-
plied Warranty of Merchantability, applies;
(3) Whether Section 55-2-315 of the UCC, Im-
plied Warranty of Fitness for a Particular Pur-
pose, applies;
(4) Whether boxes delivered by International
conformed to a sample or model;
(5) Whether revocation of acceptance was made
under the UCC Section 55-2-608;
(6) Whether a clerical error was made by the
court in calculating damages.
We affirm on issues 2 through 5 under the UCC.
We reverse and remand on the issues of collateral
estoppel and damages.
The trial court found that Farrar ordered a shipment
of boxes from International that were to be suitable
for the packing and storage of tomatoes. The di-
mensions of the two sizes of boxes were to be such
that either twenty or thirty pounds of tomatoes
could be packed without the necessity of weighing
each box. As to specifications, Farrar dealt with
Wilson, an agent and salesman for International.
Farrar requested the boxes be the same type as
those supplied to Florida packers for the shipping
700 P.2d 642
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
(Cite as: 102 N.M. 739, 700 P.2d 642)
of tomatoes. Farrar told Wilson to obtain the cor-
rect specifications for the Florida-type boxes. Far-
rar rejected a sample*741 **644 box produced be-
cause the dimensions and construction were not
correct. There was an indication that the double
waxing of the sample box was not necessary. Farrar
ordered boxes with the same dimensions and con-
struction as the Florida box. Wilson assured Farrar
that International's computer could calculate a box
with the correct dimensions. There was testimony
that Wilson did not obtain the dimensions of the
Florida box, but instead obtained specifications of a
box International sold in Texas.
International shipped Farrar 21,500 unassembled
boxes at a unit price of $.64 per box. The trial court
found International had warranted and represented
these boxes were suitable for the packing and ship-
ping of tomatoes. Further, the court found that the
boxes were unsuitable for their intended purpose;
were not tomato boxes; were not the type of boxes
used in Florida; and did not have adequate stacking
strength and would not hold up during shipping.
The defects were not apparent on delivery and were
not discovered until most of the boxes were packed
and shipped.
Farrar incurred the cost of repacking 3,624 boxes
(at $1.92 per box), and the cost of replacing the
damaged tomatoes. Substitute boxes had to be pur-
chased to replace the non-functioning boxes at a
cost of $.10 per box over market price. The replace-
ment boxes were the Florida-type and did not col-
lapse when used. Farrar advanced growers $6.00
per box on tomatoes that were damaged during
shipping and could not be sold. Farrar suffered de-
ficiencies from the sale of the tomatoes and was not
able to recoup packing and brokerage fees. Lastly,
there were 6,100 boxes in Farrar's inventory which
he cannot use.
The trial court found that Farrar either rejected the
boxes or revoked his acceptance upon discovery of
the defective boxes, but International refused to
take back the unused and unfit boxes. The court
also found that in ordering the boxes from Interna-
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 4
tional, Farrar had relied upon the special knowledge
and expertise of International as a respected manu-
facturer of boxes used in the packing of produce.
International had notice of the type of tomato to be
packed, the high humidity at the packing shed loca-
tion and Farrar's reliance on receiving a Florida-
type box as ordered through Wilson.
Collateral Estoppel
Farrar attempted to introduce into evidence losses
of $39,192.77. International objected to $18,315.00
of this amount under the doctrine of collateral es-
toppel. International claimed the $18,315.00 was
the amount litigated in a suit Farrar brought against
three growers in Arkansas for nonpayment of pack-
ing charges and brokerage fees and for the return of
the $6.00 per box advance. The trial court refused
evidence of the $18,315.00 loss, presumably on
grounds of collateral estoppel.
This Court has recently applied the doctrine of col-
lateral estoppel. Adams v. United Steelworkers of
America, 97 N.M. 369, 373, 640 P.2d 475, 479
(1982). Adams provides that collateral estoppel bars
relitigation of “ultimate facts or issues actually and
necessarily decided in a prior suit.” Id. See also
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326,
99 S.Ct. 645, 649, 58 L.Ed.2d 552 (1979) (holding
collateral estoppel is used only when an issue is ac-
tually and fully litigated.)
International claims the outcome of the Arkansas
suit prevents Farrar from pursuing the claim for
damages in this suit. International claims the
Arkansas court did not find in favor of Farrar, thus
Farrar is estopped from claiming damages already
litigated under the doctrine of collateral estoppel.
[1] Collateral estoppel, like res judicata, is a judi-
cial economy measure to prevent litigation of an is-
sue already judicially decided. Adams. See Three
Rivers Land Co. v. Maddoux, 98 N.M. 690, 652
P.2d 240 (1982). New Mexico traditionally requires
four elements to be present for collateral estoppel to
700 P.2d 642
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
(Cite as: 102 N.M. 739, 700 P.2d 642)
be invoked: (1) the parties are the same or are
privies of the original parties; (2) the cause of ac-
tion is different; (3) the issue or fact was actually
litigated; *742 **645 and (4) the issue was neces-
sarily determined. See Torres v. Village of Capitan,
92 N.M. 64, 582 P.2d 1277 (1978).
[2] It is the burden of the movant invoking the doc-
trine of collateral estoppel to introduce sufficient
evidence for the court to rule whether the doctrine
is applicable. See Buhler v. Marrujo, 86 N.M. 399,
524 P.2d 1015 (Ct.App.1974), overruled on other
grounds, 98 N.M. 690, 652 P.2d 240 (1982). If the
record does not provide sufficient evidence of the
elements of collateral estoppel, the court cannot in-
voke the doctrine. Buhler.
[3] In the instant case we have no evidence to indic-
ate what issues were actually or fully litigated in
Arkansas. We have searched the record on appeal
and cannot find evidence of the Arkansas suit other
than statements made by the attorneys at oral argu-
ment. There is no transcript, record or judgment
from the Arkansas suit in the record before this
Court. We do not know whether the issues in the
Arkansas suit are the same issues as those in the
case at bar. Therefore, collateral estoppel cannot be
applied. In light of this conclusion we need not
reach Farrar's contention that the requirement of
“same parties” is not met but note the Arkansas
growers are not in privity with International. Torres
v. Village of Capitan. See also Edwards v. First
Federal Savings & Loan Association of Clovis, 696
P.2d 848 (N.M.Ct.App.1985) (discussing the mod-
ern view of the defensive and offensive use of col-
lateral estoppel).
Uniform Commercial Code
(a) Implied Warranties
[4] Two implied warranties are available to Farrar
under the UCC, the implied warranty of merchant-
ability, NMSA 1978, Section 55-2-314, and the im-
plied warranty of fitness for a particular purpose,
© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 5
NMSA 1978, Section 55-2-315. New Mexico re-
cognizes that the implied warranties of merchantab-
ility and fitness for aparticular purpose are implied
by law and are independent of express warranties.
Perfetti v. McGhan Medical, 99 N.M. 645, 662 P.2d
646 (Ct.App.), cert. denied, 99 N.M. 644, 662 P.2d
645 (1983).
To fit within Section 55-2-314, the seller must be a
“merchant with respect to goods of that kind” and
the goods must be unmerchantable within the
guidelines of subsections 55-2-314(2) and (3)
which provide in pertinent part:
(2) Goods to be merchantable must be at least
such as:
(a) pass without objection in the trade under the
contract description; and
(c) are fit for the ordinary purposes for which
such goods are used; and
(3) Unless excluded or modified (Section 2-316 [
55-2-316 NMSA 1978] ) other implied warranties
may arise from course of dealing or usage of
trade.
[5] It was established at trial that International was
a “merchant with respect to goods of that kind” in
the selling of boxes for packing produce. It is not
necessary for the buyer to prove his reliance on the
skill or judgment of the seller under implied war-
ranty of merchantability. Daniell v. Ford Motor
Co., 581 F.Supp. 728 (D.N.M.1984).
[6] The court made specific findings that the boxes
were not suitable for the packing, shipping or stor-
age of tomatoes. Additionally, the boxes were not
the Florida-type Farrar ordered. The record sup-
ports the trial court's determination that there was a
breach of implied warranty. § 55-2-314(2), (3).
[7][8] An implied warranty of fitness for a particu-
lar purpose requires reliance by the buyer on the
700 P.2d 642 Page 6
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
(Cite as: 102 N.M. 739, 700 P.2d 642)

seller's skill or judgment. § 55-2-315. The record
reveals ample evidence upon which the trial court
could base a finding that Farrar relied on the skill
or judgment of International to provide boxes that
would ship twenty and thirty pounds of tomatoes
and would not collapse during shipping and stor-
age. The trial court was correct in finding a breach
*743 **646 of implied warranty under Section
55-2-315.
In reviewing the question of sufficient evidence in
the record to support the court's findings of fact,
this Court follows the rules as delineated in Toltec
International, Inc. v. Village of Ruidoso, 95 N.M.
82, 619 P.2d 186 (1980). After reviewing the evid-
ence in light of the Toltec rules, we conclude there
is substantial evidence to support a finding that un-
der the agreement there was a breach of implied
warranties by International. See NMSA 1978, §§
55-2-314, 55-2-315.
amount of damages awarded by the trial court. As
such, the proper level of damages must be calcu-
lated on remand.
For the reasons set forth above, the trial court is af-
firmed except as to the application of collateral es-
toppel and the award of damages. As to these is-
sues, the judgment of the trial court is reversed and
the cause remanded for further proceedings consist-
ent with this opinion.
IT IS SO ORDERED.
RIORDAN and WALTERS, JJ.
N.M.,1985.
International Paper Co. v. Farrar
102 N.M. 739, 700 P.2d 642, 41 UCC Rep.Serv. 54
END OF DOCUMENT

(b) Model or Sample

[9] Neither of the sample boxes that Wilson showed

Farrar were the basis of the bargain under Section
55-2-313(1)(c). Therefore, Section 55-2-313(1)(c)
cannot be used by International as a defense.

(c) Revocation

[10] There is sufficient evidence that Farrar notified

International as soon as he was aware that the boxes
collapsed when shipped. The trial court found this
was a latent defect that was not apparent nor dis-
coverable by inspection when the boxes were re-
ceived. NMSA 1978, § 55-2-513. Upon revocation
of the goods after acceptance, Farrar may recover
the price of the boxes and consequential damages. §
55-2-608, Official Comment (1).

Conclusion

As to the clerical error claim, both parties agree

that no substantial evidence supports the actual

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.