COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 70272 SHAW STEEL, INC. : : Plaintiff-Appellant : : JOURNAL ENTRY -vs- : AND : OPINION NADACO STEEL, INC. : : Defendant-Appellee : : DATE OF ANNOUNCEMENT OF DECISION NOVEMBER 27, 1996 CHARACTER OF PROCEEDING Civil appeal from Court of Common Pleas Case No. 278074 JUDGMENT Affirmed in part; Reversed in part. DATE OF JOURNALIZATION APPEARANCES: For Plaintiff-Appellant: For Defendant-Appellee: DONALD N. JAFFE, ESQ. JENNIFER LESNY-FLEMING, ESQ. Persky, Shapiro, Salim, Benesch, Friedlander, Coplan Esper, Arnoff & Nolfi & Aronoff Co., L.P.A. 2300 BP America Building 1410 Terminal Tower 200 Public Square Cleveland, Ohio 44113-2298 Cleveland, Ohio 44113 - 2 - JAMES M. PORTER, J., Plaintiff-appellant Shaw Steel, Inc. appeals from judgment following a bench trial in favor of defendant-appellee Nadaco Steel, Inc. arising out of plaintiff's claims to recover for steel shipments between the parties. Plaintiff claims the trial court erred in holding (1) that the steel shipped by plaintiff to defendant was non-conforming and that defendant timely exercised its right to revocation of acceptance and (2) that monies owed by defendant to plaintiff for steel shipped from defendant to plaintiff were appropriately reduced to zero by debit memos issued by defendant. For the reasons set forth below, we affirm in part and reverse in part the trial court's judgment. On December 29, 1994, plaintiff Shaw filed a two-count amended complaint against defendant Nadaco alleging Nadaco owed Shaw $12,762.83 arising out of two separate transactions concerning the sale of steel between the parties. On Count I, Nadaco denied owing Shaw for steel purchased by Nadaco because it was wholly defective and rejected. On Count II, for other steel sold to Nadaco by Shaw, Nadaco claimed the amounts were already accounted for by way of certain debit memos issued against Shaw. The case proceeded to a bench trial which was held on October 24, 1995. The trial court issued Findings of Fact and Conclusions of Law on January 29, 1996. COUNT I EVIDENCE The evidence from trial demonstrated that in early June 1994, Shaw offered six cold-rolled steel coils (140,000 lbs.) for sale to - 3 - Nadaco. On June 9, 1994, Nadaco, at Shaw's direction, issued a revised purchase order for the steel for $29,819.16, "the material [being] subject to edge rust." The purchase order also stated that Gil Scotland, who was Shaw's sales manager, would personally inspect the steel prior to delivery. Nadaco placed its purchase order in reliance upon such representations. According to Nadaco, in accordance with trade practices in the steel brokerage industry, it purchased the steel from Shaw, without inspecting same, and contemporaneously re-sold and caused the steel to be shipped directly to its customer, Viking Materials in Chicago. The steel rolls were delivered by common carrier on June 21 or 22, 1994 to Viking. Nadaco claimed that two weeks after the delivery, Viking Material notified Nadaco that the steel appeared defective in that it did not have mere "edge rust," but was rusty throughout. Viking contends it notified Nadaco of the defective coils the day it received them. The president of Nadaco testified that "edge rust" is a term of art in the steel industry which means that there is rust on the edges of the coil which may extend only so far as one to two inches into the surface of the steel coil. The president of Shaw contended that "edge rust" could extend as far as 12 inches from the side. Mr. Tom Correll of Viking Materials confirmed that "edge rust" means that the rust is contained or is "isolated" to only the edge of the steel. Correll testified that, had the rust been - 4 - limited to the edge (which it was not), the steel could have been acceptable to Viking Materials. In response to Viking Materials' complaint that the steel was rusted throughout, Nadaco contacted Shaw on or about July 18 or 20, 1994 to inform it of the claimed defect. With Shaw's permission, Nadaco recommended to Viking Materials that it run one steel coil "over the top," that is, unroll the coil by running it over a slitter machine in order to confirm the extent of the rust. Viking Materials inspected one coil on July 20, 1994 and confirmed that the steel was rusted throughout and thus defective. Until such steel was run "over the top" it could not be confirmed that the steel was definitely defective. The results of the Viking inspection showed that the rust intruded approximately fourteen inches on each side, in a Christmas tree design, covering over half of the width (44 1/2 inch) of the steel material. At Shaw's prompting, Shaw and Nadaco arranged a meeting in Chicago on August 24, 1994 to evaluate and discuss the defective nature of the steel. At the Chicago meeting, the Viking and Shaw principals did not agree on whether the steel exhibited only edge rust or more pervasive rust. In any event, Shaw did not offer to fix the steel or cure the problems. On September 20, 1994, Nadaco issued a debit memo against Shaw for the purchase price of the defective steel plus freight charges (shipment to Chicago), inspection and storage charges totalling $32,326.41. - 5 - Nadaco and Shaw agreed to work together to resell the material to another buyer. Shaw found another purchaser for the steel and resold the steel to Charter Steel Trading Co., Inc. in Chicago for $27,170.80, later reduced by a ten per cent (10%) adjustment of $2,717.08, due to the extent of the rust, making the ultimate sale price to Charter $24,453.72. Thus, the difference between the sale price to Nadaco and Viking was $5,366.24, plus freight from Viking to Charter of $612.57. Thus, under Count I of its amended complaint, Shaw was seeking contract damages of $5,366.24 plus the freight charges of $612.57 plus interest from Nadaco. COUNT II EVIDENCE On May 31, 1994, Shaw sold Nadaco 32,700 lbs. of galvanized steel for a purchase price of $6,785.25. It was delivered, but was never rejected, refused or returned by Nadaco. Nadaco never paid Shaw for this steel. However, according to Nadaco, it took care of this charge by issuing Shaw two debit memos on September 20, 1994. One of the debit memos in the amount of $3,337.06 was for steel that Nadaco had sold to Shaw, which Shaw had rejected due to its quality. Although Shaw had rejected the steel, it never returned it to Nadaco and never paid Nadaco. It was later discovered that Shaw's customer had, in fact, used the steel. The second debit memo in the amount of $32,326.41 related to the steel Nadaco had bought for its transaction with Viking Material which is the subject of Count I. The charge also included the freight charge for shipping the coils from Cleveland to Chicago and the cost of - 6 - running the coils to inspect the rust damage and storage for three months. Therefore, Nadaco contended that the charge for the galvanized steel was offset by these debit memos. Following the bench trial, on January 29, 1996, the trial court entered judgment for defendant Nadaco and filed its Findings of Fact and Conclusions of Law. It held (1) that the steel sold by Shaw to Nadaco and resold to Viking Materials failed to conform to Nadaco's purchase order and that Nadaco rightfully revoked its acceptance of the defective steel within a commercially reasonable time period and (2) the sums purportedly due from Nadaco to Shaw for steel purchased were not owed since they were appropriately reduced by the amount of the debit memos issued by Nadaco against Shaw. This timely appeal ensued. We will address plaintiff's assignments of error together for ease of discussion where the issues presented are interrelated. I. THE TRIAL COURT ERRED IN HOLDING THAT NOTICE OF REJECTION OF THE STEEL COILS WAS GIVEN BY NADACO STEEL, INC. IN A COMMERCIALLY REASON- ABLE TIME. II. THE TRIAL COURT ERRED IN HOLDING THAT NADACO STEEL, INC. RIGHTFULLY REVOKED ITS ACCEPTANCE OF THE STEEL SOLD BY SHAW STEEL, INC. TO NADACO STEEL INC. III. THE TRIAL COURT ERRED IN HOLDING THAT THERE WAS PRIVITY OF CONTRACT BETWEEN SHAW STEEL, INC. AND NADACO STEEL, INC.'S BUYER, VIKING MATERIALS, INC. AND THAT THE STEEL COILS DID NOT CONFORM TO THE AGREEMENT BETWEEN SHAW STEEL, INC. AND NADACO STEEL, INC. This Court's review of the decision of the trial court, the fact-finder below, is limited to a determination of whether the - 7 - trial court's decision is against the manifest weight of the evidence. This Court in Police Patrolmen's Assn. v. Voinovich (1984), 15 Ohio App.3d 72, 75 held: The weight of the evidence and the credibility of witnesses is primarily a function for the trier of facts. State v. DeHass (1967), 10 Ohio St.2d 230, 231. Thus, in reviewing a bench trial, an appellate court will uphold the trial court's evaluations unless it appears the record is insufficient to support a reasonable person in concluding as the trial judge did. See, also, Ohio Bell Tel. v. Richard Bowen & Assoc. (Dec. 8, 1994), Cuyahoga App. No. 66517, unreported. A buyer of goods has a right to reject, or revoke its acceptance of, goods which fail in any respect to conform to the agreement between the parties and whose non-conformity substantially impairs the value to the buyer. R.C. 1302.60, 1302.66. Revocation of acceptance of defective goods within a reasonable time gives the buyer the same rights as if it had initially rejected the goods and grants the buyer the right to be placed in the same position as it was prior to entering into the transaction at issue. R.C. 1302.66(C). See Aluminum Line Prod. v. Rolls-Royce Motors (1993), 66 Ohio St.3d 539, 541. R.C. 1302.66(B) provides that: Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. - 8 - As explained in the Official Comment to Ohio's notice provision: The content of the notification need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched ***. The notification which saves the buyer's rights under this Article (R.C. 1302) need only be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation. R.C. 1302.65, Official Comment, 4. Notice need not be in any particular form and may be by oral notification or may be implied from conduct. Chemtrol Adhesives, Inc. v. American Mfrs. Mut. Ins. Co. (1989), 42 Ohio St.3d 40, 54; Lanham v. Solar America of Cincinnati, Inc. (1986), 28 Ohio App.3d 55, 58; Konicki v. Salvaco, Inc. (1984), 16 Ohio App.3d 40, 43; Kabco Equip. Specialist v. Budgetel (1981), 2 Ohio App.3d 58, 61. Plaintiff Shaw contends that "the key inquiry in this case is whether Nadaco's purported rejection or revocation of acceptance of the steel was timely made *** at a minimum, Nadaco did not notify Shaw of the problem until 28 days after it had accepted delivery of the steel coils." (Aplnt's Brf. at 12-13). R.C. 1301.10 states as follows: (B) What is a reasonable time for taking any action depends on the nature, purpose, and circumstances of that action. Whether a buyer has given a seller reasonable notice of revocation is ordinarily a matter left to the trier of fact. Chemtrol - 9 - Adhesives, supra at 51; Funk v. Montgomery AMC/Jeep/Renault (1990), 66 Ohio App.3d 815, 819; Kabco Equip., supra at 61. The trial court herein found competent, credible evidence to support a determination that Nadaco gave notice of the defective steel within a commercially reasonable time, i.e., within one month after the purchase. This conclusion finds support in the evidence from Nadaco's phone call to Shaw on or around July 18 or 20, 1995 indicating that there appeared to be a problem with the steel. There was, therefore, "some" competent evidence to support the court's conclusion that Shaw was notified of the possible defects with the steel during the July 18 or 20, 1994 phone call - within less than a month from the date of the delivery of the steel to Viking Materials. Within this time, Shaw was not deprived of any remedy as to the defective steel, nor were any changes made in the original condition of the steel which could prejudice Shaw. Evidence presented at trial indicated that, given the industry custom of not inspecting the steel immediately, several months before giving notice is not unreasonable. At trial, Shaw's president stated that, in the course of conducting business, he believed notice of a defect would be reasonable if given within five months and greater. Q. Do you think it would be reasonable to give 5 months notice of the defect in steel? A. Yes. I have had people come back to me two years later with defects in steel. * * * - 10 - Q. And sometimes it may have taken you a few months to discover the steel was defective or learn from your customers? A. That would happen. Our customers notify us. It may take two, three months, yes. (Tr. 30). Shaw argues, nevertheless, that it was "incumbent" on Nadaco to undertake an independent inspection prior to its delivery to Viking Materials. The defendant at trial testified that, because the steel was in Cleveland and defendant in Detroit, that no inspection was performed by defendant. Defendant added, "We normally in this business don't, you know, look at anything. We just take the word of the people that we are buying it from." (Tr. 42). The trial court inquired as to the custom and practice of inspection of cold rolled steel coils and found it was customary that the inspection take place by the first person to use the product. See, e.g., King Steel Sales Corp. v. Hanover Steel Corp. (Dec. 15, 1983), Cuyahoga App. No. 46584, unreported, where this Court recognized that the standard practice in the steel industry was that steel is not inspected until it is received by the end user. As stated in the King Steel case: *** the custom and course of dealing in the steel brokerage trade is to buy and sell steel goods sight unseen in reliance upon the good faith of the seller, due to geography and temporal considerations. Acceptance of such goods without prior inspection is therefore the rule rather than the exception, based upon the buyer's reliance on the seller's good faith assurance. - 11 - Id. at 10. Likewise, the evidence in the instant case supports such a finding regarding industry practice. We find no merit to plaintiff's argument that the trial court erroneously found privity of contract between Shaw and Viking Materials for purposes of the non-conforming steel. There is nothing in the trial court's Findings of Fact and Conclusions of Law to suggest such a conclusion. Nadaco properly revoked its acceptance of the steel. Nadaco bought the steel subject to "edge rust." However, it was not until Viking Materials received the steel that Nadaco learned the steel had more than the "edge rust" as represented by Shaw. Viking conceded that, if the steel merely had "edge rust," it could have been acceptable for its needs. As this Court in Aluminum Line v. Rolls-Royce Motors, Inc. (1994), 98 Ohio App.3d 759 at 767-768 held: [C]ase law in Ohio establishes that a direct buyer-seller relationship must exist in order for the remedy of revocation of acceptance to be available. *** The privity requirement is premised upon the distinct nature of the claim which seeks to place the purchaser in the same position as if he had rejected the goods upon delivery. Since the steel was not in conformity with what Nadaco agreed to buy, it was within its rights in revoking acceptance. Nadaco and Shaw had a buyer-seller relationship creating the privity needed for revocation. Simply because it was Viking Materials that initially discovered the defect in the steel does not alter this relationship. - 12 - In short, there was ample factual and legal support for the trial court's finding that Nadaco rightfully revoked its acceptance of the steel within a commercially reasonable time. Assignments of Error I, II and III are overruled. IV. THE TRIAL COURT ERRED IN FINDING THAT MONIES OWED BY NADACO STEEL, INC. TO SHAW STEEL, INC. WERE APPROPRIATELY REDUCED TO ZERO BY THE AMOUNT OF THE DEBIT MEMOS ISSUED BY NADACO STEEL, INC. ON SEPTEMBER 20, 1994. Shaw and Nadaco have engaged in numerous business transactions for the sale and purchase of steel over three or four years prior to the episodes at issue. In Count II of Shaw's amended complaint, it claimed that Nadaco bought galvanized steel from Shaw on or about May 31, 1994 for $6,785.25, but did not compensate Shaw for such steel. At trial, evidence was presented showing that on September 20, 1994 Nadaco issued two debit memos to Shaw. One of the debit memos was for the amount of $3,337.06 for steel that Shaw had purchased from Nadaco, but never paid for. We find no problem with this debit memo and find that Nadaco's bill of $6,785.25 was properly reduced by this amount. The second debit memo was for $32,326.41, of which $29,819.95 was for the rusty steel Nadaco purchased for its transaction with Viking Materials. Since Nadaco subsquently revoked its acceptance of the steel, this amount constitutes a wash. That is, since Shaw's account with Nadaco showed $29,819.95 due and owing, Nadaco's rejection of the steel would erase this amount from Shaw's - 13 - books. As indicated, the balance of this debit memo ($2,506.46) covered the freight charges incurred in shipping the steel from Cleveland to Viking in Chicago, coil inspection charges at Viking, and the storage Viking charged Nadaco for holding the defective steel until it was resold and moved. Therefore, the two debit memos total $5,843.52 ($3,337.06 + $2,506.46). Given that the amount Nadaco owed Shaw for the galvanized steel was $6,785.25, a balance of $941.73 is still owing. Therefore, the trial court erred in finding that Nadaco's debit memos to Shaw completely accounted for the amount it owed Shaw for the galvanized steel. Plaintiff's second assignment of error is sustained in part and defendant is directed to pay plaintiff $941.73 with interest at the "rate of 2% per month" from July 1, 1994 pursuant to Invoice No. 9740. R.C. 1343.03(A). Assignment of Error IV is sustained. Judgment affirmed in part and reversed in part. - 14 - It is ordered that appellee and appellant shall pay their respective costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Court of Common Pleas to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. HARPER, P.J., and PATTON, J., CONCUR. JAMES M. PORTER JUDGE N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E) unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the .