Hitachi Electronic v. Platinum Technologies

THE STATE OF SOUTH CAROLINA In The Court of Appeals Hitachi Electronic Devices (USA), Inc., Appellant, v. Platinum Technologies, Inc., Platinum Technology Financial Services, Computer Associates International, Inc., NewCourt Financial USA, Inc. and CIT Group, Inc., Defendants, Of Which Platinum Technologies, Inc., Platinum Technology Financial Services, and Computer Associates International, Inc., are, Respondents. Appeal From Greenville County Charles B. Simmons, Jr., Master-In-Equity Unpublished Opinion No. 2003-UP-766 Heard December 10, 2003 – Filed December 31, 2003 AFFIRMED in part, reversed in part, and remanded William S. Brown and Henry M. Burwell, both of Greenville, for Appellant. H. Donald Sellers and Boyd B. Nicholson, Jr., both of Greenville, for Respondents. PER CURIAM: Hitachi Electronic Devices, Inc. appeals from a master-in-equity’s order finding for Platinum Technologies, Inc. (“Platinum”), Platinum Technology Financial Services, and Computer Associates International, Inc., in a contractual dispute over non-conforming goods. FACTS Platinum sold software to Hitachi to facilitate the transfer of data from differing systems to help Hitachi calculate sales commissions and prepare compensation reports. All parties understood Hitachi sought Platinum’s services as part of a consolidation of its Greenville and Norcross offices so both offices would be able to transfer dissimilar data to a new system. All parties were also aware that Hitachi would lose access to certain data in October 1998, making time of the essence in reaching an agreement and completing the scheduled work. The parties signed a contract on July 31, 1998, for Platinum to supply software and hardware to complete the project. Hitachi agreed to pay Platinum $195,723.75. The contract did not contain any dates for the installation of the software or any deadlines with respect to full implementation. The contract did provide a limited warranty: Platinum also warrants that the Software will perform substantially as described in the accompanying Documentation during the Warranty Period. Customer acknowledges that (i) the Products may not satisfy all of Customer’s requirements and (ii) the use of the Products may not be uninterrupted or error-free. In case of a breach of the warranty the contract stated: Platinum or its representative will correct or replace any defective Software or, if not practicable, Platinum will accept the return of the defective Software, terminate the applicable Product Schedule and refund to Customer the License Fee actually paid to Platinum for the Software less depreciation based on a 5 year straight line depreciation schedule. Customer acknowledges that this Paragraph sets forth Customer’s exclusive remedy, and Platinum’s exclusive liability, for any breach of warranty or other duty related to the quality of the Products. A Platinum representative was onsite at Hitachi’s Norcross office in mid-August 1998 to install the product. After installing it, the representative tested the product to ensure it was capable of performing as planned. The test failed. The representative indicated the reason for the failure was the software’s inability to transfer data through a proprietary data storage system known as Harbinger. The product worked in all other aspects at the time of the installation. Platinum was aware that Hitachi used and planned to continue its use of the Harbinger system before entering into the contract. Platinum never informed Hitachi that the Harbinger system would cause any difficulty with the operating software. To use the data on the Harbinger system the data had to be placed in an appropriate format, a task not contemplated in the contract. Platinum did not perform this task, and Hitachi did not ask it to do so. Shortly after the installation of the software, the server crashed. Other problems with the software occurred, leading Hitachi to contact the Platinum help desk for a solution. Platinum made follow-up calls in November and December 1998 to assure the problems had been corrected. No one at Hitachi returned Platinum’s calls or made further contact with its help desk. Because the system proved unable to transfer the desired data, Hitachi contracted with another consultant in December 1998 to provide temporary solutions to their data transfer problems. Approximately a year later on November 10, 1999, Hitachi returned the software to Platinum stating that it was rejecting the software as non-conforming. Hitachi also demanded repayment for the money it had paid. Platinum refused Hitachi’s demand. In March 2000, Hitachi filed suit against Platinum alleging fraud, negligent misrepresentation, and breach of contract. Hitachi also sought a declaratory judgment that it could enforce its claims against the named defendants. The parties agreed the U.C.C. applied to the transaction at issue. The master-in-equity found for Platinum and all the other defendants. STANDARD OF REVIEW In an action at law, on appeal of a case tried without a jury, this court cannot disturb the trial judge’s findings of fact unless those findings are “wholly unsupported by the evidence or controlled by an erroneous conception or application of the law.” [1] LAW/ANALYSIS I. Improper Application of Code Hitachi asserts the master improperly applied the standard for rejection under S.C. Code Ann. § 36-2-602 (2003) , instead of the proper standard for revocation of acceptance under S.C. Code Ann. § 36-2-608 (2003) . Hitachi, however, failed to properly preserve the issue. “In order to preserve an issue for appellate review, the issue must have been raised to and ruled upon by the trial court.” [2] Hitachi raises this issue for the first time on appeal; therefore, we decline to address it. II. Notice of Rejection Under the U.C.C., a buyer may reject the goods or revoke his acceptance when goods fail to conform to the contract in any respect. [3] Such a rejection or revocation, to be effective, must be within a reasonable time after delivery. [4] The master found the return of the goods was not effected until fifteen months after the installation of the software and more than ten months after a separate consultant began implementing new software to replace the Platinum software. Therefore the master determined that Hitachi’s rejection and return was untimely. [5] Hitachi contends, however, that it could not know of the true non-conforming status of the software until March 1, 1999, the date by which Platinum had assured the system would be fully operational. More precisely, Hitachi argues it should not be penalized for trying to work with Platinum to make the software conforming until, at the earliest March 1, when it became apparent the software could not be corrected. Under the facts of the case, we cannot say the master’s decision is “wholly unsupported by the evidence or controlled by an erroneous conception or application of the law.” [6] Even accepting March 1, 1999, as the date when Hitachi realized the product was nonconforming, there is still the matter of an eight-month gap between the times it knew the product was defective and the time it rejected the software on November 10, 1999. III. Notice of Breach Hitachi argues the master incorrectly determined Hitachi was required to notify Platinum of its breach in writing because its complaints to Platinum regarding problems and incompatibility issues with the software are sufficient to satisfy the notice requirements under the U.C.C. We disagree. In Southeastern Steel v. W.A. Hunt Construction, this court found compelling a circuit court’s determination that notice of breach under S.C. Code § 36-2-607(3)(a) (2003) must be in writing, as is rejection of goods under S.C. Code § 36-2-602 (2003), [7] although we did not decide the case on this issue. [8] Hitachi therefore was required to give Platinum written notice of its breach. The calls made by Hitachi to Platinum’s help desk in September 1998 and November 1998 do not constitute written notice of breach. The nature of the problems were not such as to put Platinum on notice of a breach or even that Hitachi was materially dissatisfied with the product. The help desk calls were, as the master classified them, “typical requests for help that are made during any software installation process.” The record bears this out. A Platinum employee who installed the software testified that the issues reported to the help desk by Hitachi were typical software problems. Moreover, after Platinum’s help desk provided assistance in September and November 1998, no one at Hitachi returned any of the several phone calls the help desk made to ensure the software had been installed properly. Nothing in the evidence dissuades us from accepting the master’s view that Hitachi provided no written notice of breach until it sent its letter claiming to effect revocation on November 10, 1999. Hitachi therefore failed to properly notify Platinum of its breach. IV. Contractual and Common Law Remedies Hitachi argues the master improperly construed S.C. Code Ann. ' 36-2-607(3)(a) (2003) to bar it from pursuing an expressly agreed upon remedy in the contract and its common law remedies. Section 36-2-607(3)(a), which applies when a tender has been accepted, provides in part that “the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy . . . .” The master viewed the term “any remedy” as embracing any and all claims one may have against another, and not just those claims brought pursuant to the Uniform Commercial Code, and held a claimant who fails to provide the notice required by section 36-2-607(3)(a) cannot therefore bring a breach of contract or breach of warranty claim. We disagree with the master's holding in this regard. The Official Comments that accompany this section indicate the notification requirement is limited to those rights that arise under the Uniform Commercial Code: The notification which saves the buyer's rights under this Article need only be such as informs the seller that the transaction is claimed to involve a breach . . . . [9] Section 36-2-607(3)(a) falls within Article 2, entitled “Sales.” [10] Further, the South Carolina Reporter Comments note that subsection (3)(a) tracks the common law rule: Subsection (3)(a) states the common law rule that the buyer must communicate his rejection to the seller within a reasonable time after he discovers or should have discovered the defect. Failing this, the buyer will have waived the remedies for breach recognized as available to him by subsection (2). [11] This comment suggests to us that the drafters of the Uniform Commercial Code only meant to make the notification requirement contained in section 36-2-607(3)(a) mirror the common law rule that a buyer must communicate to the seller a rejection within a reasonable time after the defect is discovered or ought to have been discovered. More importantly, section 36-2-719(1)(a) allows parties to a contract to “provide for remedies in addition to or in substitution for those provided in this chapter . . . .” [12] The Official Comment to section 36-2-719(1) notes that “[u]nder this section parties are left free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect.” [13] Here, the parties expressly provided for another remedy in their contract. In paragraph 5(b) of the contract, which is entitled ARemedies,@ the parties agreed that “Platinum . . . will correct or replace any defective software, or if not practicable, . . . will accept the return of the defective software” and “[c]ustomer acknowledges that this Paragraph sets forth Customer's exclusive remedy.” [14] Section 36-2-607(3)(a) does bar Hitachi from enforcing this contract provision. Finally, a buyer under the Uniform Commercial Code is not required to elect between a revocation of acceptance under section 36-2-608, [15] “where the buyer has accepted on the reasonable assumption that the non-conformity would be seasonably cured,” [16] and a recovery for breach. The buyer may pursue both remedies. [17] The master, therefore, incorrectly determined that a “buyer cannot bring a common law breach of contract or breach of warranty action if it does not provide the required notice under § 36-2-607(3)(a).” Accordingly, we reverse and remand for the master to address the issue of breach of contract. AFFIRMED in part, reversed in part, and remanded. GOOLSBY and ANDERSON, JJ., and CURETON, A.J., concur. [1] Maddux Supply Co. v. Safhi, Inc., 316 S.C. 404, 406, 450 S.E.2d 101, 102 (Ct. App. 1994) . [2] Holy Loch Distribs., Inc. v. Hitchcock, 340 S.C. 20, 24, 531 S.E.2d 282, 284 (2000) . [3] S.C. Code Ann. §§ 36-2-601(a) , -608 (2003). [4] S.C. Code Ann. §§ 36-2-602(1) , -608(b)(2) (2003). [5] See Southeastern Steel Co. v. W.A. Hunt Constr. Co., Inc., 301 S.C. 140, 390 S.E.2d 475 (Ct. App. 1990) ; S. Tank & Culvert Co., Inc. v. Edisto Asphalt Co., Inc., 285 S.C. 579, 330 S.E.2d 545 (Ct. App. 1985) . [6] Maddux Supply Co., 316 S.C. at 406, 450 S.E.2d at 102 . [7] Our supreme court has determined that, although S.C. Code § 36-2-602 (2003) does not explicitly require written notice, a buyer must notify a seller in writing for a rejection of goods to be effective. Southeastern Steel Co., Inc. v. Burton Block & Concrete Co., Inc., 273 S.C. 634, 637, 258 S.E.2d 888, 889 (1979) ; see also Plantation Shutter Co., Inc. v. Ezell, 328 S.C. 475, 480, 492 S.E.2d 404, 407 (Ct. App. 1997) . [8] 301 S.C. 140, 143, 390 S.E.2d 475, 477 (Ct. App. 1990) . [9] S.C. Code Ann. § 36-2-607 (2003), Official Comment 4 (emphasis added). [11] S.C. Code Ann. § 36-2-607(3)(a) (2003), S.C. Reporter’s Comments to subsection (3)(a). 67A Am. Jur. 2d Sales § 836 (2003). [14] S.C. Code Ann. § 36-2-719(1)(b) (2003) states that “resort to a remedy as provided [in subsection (a)] is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.” We do not address the question of whether the remedy provided for in paragraph 5(b) is an exclusive one because neither party raised it nor did the master rule on it. William D. Hawkland, Hawkland Uniform Commercial Code Series § 2-608:1 (Callaghan 2002); see also S.C. Code Ann. § 36-2-608(3) (2003). S.C. Code Ann. § 36-2-608 (2003), Official Comment 1; William D. Hawkland, Hawkland Uniform Commercial Code Series § 2-608:1 (Callaghan 2002); see also Adams v. Grant, 292 S.C 581, 585-86, 358 S.E.2d 142, 144 (Ct. App. 1986).