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Friday, January 7, 2005

Cases—Interpretation—Usage of trade

A manufacturer of glass beads used in reflective paint was entitled to judgment because its products performed in according with normal usage of trade, even though they failed the buyer’s tests, according to the Indiana Court of Appeals in a 2-1 decision.

The manufacturer, Todd Heller, Inc., sold the beads to the Indiana Department of Transportation. They were required to meet certain moisture standards.  The tests performed by Heller showed that the beads passed, but those performed by INDOT showed that they failed.  It turns out that while both were doing the same basic test, Heller tilted the container and poured water in slowly, while INDOT just dumped water in.  INDOT finally terminated the agreement, and Heller sued. Heller offered testimony that its method was the industry standard for performing the test.  The trial court rejected the testimony and held for INDOT.

This was error, wrote Judge Riley.  Under the Illinois UCC, trade usage is read into every contract.  Here, Heller’s evidence that everyone in the trade poured water the same way it did was not rebutted, and was credible.  Thus INDOT’s failure to conduct the test in accord with trade usage was a breach of contract.

In dissent, Judge Vaidik argued that the trade usage evidence was overridden by a specific clause, which said that “"All bidders are required to be familiar with the methods of sampling, testing and reporting that are used by [INDOT].  This may be accomplished by contacting the Materials and Tests Division.  Such procedures will be binding upon the successful bidder throughout the contract period.”  Since bidders were on notice that INDOT’s method, not the industry’s, would be used, she argued that the trial court’s decision should have been upheld. Todd Heller, Inc. v. Indiana Dep’t of Trans., 2004 Ind. App. LEXIS 2483 (4th Dist. Dec. 16, 2004).

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