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Original WP 5.1 Version
This case can also be found at 358 N.J. Super. 484, 818 A.2d 431.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-6598-00T1
CUMBERLAND COUNTY
IMPROVEMENT AUTHORITY,
Plaintiff-Appellant,
v.
GSP RECYCLING CO., INC. d/b/a
BURNO & D'ELIA, INC.,
Defendant-RespondentSee footnote 11.
GSP RECYCLING CO., INC.,
Plaintiff-Respondent,
v.
CUMBERLAND COUNTY IMPROVEMENT
AUTHORITY,
Defendant-Appellant.
Argued January 28, 2003 - Decided March 12, 2003
Before Judges Skillman, Lefelt and Winkelstein.
On appeal from the Superior Court of New Jersey, Chancery Division, Cumberland County, C-35-96.
Todd W. Heck argued the cause for appellant (Basile & Testa, attorneys; Frank G. Basile and Mr. Heck, on the
brief).
Joel B. Korin argued the cause for respondent (Kenney & Kearney, attorneys; Joseph T. Ciampoli, Roger Lai and
Mr. Korin, on the brief).
The opinion of the court was delivered by
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WINKELSTEIN, J.A.D.
Plaintiff Cumberland County Improvement Authority had an agreement with defendant GSP Recycling Co., a
newspaper recycler, to supply GSP with newspapers plaintiff collected from the municipalities within the County. The
materials plaintiff supplied to defendant failed to meet the agreement's quality specifications and defendant stopped
paying plaintiff for the deliveries. Each party claimed the other breached the agreement. Following a bench trial, the
trial judge dismissed plaintiff's claim against defendant, found that plaintiff breached the agreement, and awarded
defendant $256,319.42 in damages. Plaintiff appeals. In applying the facts to the applicable provisions of the Uniform
Commercial Code (U.C.C.), we affirm that portion of the judgment dismissing plaintiff's claim against defendant, but
because defendant failed to establish that it sustained damages as a result of plaintiff's actions, we reverse the judgment
in favor of defendant.
I
Due to the unique nature of the parties' agreement, a detailed recitation of the facts is necessary to place the issues in
context. Plaintiff is an independent county authority responsible for recycling the newspaper generated by businesses
and residences in Cumberland County. Defendant is engaged in the business of recycling old newsprint (ONP) to
supply fiber to the Garden State Paper Mill, which produces recycled newsprint that is sold to major newspapers.
Because the recycled paper market is extremely volatile, long- term contracts are not atypical. They generally allow
governmental entities to receive revenue for their recycled newspaper, rather than having to pay for its disposal, or
look for a buyer on the spot market, while providing the purchasers with a stable source of paper.
In December 1991, the parties entered into a five-year contract (the agreement). Under its terms, plaintiff agreed to
deliver to defendant a minimum of ten tons of ONP per month, and defendant agreed to purchase all of the newspaper
plaintiff made available up to a maximum of fifty tons per month. At the beginning of each calendar year the parties
could, "if mutually agreeable . . . increase or decrease the contractual tonnage obligation."
Defendant would pay $20 per ton for the ONP, with the proviso that the price would be increased to $25 if plaintiff
consistently delivered over 100 tons for a minimum of four months. The price would be adjusted at the end of each
calendar year based on the Consumer Price Index.
The agreement addressed the quality of the newspaper:
6.      All ONP shall be unbaled special news deink quality. . .                                                                . ONP shall contain no prohibitive materials and not
more than one Percent (1.0%) outthrows. Failure to conform shall result in punitive deductions or total load rejections.
In the event of a total load rejection, the county shall pay to GSP a charge of not more than thirty dollars ($30.00) per
ton for the rejected load, and GSP shall dispose of the load.
Special news deink quality ONP is known as "#8" or "grade 8" ONP. "Prohibitives" include aluminum cans,
cardboard, garbage, glass, phone books, plastic bags and other non-newsprint materials. "Outthrows" include
newspapers bundled with brown paper, or plastic straps, junk mail, magazines, and grocery bags. According to John
Stanton, defendant's production manager, all of defendant's contracts gave defendant the right to take punitive
deductions and collect payment for load rejections. The punitive deduction compensated defendant for its additional
sorting and transportation costs when it received lower quality material, while the $30 total load rejection charge
covered the cost to dump it in a landfill if the load was completely unusable. Stanton testified, however, that defendant
never directly assessed these charges. Instead, when the quality of the materials became "too dirty," defendant "[tried]
to work with the community to get their quality up" because defendant wanted to encourage recycling programs. When
the quality did not improve, "at worst case" defendant did not "pay for the fiber and . . . absorb[ed] any additional cost
in sorting until it [became] so contaminated" that it was cost prohibitive. In other words, when the quality of ONP was
below that which was called for in the agreement, instead of charging the supplier the $30 load rejection charge, or
assessing a specific punitive deduction, defendant simply did not pay for the materials.
Under the Cumberland County recycling program, plaintiff lacked authority to refuse materials that were delivered
by the municipalities _ it merely acted as a transfer station. Once the municipalities delivered the materials to plaintiff's
facility, they were immediately loaded onto trucks and removed. Plaintiff had no sorting facility or storage capability.
From the outset, plaintiff failed to meet the agreement's restrictions on prohibitives and outthrows. The percentage
of prohibitives and outthrows delivered to plaintiff by the municipalities, and then delivered to defendant, was
consistently higher than permitted under the agreement.
To help address plaintiff's problem meeting quality standards, the parties executed an addendum to the agreement on
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July 6, 1993, (the addendum). In the addendum, paragraph 6 of the agreement was replaced by Items 6A and 6B, which
read as follows:
ITEM 6 A
All ONP delivered to our Garfield mill shall be unbaled Special News Deink Quality . . .                                     . ONP shall contain no
prohibitive materials and not more than one percent (1.0%) outthrows. Failure to conform shall result in punitive
deductions or total load rejections. In the event of a total load rejection, the county shall pay to GSP a charge of not
more than thirty dollars ($30.00) per ton for the rejected load, and GSP shall dispose of the load.
ITEM 6 B
All ONP delivered to our Carteret facility shall be unbaled GSP Mixed News conforming to the attached GSP
Service Requirements. ONP shall contain no more than one-half percent (0.5%) prohibitive materials and not more
than eight percent (8.0%) outthrows.
Under the terms of the addendum, plaintiff had a choice of delivering two different qualities of ONP. According to
Item 6A, defendant's Garfield mill would accept deliveries of #8 ONP, also known as "clean news," and pay $25 per
ton. The remaining provisions of Item 6A were identical to those of paragraph 6 of the agreement. Item 6B was new. It
provided plaintiff with the option of delivering to defendant's Carteret facility "mixed news" ONP, known as "#6" or
"grade 6" ONP. Defendant's payment to plaintiff for #6 would be $15 per ton, recognizing a forty-percent price
reduction from grade 8 ONP to account for defendant's increased sorting expenses due to the higher percentage (eight
percent) of outthrows contained in grade 6.
The amount of tonnage to be delivered was also changed in the addendum. Plaintiff was to deliver a minimum of
200 tons of ONP per month; and defendant's obligation was "to purchase all of the newspaper," not to "exceed a
maximum of 300 tons per month," with a right of first refusal on the excess. The addendum did not require that the
minimum tonnage to be provided by plaintiff be a specific grade of ONP. In other words, plaintiff had the option of
providing either #6 or #8 ONP.
After the addendum was signed, plaintiff sent all of its ONP . between 200 and 300 tons per month . to the Carteret
mill. Beginning on August 24, 1993, however, defendant stopped paying for the deliveries. On September 8, 1993,
Stanton wrote to Rick Mather, plaintiff's facilities manager, that the quality of the ONP was below an acceptable level
because the ONP contained a high percentage of outthrows. He did not, however, request an adjustment in price, or
mention his company's failure to pay the outstanding invoices. At about that time, plaintiff sent Stanton a letter
demanding payment of invoices from deliveries on August 24, 25, 27, and 31, 1993, but plaintiff continued to make
deliveries to defendant through January 1994 despite defendant's failure to pay for the deliveries.
Ultimately, GSP paid for only eight of 105 loads that plaintiff delivered to Carteret between August 24, 1993, and
January 28, 1994. The total amount due for the unpaid invoices was $17,035.83. Stanton took the position that
defendant expected plaintiff to continue to send the loads, without being paid. Plaintiff disagreed, claiming it should be
paid. The parties do not dispute, however, that despite the lack of payment for the deliveries, defendant continued to
supply fiber from the deliveries to the Garden State Paper Mill.
The quality of the newspaper continued to be "a consistent problem," and the parties continued to discuss
alternatives. In January 1994, Stanton offered to pay $2 per ton, down from $15 per ton, for plaintiff's ONP, which was
found to contain outthrows up to twelve percent. He also offered to terminate the agreement. He said: "If you find this
offer to be non-acceptable we will allow a release from our Agreement. We would mutually agree to dissolve our
Contract. You would therefore be free to utilize any other markets you desire." Plaintiff did not respond to defendant's
offer. Instead, the following month, plaintiff launched "an aggressive educational and public relations campaign" to
help correct the quality problems. Mather requested that the contract be put "on hold" for six months while plaintiff
sent the newspaper to local brokers, where the quality of the newspaper was not a material problem, because plaintiff
expected the education campaign to "take some time to achieve satisfactory results."
As part of its attempt to improve quality, plaintiff hired a full-time recycling coordinator. Despite his efforts, the
quality of the product remained essentially unchanged. Plaintiff also considered upgrading the facility's equipment to
include machinery which would sort the ONP, but the cost of the machinery was prohibitive.
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By June 1994, plaintiff began to send its materials to other recyclers. Although the parties continued to discuss
alternate prices for the materials, plaintiff sent no further deliveries to defendant after May 1994. The undisputed
testimony of plaintiff's executive director was that the ONP sent to the other recyclers never even met the quality
standards for #6 ONP, let alone for #8 ONP.
Allegedly to replace the paper plaintiff failed to deliver, in May or June 1994, defendant began to purchase #8 ONP
in the spot market. Stanton explained that at that time the difference between #8 ONP and #6 ONP "was not significant
so it was just as easy for us to buy the number eight." Because the usual spot market price difference between #6 ONP
and #8 ONP was insufficient to offset defendant's costs to process #6 ONP into #8 ONP, it preferred just to purchase
#8 ONP. Beginning in February 1996, defendant, pursuant to a contract, obtained #8 ONP from Fairfield County
(Tennessee) Redemption (FCR) "partially to replace the tonnage that [defendant was not] getting from [plaintiff]."
At trial, defendant's damages expert, Donald DiGrazia, based his calculations on the price defendant paid to spot
market vendors for #8 ONP, from which he subtracted the $25 per ton contract price for #8 ONP, and multiplied the
difference by plaintiff's actual total monthly output from June 1994 through December 1996. He assumed that
plaintiff's output for that time met the agreement's quality standards for #8 ONP. Using this method, DiGrazia
concluded that defendant's damages were $417,325. Based on alternate calculations, he computed defendant's damages
at $665,257, or $713,370 if transportation costs to Tennessee for the FCR deliveries were included.
Not surprisingly, plaintiff's expert, Raymond Ciccone, had a different take on damages. He concluded that defendant
had no damages. He reasoned that defendant had no need to resort to the spot market because defendant purchased
more than was needed to satisfy the agreement's requirements from "walk-ins," allowing defendant to pay an average
price for these materials which was less than defendant was obligated to pay plaintiff under the addendum for #6 ONP.
II
The trial court rejected plaintiff's contention that defendant had breached the agreement when it refused to pay
plaintiff for the deliveries. Rather, it determined that plaintiff breached the agreement, and as a result, defendant was
entitled to "cover" damages under N.J.S.A. 12A:2-712. Because the judge found that the agreement was a "five-year
continuing supply contract," he also rejected plaintiff's assertion that the damages should be fixed at the time of the
initial breach, May or June 1994. The court agreed with defendant's expert that spot market prices were the proper
measure of damages, but rejected the expert's methodology which relied upon the spot market price for #8 ONP.
Instead, finding that plaintiff was required to supply only #6 ONP, at a contract price of $15 per ton, forty percent less
than the contract price of $25 per ton for #8 ONP, the judge concluded that the proper price for defendant's cover costs
was the median spot market price for #8 ONP for each month that remained for the duration of the agreement, reduced
by forty percent (representing sorting costs), less the $15 per ton contract price for #6 ONP. He multiplied that figure
by plaintiff's actual total monthly ONP output between June 1994 and December 1996, fixing damages at $256,319.42.
The judge rejected defendant's claim for transportation costs.
III
We first address plaintiff's affirmative claim that defendant breached the agreement. We agree with the trial judge
that defendant did not breach the agreement when it failed to pay for the deliveries plaintiff made between August
1993 and January 1994.
A significant issue at trial was whether the punitive deductions and total load rejection charges included in paragraph
6 of the agreement, and in Item 6A of the addendum, which contemplated delivery of #8 ONP only, also applied to
deliveries of #6 ONP under the terms of Item 6B of the addendum. Plaintiff claims the punitive deductions and total
load rejection charges applied only to #8 ONP, while defendant asserts the charges apply to both #8 and #6 ONP.
Thus, plaintiff claims the addendum did not give defendant the right to take punitive deductions against
nonconforming #6 ONP. When read literally, the language of the addendum supports plaintiff's position. The
addendum does not specifically say that for deliveries of #6 ONP defendant had the option not to pay for
nonconforming loads, or to charge for total load rejections.
Where the terms of a contract are clear, the court must enforce the contract as written. Morris County v. Fauver, 153
N.J. 80, 103 (1998); City of Orange Tp. v. Empire Mortgage Servs., Inc., 341 N.J. Super. 216, 224 (App. Div. 2001).
However, the terms of the parties' written agreement may be explained or supplemented by
evidence of their course of dealing. N.J.S.A. 12A:1-205.
Here, defendant argues that despite the failure to include the punitive load deduction and load rejection clauses in
Item 6B, both parties understood that defendant had the right to take punitive deductions for below standard #6 ONP.
Without this reservation . the ability to take deductions for nonconforming goods . defendant points out that the quality
standards set forth in the addendum would have been meaningless.
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Defendant is correct. Under Item 6B, the ONP was to contain no more than eight percent outthrows. Without
dispute, the materials exceeded those levels. In September 1993 they averaged over twelve percent, and continued
above ten percent throughout the duration of the deliveries. Unless the parties intended to allow defendant the right to
impose punitive deductions if the quality of the #6 ONP was below what the agreement required, the language in Item
6B restricting the percentage of outthrows to eight percent would have no meaning. Said another way, to interpret the
addendum in the manner suggested by plaintiff would give meaning to the outthrow limitation in Item 6A, but render
hollow the outthrow limitation in Item 6B.
We are guided in our determination by basic precepts of contract construction. The document must be read as a
whole, in "accord with justice and common sense." Krosnowski v. Krosnowski and Garford Trucking, Inc., 22 N.J.
376, 387 (1956). It should not be interpreted to render one of its terms meaningless. "Literalism must give way to
context." Borough of Princeton v. Bd. of Chosen Freeholders of County of Mercer, 333 N.J. Super. 310, 325 (App.
Div.), aff'd, 169 N.J. 135 (2000). Having reviewed the evidence in light of these principles, we conclude that the
parties intended to apply the punitive deductions and total load rejection charges to both #6 and #8 ONP.
The parties' course of dealing during the period of continued deliveries supports this interpretation. Plaintiff never
informed defendant that it considered defendant's practice of not paying for the materials, which did not meet the
quality standards for either #6 or #8 ONP, to be contrary to the parties' agreement. Even while sending several loads a
week to defendant between August 1993 and January 1994 for which it received no payment, plaintiff never
questioned defendant's right to take punitive deductions. Nor did plaintiff make payment of the unpaid invoices a
condition of resuming deliveries. Not until it filed the lawsuit, did plaintiff dispute defendant's right to take the
deductions. Consequently, the parties' course of dealing supports defendant's position that its failure to pay the invoices
for the nonconforming #6 ONP was not a breach of the parties' agreement.
We next turn to plaintiff's claim that defendant's conduct constituted "acceptance" of the nonconforming ONP within
the meaning of N.J.S.A. 12A:2-606, which requires a buyer to pay the contract price for the goods it accepts or be in
breach. To support its argument, plaintiff submits that defendant's actual use of the goods was "inconsistent with
[plaintiff's] ownership of those shipments." Plaintiff asserts that N.J.S.A. 12A:2-609. Under N.J.S.A. 12A:2-609(1):
A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance
will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the
other may in writing demand adequate assurance of due performance and until he receives such assurance may if
commercially reasonable suspend any performance for which he has not already received the agreed return.
The statute further provides that "[a]fter receipt of a justified demand failure to provide within a reasonable time not
exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case
is a repudiation of the contract." 821 So.2d 197, 204 (Ala. 2001); S & S, Inc. v. Meyer, 478 N.W.2d 857, 862-63 (Iowa
Ct. App. 1991). Other courts have found verbal demands are sufficient so long as the demand clearly conveys the
insecure party's intent to suspend performance in the absence of adequate assurances. Diskmakers, Inc. v. DeWitt
Equip. Corp., 555 F.2d 1177, 1180 (3d Cir. 1977) (applying New Jersey law); Scott v. Crown, 765 P.2d 1043, 1046-47
(Colo. Ct. App. 1988); Atwood-Kellogg, Inc. v. Nickeson Farms, 602 N.W.2d 749, 753 (S.D. 1999). But, here, we
need not resolve that issue because plaintiff is unable to point to any written or verbal demand that conveyed plaintiff's
intent to terminate deliveries if defendant either refused to pay the past-due invoices, or refused to pay for future
deliveries. On the contrary, for more than five months plaintiff continued to make deliveries without receiving
payment. Thus, plaintiff is unable to establish that it was entitled to treat defendant as having breached the parties'
agreement due to defendant's failure to provide adequate assurances.
IV
Having concluded that plaintiff failed to prove that defendant breached the agreement, we turn to plaintiff's
alternative argument, that defendant failed to prove damages. Because we agree with plaintiff's position on this issue,
we will assume, for purposes of this discussion, that plaintiff breached the agreement.See footnote 22
In arriving at our conclusion, we are mindful that an appellate court is directed to be deferential to a trial court's
factual findings and uphold its conclusions of law, so long as they are supported by adequate, substantial, credible
evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). Here, the
evidence does not support the judge's conclusions.
The U.C.C. provides a buyer with alternative remedies in the event of a seller's breach. See N.J.S.A. 12A:2-711. As
a general rule, "the U.C.C.'s remedies are to be 'liberally administered to the end that the aggrieved party may be put
in as good a position as if the other party had fully performed.'" Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396,
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426 (1997); N.J.S.A. 12A:1-106(1).
Here, the trial court found that defendant "covered" the shortfall from plaintiff's breach by its spot market purchases
throughout the period remaining in the parties' contract. We disagree. Under N.J.S.A. 12A:2-712:
(1) After a breach within [ N.J.S.A. 12A:2-712 is to permit an aggrieved buyer who "needs goods for himself or
for resale purposes" to purchase goods as a substitute for those due from the seller. Goods purchased in the open
market to meet the buyer's own needs, as distinguished from goods purchased specifically for the seller's account, do
not constitute "cover." Jamestown Farmers Elevator, Inc. v. Gen'l Mills, Inc., 552 F.2d 1285, 1293 (8th Cir. 1977); 4A
Anderson on The Uniform Commercial Code § 2-712:37 (3d Ed. 1997). A buyer does not cover unless it makes an
actual purchase to take the place of the goods it expected from the seller under the contract. Ralston Purina Co. v.
McFarland, 550 F.2d 967, 971 (4th Cir. 1977); Anderson, supra, at § 2-712:44.
In this case, the parties agreed plaintiff would supply a minimum of 200 tons of ONP to defendant on a monthly
basis for a five-year period, until December 1996. Contrary to N.J.S.A. 12A:2-713 measures damages on the basis of
market price, it specifies that the calculation must be measured "at the time when the buyer learned of the breach."
Nothing in this statute supports the trial court's method of calculating damages based on successive market prices. Said
differently, there was no legal or factual basis for the trial court's decision to allow defendant "cover" damages at the
spot market rate for each month that remained under the contract. Neither N.J.S.A. 12A:2-713 provides for such a
remedy.
Additionally, the trial judge's formula to calculate the price of ONP to be used for damages lacked evidential support
in the record. He based his calculations on a hypothetical market price for #6 ONP, and deducted the forty-percent
price differential between the contract prices of #6 ONP and #8 ONP from the fluctuating spot market price for #8
ONP. By doing so, he necessarily presumed, without factual support, that the sorting costs associated with the
processing of #6 ONP, which had justified the forty-percent lower contract price, would remain at forty percent
notwithstanding the fluctuations of the market price for #8 ONP. This was error. The following example shows why.
In June 1994 the spot market price for #8 ONP was $26. The judge deducted forty percent, or $11, for sorting costs. In
December 1994, when the spot market price for #8 ONP rose to $100, the judge again deducted forty percent, which is
$40, for the cost of sorting the prohibitives and outthrows. In other words, the judge found that to sort one ton of #8
ONP when it sold for $26 per ton would be $11, while performing the same tasks to sort one ton of #8 ONP when its
market price was $100 per ton, would be $40. The record simply does not contain any evidence to support a conclusion
that it would take more time or more labor to sort one ton of ONP when it cost $100 per ton than when it cost $26 per
ton.
Defendant had the burden of proof to establish all elements of its cause of action, including damages. Snyder v. I.
Jay Realty Co., 53 N.J. Super. 336, 347 (App. Div. 1958), aff'd in part, rev'd in part on other grounds, 30 N.J. 303
(1959). As to damages for nondelivery pursuant to 122 N.J. Super. 499, 505 (Law. Div.) (quoting 126 N.J. Super. 261
(App. Div. 1973), certif. denied, 64 N.J. 507 (1974); see also Three-Seventy Leasing Corp. v. Ampex Corp., 528 F.2d
993, 997-98 (5th Cir. 1976) (noting that damages for nondelivery by seller is difference between market price at time
of breach and contract price, together with incidental or consequential damages); Burgess v. Curley Olney's, Inc., 251
N.W.2d 888, 891 (Neb. 1977) (same).
Here, defendant did not offer evidence to show what the market price for #6 ONP was at the time plaintiff ceased its
deliveries. The only product cost evidence was for #8 ONP. Without evidence of the cost for #6 ONP, the trial judge
was left to speculate on the extent of defendant's damages.
Additionally, when the judge calculated damages, he assumed that plaintiff's ONP output met defendant's quality
requirements for #6 ONP. The record does not support such a conclusion; to the contrary, plaintiff's materials had
never complied with that standard in the past, and plaintiff's executive director's uncontradicted testimony was that the
product plaintiff sold to other recyclers between June 1994 and December 1996 did not meet the agreement's standards
for #6 ONP.
Plaintiff is also correct that no basis existed for the court's decision to use the entire amount of plaintiff's output
rather than the agreement's 200-ton minimum. Nothing in the addendum required plaintiff to provide defendant with
all of its output, regardless of quality. Plaintiff cannot be held liable for failing to send defendant material that the
agreement did not require it to send.
Given the court's flawed analysis and defendant's failure to offer evidence of the market price for #6 ONP at the
time of plaintiff's alleged breach of the agreement, the judgment against plaintiff cannot stand. Defendant's claims are
dismissed with prejudice.
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We affirm the judgment dismissing plaintiff's claim against defendant and reverse the judgment in favor of
defendant.
Footnote: 1                                                                                                           1This case, with Cumberland County Improvement Authority as a plaintiff, was filed in the Law Division
in Cumberland County, docket no. L-844-95. The second action, with GSP Recycling as the plaintiff, was filed in the
Chancery Division in Bergen County, docket no. CH-311-95. By order of October 17, 1995, they were consolidated in
the Chancery Division in Cumberland County, docket no. C-35-96. For purposes of this opinion, Cumberland County
Improvement Authority is referred to as "plaintiff" and GSP Recycling is referred to as "defendant."
Footnote: 2                                                                                                           2We therefore find it unnecessary to address plaintiff's arguments that it did not breach the agreement
because its performance was excused under 1) the UCC doctrine of "commercial frustration," N.J.S.A. 12A:2-615, and
2) the language of the agreement's force majeure clause.
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