EMCO Corporation agreed to sell a custom machine to Armor Machine & Manufacturing Ltd. for approximately $1 million. The purchase order specified delivery dates as estimates, and EMCO's terms and conditions explicitly stated that delivery dates were subject to modification at EMCO's discretion. Although Armor claimed the machine was needed by a specific time, the contract did not designate time as of the essence. When EMCO delayed delivery due to supply chain issues and later provided requested modifications free of charge, Armor refused to accept the machine and cancelled the contract. EMCO subsequently sold the machine to another buyer and sued for breach of contract. The district court granted summary judgment for EMCO, finding that Armor breached the contract and was liable for damages beyond the 15% restocking fee. Armor appealed, arguing the delay excused its performance and that its rejection of the machine constituted a return limited to the restocking fee.
The Sixth Circuit applied the Uniform Commercial Code, which governs contracts for the sale of goods in Michigan. The court reasoned that a buyer is only excused from performance if the seller commits a substantial breach. Because the contract did not state that time was of the essence and explicitly labeled delivery dates as estimates modifiable at the seller's discretion, the delay was not a substantial breach. The court noted that the contract contemplated a delivery window of six to seven months, and the actual delivery occurred within a reasonable timeframe given the buyer's own request for modifications. Furthermore, the court found that EMCO acted in good faith, as the delay was caused by supply chain disruptions rather than an intent to deprive the buyer of the bargain. Regarding damages, the court upheld the district court's finding that the buyer's refusal to accept the machine was not a return under the contract. Consequently, the buyer was not limited to the 15% restocking fee but was liable for the difference between the contract price and the resale price, plus incidental damages.
The decision reinforces that generic delivery estimates in commercial contracts do not create strict deadlines unless the parties explicitly agree that time is of the essence. Sellers can modify delivery schedules at their discretion without risking a breach, provided they act in good faith. Buyers cannot unilaterally cancel contracts based on delays if the contract reserves modification rights to the seller. The ruling also clarifies that a buyer's refusal to accept goods does not automatically trigger a restocking fee remedy; if the contract does not define the rejection as a return, the seller may recover full resale damages.
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