## Facts

- A California winery sold bulk sweet wine to a Massachusetts bottler/distributor for bottling and resale.
- After delivery and resale efforts, significant quantities of the wine spoiled due to contamination with *lactobacillus trichodes* (“Fresno mold”), causing cloudiness and off-taste and making the product commercially unsaleable without reprocessing and discounting.
- Customers returned bottled wine, and the buyer alleged substantial harm to its business reputation and customer relationships, contributing to liquidation.
- The buyer repeatedly complained by telephone, sent samples for analysis, temporarily stopped purchases, later resumed based on the seller’s assurances, and ultimately withheld payment on the last shipment.
- After a written complaint, the seller sent an assistant winemaker who confirmed the contamination and advised the buyer on reprocessing the “sick wine.”
- The seller sued for the unpaid price of the final shipment; the buyer defended and counterclaimed for breach of warranty, seeking incidental and consequential damages, including lost goodwill.
- A “facts not final” master issued a report; the trial judge, sitting without a jury, received the report and additional evidence, dismissed the price claim, and entered judgment for the buyer including $100,000 for loss of goodwill, with an offset for the unpaid invoice amount.
- Both parties appealed; the state supreme court took the case on transfer.

## Issues

1. Whether a “facts not final” master’s report was properly treated as prima facie evidence and properly considered at the bench trial.
2. Whether delivery of wine that later spoiled from microbial contamination breached the implied warranty of merchantability under the UCC.
3. Whether the buyer, despite acceptance, effectively revoked acceptance so the seller could not recover the contract price.
4. Whether the buyer provided timely and sufficient notice of breach under UCC § 2-607(3)(a).
5. Whether consequential damages for lost goodwill were recoverable and adequately proved.

## Decision

- The court affirmed the judgment in full.
- The trial judge properly treated the master’s “facts not final” report as prima facie evidence and made independent findings based on the full record.
- The seller breached the implied warranty of merchantability because the wine was not fit for ordinary commercial resale and did not remain so for a reasonable time under ordinary conditions.
- The buyer effectively revoked acceptance because the nonconformity substantially impaired the wine’s value and the buyer reasonably relied on the seller’s assurances while attempting to resolve the defect.
- The buyer’s repeated complaints, sampling and communications, and withholding of payment provided adequate and timely notice of breach.
- The award of $100,000 in consequential damages for lost goodwill was supported by the evidence and was not barred as too speculative on this record.
- The seller was not entitled to recover the unpaid price as an affirmative claim, though the invoice amount was treated as an offset in the net judgment.

## Legal Principles

- Under the UCC, goods are merchantable only if they are fit for their ordinary purposes and of fair, average quality; latent contamination that renders a food or beverage commercially unfit can establish nonmerchantability.
- A buyer who has accepted goods may revoke acceptance under UCC § 2-608 when a nonconformity substantially impairs value and the buyer’s continued acceptance was induced by difficulty of discovery or by the seller’s assurances.
- Notice of breach under UCC § 2-607(3)(a) requires that the buyer inform the seller of the breach within a reasonable time; recurring complaints and business communications may suffice without formal written notice.
- Consequential damages for breach of warranty may include loss of goodwill and business reputation when foreseeably caused by the breach and supported by evidence permitting a reasonable valuation.
- In Massachusetts practice, a master’s report designated “facts not final” is not binding; it is admissible as prima facie evidence and may be supplemented or contradicted at trial.

## Conclusion

The court upheld findings that contaminated bulk wine breached the implied warranty of merchantability, that the buyer gave sufficient notice and effectively revoked acceptance, and that consequential damages for lost goodwill were recoverable and adequately supported, while the seller’s price claim was properly dismissed subject to an offset in the net accounting.


Delano Growers’ Coop. Winery v. Supreme Wine Co., 393 Mass. 666, 473 N.E.2d 1066 (1985)