190 F.2d 817 (3rd Cir. 1951), 10381, Fairbanks, Morse & Co. v. Consolidated Fisheries Co.

Docket Nº:10381.
Citation:190 F.2d 817
Case Date:July 09, 1951
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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190 F.2d 817 (3rd Cir. 1951)




No. 10381.

United States Court of Appeals, Third Circuit.

July 9, 1951

Argued April 17, 1951.

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Leonard J. Schwartz, Philadelphia, Pa. (S. Samuel Arsht, Wilmington, Del., on the brief), for appellant.

James R. Morford, Wilmington, Del. (Morford, Bennethum, Marvel & Cooch, Wilmington, Del. of counsel on the brief), for appellee.

Before McLAUGHLIN, STALEY and HASTIE, Circuit Judges.

STALEY, Circuit Judge.

This is an appeal from an entry of summary judgment by the district court pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. Federal jurisdiction is based on diversity of citizenship and the requisite jurisdictional amount. 1

The first cause of action 2 stated in the complaint is based on 29 promissory notes, in the total amount of $48, 140, representing the balance of the purchase price of a diesel engine and generating equipment purchased by defendant from plaintiff. The defense urged upon the trial court is failure of consideration. More specifically, defendant alleges that plaintiff expressly warranted that the equipment would generate and supply electric power in varying quantities up to 1136 kilowatts and that the equipment in fact has failed to conform to such warranty. This alleged breach of warranty is also the basis of a counterclaim seeking damages in the amount of $106, 498.

The rights of the parties depend very much on the sales contract entered into on January 8, 1948, a copy of which is attached to defendant's answer. This agreement, formalizing the relationship between the parties, consists of three parts. The first part, denominated the 'General Engine Proposal, ' is the basic contract between the parties, and will be referred to as such. Expressly incorporated into the basic contract are two other documents: the 'Standard General Provisions of Diesel Engine Sales' (Standard General Provisions) and 'Specification No. One' (Specification). While the basic contract briefly describes the major pieces of equipment which are the subject matter of the contract, a complete list and detailed description of the equipment to be sold is contained only in the Specification. The basic contract states the three collateral warranties which the seller agrees to assume. The only one that need concern us is the warranty that the diesel engine will operate with a certain maximum fuel consumption. This warranty is referred to as the 'Guaranties of Duty.' The very last paragraph of the basic contract, Paragraph 7, is a disclaimer clause which excludes all warranties, representations or understandings not set forth in full in the basic contract or in the Standard General Provisions or in the Specification.

The Standard General Provisions is a completely printed form, the main function 3 of which is to define in greater detail the three collateral warranties stated in the basic contract. The Standard General Provisions, in Section IIC, carefully limits the seller's liability with respect to the Guaranties of Duty by requiring him to promptly request of the seller a test. Upon completion of the test, the purchaser must either give the seller's engineer a written acceptance, or else prompt notice

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of the failure. Section VI of the Standard General Provisions is another disclaimer clause. It purports to limit the seller's liabilities upon any guaranties or warranties to the three collateral warranties mentioned above.

The second document incorporated into the basic contract is the Specification. This consists of two typewritten pages, which list and describe the machinery sold and the component parts. The description of the generator, which is in greater detail than that contained in the basic contract is as follows: '1-1420 KVA-1136 KW each 80% Power Factor, 3 Phase 60 Cycle, 2400 volt, 3 wire, 720 RPM, 50 degrees Rates Fairbanks Morse Alternator with Sole Plates, Rheostats and Field Discharge resistor.' (Emphasis supplied.)

The reply of plaintiff avers that defendant is precluded from asserting the alleged breach of warranty because defendant gave plaintiff's engineer a written acceptance for the machinery in which defendant's president states that the machinery was operating in a satisfactory manner.

Plaintiff moved for summary judgment on the first cause of action on the basis of the pleadings and an affidavit of plaintiff's engineer which reiterated the allegations in plaintiff's reply with respect to defendant's written acceptance. Defendant presented to the district court a counter-affidavit sworn to by its president, one Hayes, which states that during the test runs the engine threw large quantities of unused oil into the atmosphere through its exhaust. Hayes' explanation of the written acceptance is that plaintiff's engineer had represented to him that the purpose of the receipt or acceptance was merely to show that the job of installation had been completed, and that the company would subsequently supply experienced men to correct any defective operation which might develop. Hayes' affidavit does not allege any complaint by defendant to the engineer with respect to the failure of the equipment to deliver up to 1136 kilowatts. Such notice, however, is alleged in defendant's answer and counterclaim.

On October 25, 1950, the district court filed an opinion, holding that summary judgment should be awarded plaintiff on its first cause of action and on defendant's counterclaim. Before judgment was actually entered in plaintiff's favor, however, defendant filed its motion to amend the answer and counterclaim. The nature of these amendments will be discussed later in this opinion.

On November 20, 1950, the district court denied defendant's motion to amend, and on November 28 an order was entered granting plaintiff's motion for summary judgment as to the first cause of action and as to defendant's counterclaim.

Two allegations of error are presented to us on appeal. First, defendant contends that the district court erred in entering summary judgment for plaintiff. Second, defendant contends that the court erred in denying defendant's petition for leave to amend its answer and counterclaim.

A federal court sitting in Delaware in a diversity case is obliged to follow the law of Delaware, including its conflict of laws rules. Klaxon Co. v. Stenor Electric Mfg. Co., 1941, 313 U.S. 487, 61 S.Ct. 674, 85 L.Ed. 1115. The Delaware courts have held that the construction and validity of a contract are determined by the law of the place of contracting, while matters of proper performance are determined by the law of the place where performance is contemplated. Lams v. F. H. Smith Co., 6 W.W.Harr. 477, 178 A. 651, 105 A.L.R. 646, (Super. Ct., 1935); Canadian Industrial Alcohol Co. v. Nelson, 1936, 8 W.W.Harr. 26, 188 A. 39. Since the equipment was, by the terms of the contract, to be erected in defendant's plant in Delaware under the supervision of plaintiff's engineer, it is clear that Delaware is the place of performance. The record is unclear, however, as to the place of contracting. 4 In the absence of proof,

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we shall presume it to be Delaware. See Chicago Pheumatic Tool Co. v. Ziegler, 3 Cir., 1945, 151 F.2d 784. 5

The district court was of the opinion that if the term '1136 kilowatts' constituted an implied warranty under Section 14 of the Uniform Sales Act, it was negatived by the disclaimer clauses of the contract. That court was convinced that such descriptive language could not constitute an express warranty. Defendant, on the other hand, argues that plaintiff's undertaking constituted an express warranty within the contemplation of Section 12 of the act, and that the disclaimer clauses have not effectively negatived it. The essential provisions of the two sections are as follows:

Section 12 'Any affirmation of fact or any promise by the seller relating to the goods is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the goods and if the buyer purchases the goods relying thereon. No affirmation of the value of the goods, nor any statement purporting to be a statement of the seller's opinion only shall be construed as a warranty.' 1935 Revised Code of Delaware Sec. 5991.

Section 14 'Where there is a contract to sell or a sale of goods by description, there is an implied warranty that the goods shall correspond with the description * * * .' Id. at Sec. 5993.

While the Uniform Sales Act is the law of Delaware, we are aware of no Delaware cases which have categorized the legal effect of descriptive language. Courts in other states, in interpreting the act, have labelled descriptive words express warranties in some cases and implied warranties in others. 6 There is strong authority, however, for the proposition that any warranty derived from express language should be considered an express warranty. Since such warranty is based on words which are actually a part of the contract between the parties, it seems most unrealistic to call the obligation implied. 7 The detailed Specification expressly incorporated into this sales contract cannot be termed merely words of general description used for identification only. The Specification states in minutest detail and in technical terms exactly what the seller promised to deliver. It represents positive affirmations of fact, the natural tendency of which is to induce the buyer to purchase. And a jury could assuredly infer that the defendant relied on this detailed Specification. The effect of the district court's interpretation is to render

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virtually meaningless a very vital part of the contract....

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