Boeing Airplane Company v. O'MALLEY

• Decision Date: 25 March 1964
• Docket Number: 17267.,No. 17266,17266
• Citation: 329 F.2d 585
• Parties: BOEING AIRPLANE COMPANY, a Corporation, Appellant, v. John A. O'MALLEY and V. J. Pedrizetti, Trustees in Dissolution of Atlas Helicopter Service, Inc., a Corporation, Appellees. John A. O'MALLEY and V. J. Pedrizetti, Trustees in Dissolution of Atlas Helicopter Service, Inc., a Corporation, Appellants, v. BOEING AIRPLANE COMPANY, a Corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

329 F.2d 585 (1964)

BOEING AIRPLANE COMPANY, a Corporation, Appellant, v. John A. O'MALLEY and V. J. Pedrizetti, Trustees in Dissolution of Atlas Helicopter Service, Inc., a Corporation, Appellees.

John A. O'MALLEY and V. J. Pedrizetti, Trustees in Dissolution of Atlas Helicopter Service, Inc., a Corporation, Appellants, v. BOEING AIRPLANE COMPANY, a Corporation, Appellee.

Nos. 17266, 17267.

United States Court of Appeals Eighth Circuit.

March 25, 1964.

COPYRIGHT MATERIAL OMITTED

William P. O'Brien of Nye, Sullivan, McMillan, Hanft & Hastings, Duluth, Minn., made argument for the Boeing Airplane Co. and filed briefs.

Solly Robins of Robins, Davis & Lyons, Minneapolis, Minn., made argument for John A. O'Malley and others and filed brief with Harding A. Orren and Lawrence Zelle, of counsel, Robins, Davis & Lyons, Minneapolis, Minn., H. B. Fryberger, Duluth, Minn.

Before VOGEL, BLACKMUN and RIDGE, Circuit Judges.

VOGEL, Circuit Judge.

Case No. 17,266 is an appeal by The Boeing Company from a judgment entered against it based upon a jury verdict returned in a damage suit premised on allegations of fraudulent misrepresentation and breach of contract. Boeing acquired the assets and liabilities of the Vertol Aircraft Corporation in March 1960. The Vertol Corporation, now a division of Boeing, was and is engaged in the design, fabrication and sale of aircraft that have the characteristics of vertical take off and landing (thus the name "Vertol"). Helicopters are the principal aircraft involved in the work of Vertol. Because all the transactions herein were in the name of the Vertol Aircraft Corporation, The Boeing Company, defendant-appellant, will hereinafter be referred to as "Vertol". Atlas Helicopter Service, Inc., will be referred to as "Atlas".

On August 10, 1961, Atlas brought suit against Boeing in the state district court of Minnesota, alleging damages by reason of fraud on the part of Vertol in the sale of a certain helicopter. The case was removed to federal court on the grounds of diversity of citizenship and amount involved. Thereafter Atlas filed, with consent of court, an amended complaint, again basing its cause of action on the grounds of fraudulent misrepresentations but also claiming breach of warranties, both express and implied. After 25 trial days, the case was submitted to the jury which, on August 17, 1962, returned a verdict in favor of Atlas in the amount of $180,295.23. Two special interrogatories were submitted to the jury as follows:

"1. Is your verdict for the plaintiff based on its claim of breach of implied warranty of fitness for the purpose?"

To which the jury answered, "Yes."

"2. Is your verdict for the plaintiff based on its claim of fraud or misrepresentation?"

To which the jury answered, "No."

Appeal No. 17,267 is by Atlas, claiming that error in the court's instructions resulted in the jury's negative answer to the second interrogatory. Such appeal is to be considered only in the event this court should order a new trial in No. 17,266.

Atlas was organized in October of 1959 by six individuals from Omaha, Nebraska, and Duluth, Minnesota. The Omaha group consisted of Byron T. Brown, Barton H. Ford, Robert E. Towle, Jr., and Bernhardt Stahmer. The Duluth group consisted of Myles F. Hall and Reinhold Melander. Neither Brown, who had been in the business of operating his own airplane for hire, and who became vice president and general manager of Atlas, nor any of the other organizers had any previous experience or knowledge with reference to the performance or operation of helicopters. This lack of knowledge and experience was known to Vertol.

For some time representatives of Vertol had been negotiating with the organizers of Atlas as to the sale to them of a Vertol helicopter which at that time was in Europe and which had been used for flying passengers between Brussels and Paris during the Brussels World Fair. Atlas was interested in acquiring a helicopter to be used in utility work such as the laying of heavy weights in construction. During the negotiations, a representative of Vertol took Hall and Brown on a trip to the oil centers of the South to demonstrate business potentials there for a utility helicopter. Vertol prepared a brochure for Atlas' use in advertising for business which stated and showed that Atlas would have a helicopter that would perform the tasks demonstrated in movies and in pictures such as lifting up to 4,000 pounds of equipment (5,000 pounds under certain conditions), laying of pipelines, transporting up to 19 crew members or two tons of cargo, setting of poles and having a "useful load" of up to 5,360 pounds.

It was the contention of Atlas, supported by their witnesses, that the Vertol representative told them that the helicopter they proposed selling to them, and which was then in Europe, would be able to perform all of the various jobs portrayed, including the carrying of 19 people 75 miles off-shore and return. Having become aware of the fact that the ship in question was equipped with only 14 or 15 seats, one of the Atlas men inquired of Hemberger, "How do we carry the 19 people?" And he was told, "Well, you just take these seats out and put in troop seats," and that such a job took about an hour or two and could be done with a screwdriver. This testimony was disputed by Vertol. Through Hemberger, Vertol claimed that the differences in weight and capabilities were fully discussed with the Atlas representatives; that the latter were told that in order to convert that particular ship to carry 19 people and to lift the weights referred to and perform the tasks illustrated in the movies and pictures and explained orally, certain modifications had to be made, and that such modifications would cost something in the neighborhood of $15,000 to $20,000.

On October 6, 1959, Vertol and Atlas entered into a formal written contract whereby Vertol agreed to sell and Atlas agreed to buy the European-based helicopter described as follows:

"1. One (1) used Vertol Model 44B airline helicopter (U.S. FAA Registration No. N-74058) as described in Exhibit `A\' annexed hereto. The said helicopter shall be in flyable condition with a currently valid U.S. FAA Airworthiness Certificate."

Atlas agreed to pay Vertol $235,000 for the helicopter, $10,000 of which was payable upon execution of the agreement and the second installment of $225,000 upon delivery of the helicopter to Atlas at Omaha, Nebraska. As to warranties, the contract provided:

"ARTICLE 6 — WARRANTY

"(a) VERTOL warrants that it is the full legal and beneficial owner of the helicopter described in ARTICLE 1, and that it is not subject to any lien, charge or encumbrance.

"(b) The foregoing warranty is given and accepted in lieu of any and all other warranties, expressed or implied, arising out of the sale of the helicopter."

It is the contention of Vertol that it sold the helicopter to Atlas "as-is, whereis" and that accordingly there were neither express nor implied warranties with reference to its fitness for any purpose. Support for Vertol's contention of an "as-is" sale, though not part of the contract and not in writing, is its Exhibit C, which is a transcript of certain negotiations between Hemberger, for Vertol, and representatives of Atlas prior to sale. Discussion was had with reference to the use of the helicopter then in Europe, after which the following statements were made:

"Hemberger

"`That\'s right. After the six month operation was over, the aircraft was turned back to us. One of the two aircraft was sold; the other one was used as our demonstrator in Europe and toured around Europe putting on demonstrations. And, this is the aircraft that went to the Vatican and so forth and the aircraft now has about 1200 hours on the airframe. Of course the major components vary in time because some have been changed since new and so forth. And, what we propose is that we offer the aircraft as-is, where-is for $235,000 to the seller.\'

"Melander `That\'s $235,000.\'

"Hemberger `$235,000, that is, where-is, as-is, that\'s how we have offered it. Now when Mr. Brown called me and said that he was interested in talking about this machine, I went to our Board of Directors and asked that certain things be done to the machine and certain compensations be made in order to deliver it; and the price; and for these items not to be included over and above the present price, whereis, as-is condition in Europe; and, I have gotten their approval for Vertol to pay for the crating of the aircraft which is $5,000, shipping of the aircraft back to our plant which is additional $5,000 and approximately $20,000 worth of work on the aircraft to put it into a more decent condition than it\'s presently in and that would include all of the modifications that would be necessary to certify it for operations in the U. S. and also to overhaul and repair any of the major components that had more than 200 hours, or had less rather than 200 hours remaining before they needed an inspection period. So that they would be * *\'

"Hall `Are there more in that category?\'

"Hemberger `That\'s right. There would be no major components that would require a schedule inspection for overhaul prior to 200 hours and this work came up to about $20,000.\'"

It is the contention of Atlas that the "as-is, where-is" offer did not apply to it; but, rather, the statements that they had offered and "we have offered it" and Hemberger's statement immediately after his reference to "as-is, where-is" demonstrated that was not the type of offer which was being made to Atlas. Atlas finds support for its position in that Hemberger clearly stated that the aircraft was to be shipped to the United States and have "approximately $20,000 worth of work * * * to put it into a more decent condition than it's presently in" and to be modified to the extent necessary to certify it for operation in the United States. The language used by Hemberger was not understood...