Royal Business Machines, Inc. v. Lorraine Corp.

• Decision Date: 30 October 1980
• Docket Number: 79-2256,Nos. 79-1946,s. 79-1946
• Parties: 30 UCC Rep.Serv. 462 ROYAL BUSINESS MACHINES, INC., Plaintiff-Appellant, v. LORRAINE CORP. and Michael L. Booher, Defendants-Appellees. LORRAINE CORP. and Michael L. Booher, Plaintiffs-Appellees, v. LITTON BUSINESS SYSTEMS, INC. and Royal Business Machines, Inc., Defendants- Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 34

633 F.2d 34

30 UCC Rep.Serv. 462

ROYAL BUSINESS MACHINES, INC., Plaintiff-Appellant, v. LORRAINE CORP. and Michael L. Booher, Defendants-Appellees.

LORRAINE CORP. and Michael L. Booher, Plaintiffs-Appellees, v. LITTON BUSINESS SYSTEMS, INC. and Royal Business Machines, Inc., Defendants- Appellants.

Nos. 79-1946, 79-2256.

United States Court of Appeals, Seventh Circuit.

Argued April 2, 1980.

Decided Oct. 7, 1980.

Rehearing Denied Oct. 30, 1980.

Philip B. Kurland, Chicago, Ill., for Royal Business Machines and Litton Business Systems.

Morris L. Klapper, Indianapolis, Ind., for Lorraine Corp. and Michael L. Booher.

Before PELL and WOOD, Circuit Judges, and BAKER, District Judge. ^*

BAKER, District Judge.

This is an appeal from a judgment of the district court entered after a bench trial awarding Michael L. Booher and Lorraine Corp. (Booher) $1,171,216.16 in compensatory and punitive damages against Litton Business Systems, Inc. and Royal Business Machines, Inc. (Royal). The judgment further awarded Booher attorneys' fees of $156,800.00. It denied, for want of consideration, the recovery by Royal of a $596,921.33 indebtedness assessed against Booher earlier in the proceedings in a summary judgment. The judgment also granted Royal a set-off of $12,020.00 for an unpaid balance due on computer typewriters.

The case arose from commercial transactions extending over a period of 18 months between Royal and Booher in which Royal sold and Booher purchased 114 RBC I and 14 RBC II plain paper copying machines. In mid-August 1976, Booher filed suit against Royal in the Indiana courts claiming breach of warranties and fraud. On September 1, 1976, Royal sued Booher on his financing agreements in the district court and also removed the state litigation to the district court where the cases were consolidated.

The issues in the cases arise under Indiana common law and under the U.C.C. as adopted in Indiana, Ind.Code § 26-1-2-102 et seq. (1976). The contentions urged by Royal on appeal are that:

(1) substantial evidence does not support the findings that Royal made certain express warranties or that it breached any express warranty and, as a matter of law, no warranties were made; and

(2) substantial evidence does not support the findings that Royal breached the implied warranties of merchantability and fitness for a particular purpose; and

(3) substantial evidence does not support the finding that Booher made a timely revocation of acceptance of the goods sold; and (4) substantial evidence does not support the findings upon which the awards of compensatory damages were made and that certain awards constituted a double recovery; and

(5) substantial evidence does not support the findings upon which the awards of punitive damages were made.

We reverse and remand for a new trial on the grounds set forth in this opinion.

EXPRESS WARRANTIES

We first address the question whether substantial evidence on the record supports the district court's findings that Royal made and breached express warranties to Booher. The trial judge found that Royal Business Machines made and breached the following express warranties:

(1) that the RBC Model I and II machines and their component parts were of high quality;

(2) that experience and testing had shown that frequency of repairs was very low on such machines and would remain so;

(3) that replacement parts were readily available;

(4) that the cost of maintenance for each RBC machine and cost of supplies was and would remain low, no more than 1/2 cent per copy;

(5) that the RBC machines had been extensively tested and were ready to be marketed;

(6) that experience and reasonable projections had shown that the purchase of the RBC machines by Mr. Booher and Lorraine Corporation and the leasing of the same to customers would return substantial profits to Booher and Lorraine;

(7) that the machines were safe and could not cause fires; and

(8) that service calls were and would be required for the RBC Model II machine on the average of every 7,000 to 9,000 copies, including preventive maintenance calls.

Substantial evidence supports the court's findings as to Numbers 5, 7, 8, and the maintenance aspect of Number 4, but, as a matter of law, Numbers 1, 2, 3, 6, and the cost of supplies portion of Number 4 cannot be considered express warranties.

Paraphrasing U.C.C. § 2-313 as adopted in Indiana, ¹ an express warranty is made up of the following elements: (a) an affirmation of fact or promise, (b) that relates to the goods, and (c) becomes a part of the basis of the bargain between the parties. When each of these three elements is present, a warranty is created that the goods shall conform to the affirmation of fact or to the promise.

The decisive test for whether a given representation is a warranty or merely an expression of the seller's opinion is whether the seller asserts a fact of which the buyer is ignorant or merely states an opinion or judgment on a matter of which the seller has no special knowledge and on which the buyer may be expected also to have an opinion and to exercise his judgment. Weiss v. Rockwell Mfg. Co., 9 Ill.App.3d 906, 293 N.E.2d 375 (1977), citing Keller v. Flynn, 346 Ill.App. 499, 105 N.E.2d 532, 536 (1952); General Supply & Equipment Co. v. Phillips, 490 S.W.2d 913 (Tex.Civ.App.1972).

General statements to the effect that goods are "the best," Thompson Farms, Inc. v. Corno Feed Products, --- Ind.App. ----, 366 N.E.2d 3 (1977), or are "of good quality," Olin-Mathieson Chemical Corp. v. Moushon, 93 Ill.App.2d 280, 235 N.E.2d 263 (1968), or will "last a lifetime" and be "in perfect condition," Performance Motors, Inc. v. Allen, 280 N.C. 385, 186 S.E.2d 161 (1972), are generally regarded as expressions of the seller's opinion or "the puffing of his wares" and do not create an express warranty.

No express warranty was created by Royal's affirmation that both RBC machine models and their component parts were of high quality. This was a statement of the seller's opinion, the kind of "puffing" to be expected in any sales transaction, rather than a positive averment of fact describing a product's capabilities to which an express warranty could attach. Thompson Farms, Inc. v. Corno Feed Products, supra; Keller v. Flynn, supra.

Similarly, the representations by Royal that experience and testing had shown that the frequency of repair was "very low" and would remain so lack the specificity of an affirmation of fact upon which a warranty could be predicated. These representations were statements of the seller's opinion.

The statement that replacement parts were readily available is an assertion of fact, but it is not a fact that relates to the goods sold as required by Ind.Code § 26-1-2-313(1)(a) and is not an express warranty to which the goods were to conform. Neither is the statement about the future costs of supplies being 1/2 cent per copy an assertion of fact that relates to the goods sold, so the statement cannot constitute the basis of an express warranty.

It was also erroneous to find that an express warranty was created by Royal's assurances to Booher that purchase of the RBC machines would bring him substantial profits. Such a representation does not describe the goods within the meaning of U.C.C. § 2-313(1)(b), nor is the representation an affirmation of fact relating to the goods under U.C.C. § 2-313(1)(a). It is merely sales talk and the expression of the seller's opinion. See Regal Motor Products v. Bender, 102 Ohio App. 447, 139 N.E.2d 463, 465 (1956) (representation that goods were "readily saleable" and that the demand for them would create a market was not a warranty). See also Conant v. Terre Haute National State Bank, 121 Ind. 323, 22 N.E. 250, 251 (1889); Harness v. Horne, 20 Ind.App. 134, 50 N.E. 395, 397 (1898).

On the other hand, the assertion that the machines could not cause fires is an assertion of fact relating to the goods, and substantial evidence in the record supports the trial judge's findings that the assertion was made by Royal to Booher. ² The same may be said for the assertion that the machines were tested and ready to be marketed. See Bemidji Sales Barn v. Chatfield, 312 Minn. 11, 250 N.W.2d 185 (1977) (seller's representation that cattle "had been vaccinated for shipping fever and were ready for the farm" constituted an express warranty). See generally R. Anderson, Uniform Commercial Code § 2-313:36 (2d ed. 1970) (author asserts that seller who sells with seal of approval of a third person, e. g., a testing laboratory, makes an express warranty that the product has been tested and approved and is liable if the product was in fact not approved). The record supports the district court's finding that Royal represented that the machines had been tested. ³

As for findings 8 and the maintenance portion of Number 4, Royal's argument that those statements relate to predictions for the future and cannot qualify as warranties is unpersuasive. ⁴ An expression of future capacity or performance can constitute an express warranty. In Teter v. Schultz, 110 Ind.App. 541, 39 N.E.2d 802, 804 (1942), the Indiana courts held that a seller's statement that dairy cows would give six gallons of milk per day was an affirmation of fact by the seller relating to the goods. It was not a statement of value nor was it merely a statement of the seller's opinion. The Indiana courts have also found that an express warranty was created by a seller's representation that a windmill was capable of furnishing power to grind 20 to 30 bushels of grain per hour in a moderate wind and with a very light wind would pump an abundance of water. Smith v. Borden, 160 Ind. 233, 66 N.E. 681 (1903). Further, in General Supply and Equipment Co. v. Phillips, supra, the Texas courts upheld the following express warranties made by a seller of roof panels: (1) that tests show no deterioration in 5 years of normal use; (2) that the roofing panels won't turn black or...