Diamond Fruit Growers, Inc. v. Krack Corp.

• Decision Date: 22 July 1986
• Docket Number: METAL-MATI,INC,No. 85-3701,85-3701
• Citation: 794 F.2d 1440
• Parties: 1 UCC Rep.Serv.2d 1073 DIAMOND FRUIT GROWERS, INC., an Oregon corporation, Plaintiff, v. KRACK CORPORATION, an Illinois corporation, Defendant/Third-Party Plaintiff-Appellee, v., a Minnesota corporation, Third-Party Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1440

794 F.2d 1440

1 UCC Rep.Serv.2d 1073

DIAMOND FRUIT GROWERS, INC., an Oregon corporation, Plaintiff, v. KRACK CORPORATION, an Illinois corporation, Defendant/Third-Party Plaintiff-Appellee, v. METAL-MATIC, INC., a Minnesota corporation, Third-Party

Defendant-Appellant.

No. 85-3701.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 5, 1986.

Decided July 22, 1986.

C.F. Bradley, Schwenn, Bradley, Batchelor, Brisbee & Stockton, Hillsboro, Or., for third-party defendant-appellant.

Peter R. Chamberlain, Bodyfelt, Mount, Stroup & Chamberlain, Portland, Or., for defendant/third-party plaintiff-appellee.

Appeal from the United States District Court for the District of Oregon.

Before FLETCHER, ALARCON, and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

Metal-Matic, Inc. (Metal-Matic) appeals from judgment entered after a jury verdict in favor of Krack Corporation (Krack) on Krack's third-party complaint against Metal-Matic. Metal-Matic also appeals from the district court's denial of its motion for judgment n.o.v. We have jurisdiction under 28 U.S.C. Sec. 1291 (1982) and affirm.

FACTS AND PROCEEDINGS BELOW

Krack is a manufacturer of cooling units that contain steel tubing it purchases from outside suppliers. Metal-Matic is one of Krack's tubing suppliers. At the time this dispute arose, Metal-Matic had been supplying tubing to Krack for about ten years. The parties followed the same course of dealing during the entire ten years. At the beginning of each year, Krack sent a blanket purchase order to Metal-Matic stating how much tubing Krack would need for the year. Then, throughout the year as Krack needed tubing, it sent release purchase orders to Metal-Matic requesting that tubing be shipped. Metal-Matic responded to Krack's release purchase orders by sending Krack an acknowledgment form and then shipping the tubing. ¹

Metal-Matic's acknowledgment form disclaimed all liability for consequential damages and limited Metal-Matic's liability for defects in the tubing to refund of the purchase price or replacement or repair of the tubing. As one would expect, these terms were not contained in Krack's purchase order. The following statement was printed on Metal-Matic's form: "Metal-Matic, Inc.'s acceptance of purchaser's offer or its offer to purchaser is hereby expressly made conditional to purchaser's acceptance of the terms and provisions of the acknowledgment form." This statement and the disclaimer of liability were on the back of the acknowledgment form. However, printed at the bottom of the front of the form in bold-face capitals was the following statement: "SEE REVERSE SIDE FOR TERMS AND CONDITIONS OF SALE."

On at least one occasion during the ten-year relationship between Metal-Matic and Krack, Allen Zver, Krack's purchasing manager, discussed the limitation of warranty and disclaimer of liability terms contained in Metal-Matic's acknowledgment form with Robert Van Krevelen, Executive Vice President of Metal-Matic. Zver told Van Krevelen that Krack objected to the terms and tried to convince him to change them, but Van Krevelen refused to do so. After the discussions, Krack continued to accept and pay for tubing from Metal-Matic. ²

In February 1981, Krack sold one of its cooling units to Diamond Fruit Growers, Inc. (Diamond) in Oregon, and in September 1981, Diamond installed the unit in a controlled-atmosphere warehouse. In January 1982, the unit began leaking ammonia from a cooling coil made of steel tubing.

After Diamond discovered that ammonia was leaking into the warehouse, Joseph Smith, the engineer who had been responsible for building Diamond's controlled-atmosphere warehouses, was called in to find the source of the leak. Smith testified that he found a pinhole leak in the cooling coil of the Krack cooling unit. Smith inspected the coil while it was still inside the unit. He last inspected the coil on April 23, 1982. The coil then sat in a hall at Diamond's warehouse until May, 1984, when John Myers inspected the coil for Metal-Matic.

Myers cut the defective tubing out of the unit and took it to his office. At his office Diamond sued Krack to recover the loss in value of fruit that it was forced to remove from the storage room as a result of the leak. Krack in turn brought a third-party complaint against Metal-Matic and Van Huffel Tube Corporation (Van Huffel), another of its tubing suppliers, seeking contribution or indemnity in the event it was held liable to Diamond. At the close of the evidence, both Metal-Matic and Van Huffel moved for a directed verdict on the third party complaint. The court granted Van Huffel's motion based on evidence that the failed tubing was not manufactured by Van Huffel. The court denied Metal-Matic's motion.

he did more cutting on the tubing. After Myers inspected the tubing, it was also inspected by Bruce Wong for Diamond and Paul Irish for Krack.

The jury returned a verdict in favor of Diamond against Krack. It then found that Krack was entitled to contribution from Metal-Matic for thirty percent of Diamond's damages. Metal-Matic moved for judgment n.o.v. The court denied that motion and entered judgment on the jury verdict.

Metal-Matic raises two grounds for reversal. First, Metal-Matic contends that as part of its contract with Krack, it disclaimed all liability for consequential damages and specifically limited its liablity for defects in the tubing to refund of the purchase price or replacement or repair of the tubing. Second, Metal-Matic asserts that the evidence does not support a finding that it manufactured the tubing in which the leak developed or that it caused the leak. We address each of these contentions in turn.

STANDARD OF REVIEW

Metal-Matic's contention that its disclaimers are part of its contract with Krack presents questions of statutory and contract interpretation, which are questions of law reviewed de novo. United States v. Binder, 769 F.2d 595, 600 (9th Cir.1985); Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 417 (9th Cir.1984); see United States v. McConney, 728 F.2d 1195, 1202 (9th Cir.) (en banc), cert. denied, --- U.S. ----, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984). The jury verdict and the district court's denial of Metal-Matic's motion for judgment n.o.v. will not be reversed by this court if there is substantial evidence to support a finding for Krack. See Mosesian v. Peat, Marwick, Mitchell & Co., 727 F.2d 873, 877 (9th Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 329, 83 L.Ed.2d 265 (1984).

DISCUSSION

A. Metal-Matic's Disclaimer of Liability for Consequential Damages

If the contract between Metal-Matic and Krack contains Metal-Matic's disclaimer of liability, Metal-Matic is not liable to indemnify Krack for part of Diamond's damages. Therefore, the principal issue before us on this appeal is whether Metal-Matic's disclaimer of liability became part of the contract between these parties.

Relying on Uniform Commercial Code (U.C.C.) Sec. 2-207, Or.Rev.Stat. Sec. 72.2070 (1985), ³ Krack argues that Metal-Matic's disclaimer did not become part of the contract. Metal-Matic, on the other hand, argues that section 2-207 is inapplicable to this case because the parties discussed the disclaimer, and Krack assented to it.

Krack is correct in its assertion that section 2-207 applies to this case. One intended application of section 2-207 is to commercial transactions in which the parties exchange printed purchase order and acknowledgment forms. See U.C.C. Sec. 2-207 comment 1. ⁴ The drafters of the U.C.C. recognized that "[b]ecause the [purchase order and acknowledgment] forms are oriented to the thinking of the respective drafting parties, the terms contained in them often do not correspond." Id. Section 2-207 is an attempt to provide rules of contract formation in such cases. In this case, Krack and Metal-Matic exchanged purchase order and acknowledgment forms that contained different or additional terms. This, then, is a typical section 2-207 situation. The fact that the parties discussed the terms of their contract after they exchanged their forms does not put this case outside section 2-207. See 3 R. Duesenburg & L. King, Sales and Bulk Transfers under the Uniform Commercial Code (Bender's U.C.C. Service) Sec. 3.05 (1986). Section 2-207 provides rules of contract formation in cases such as this one in which the parties exchange forms but do not agree on all the terms of their contract.

A brief summary of section 2-207 is necessary to an understanding of its application to this case. ⁵ Section 2-207 changes the common law's mirror-image rule for transactions that fall within article 2 of the U.C.C. At common law, an acceptance that varies the terms of the offer is a counteroffer and operates as a rejection of the original offer. See Idaho Power Co. v. Westinghouse Electric Corp., 596 F.2d 924, 926 (9th Cir.1979). If the offeror goes ahead with the contract after receiving the counteroffer, his performance is an acceptance of the terms of the counteroffer. See C. Itoh & Co. v. Jordan International Co., 552 F.2d 1228, 1236 (7th Cir.1977); J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, Sec. 1-2 at 34 (2d ed. 1980).

Generally, section 2-207(1) "converts a common law counteroffer into an acceptance even though it states additional or different terms." Idaho Power, 596 F.2d at 926; see U.C.C. Sec. 2-207(1). The only requirement under section 2-207(1) is that the responding form contain a definite and seasonable expression of acceptance. The terms of the responding form that correspond to the offer constitute the contract. Under section 2-207(2), the additional terms of the responding form become proposals for additions to the contract. Between merchants the additional terms become part of the contract unless the offer is specifically limited to its terms, the offeror objects to the additional terms, or the additional terms materially alter the terms of...