Iowa Electric Light & Power Co. v. Allis-Chalmers Mfg. Co.

Decision Date14 June 1973
Docket NumberCiv. No. 9-2472-C-2.
PartiesIOWA ELECTRIC LIGHT AND POWER COMPANY, a corporation, Plaintiff, v. ALLIS-CHALMERS MANUFACTURING COMPANY, a corporation, Defendant.
CourtU.S. District Court — Southern District of Iowa

John W. Morrison, Chicago, Ill., and John B. Grier, Marshalltown, Iowa, for plaintiff.

Eugene Davis, Des Moines, Iowa, for defendant.

MEMORANDUM AND ORDER

HANSON, Chief Judge.

This matter is before the Court upon defendant's Motion for Summary Judgment. This is a products liability case. Plaintiff's complaint is in six counts; Count I is on implied warranty, Count II is on express warranty; Count III is for breach of contract; Count IV pleads strict liability in tort; Count V pleads negligence on the basis of res ipsa loquitur; and Count VI, an amendment, adds the allegation of willfullness to each of the preceding Counts. By agreement of the parties, the allegations of Count VI are not at issue in this motion, and any motion with respect to Count VI will be determined at a later time.

The controversy centers around a transformer which was manufactured by Allis-Chalmers Manufacturing Co., the defendant herein, for Iowa Electric Light and Power Co., the plaintiff herein, in 1958.

The pertinent uncontroverted facts in this lawsuit are as follows:

On June 24, 1958, defendant sent to plaintiff a proposal, Proposal DAV-2615, for sale and delivery of the transformer central to this action. Included within that proposal were the following conditions of sale:

"Warranty and Tests.
Company warrants that the equipment will be of the kind and quality described herein and free of defects in workmanship and material. No other warranty, except of title, shall be implied, and any statutory warranties shall be deemed waived. This warranty shall extend for one year from date of shipment; but if equipment is installed by the Company or the work of installation is supervised by a Company representative, the warranty shall run for one year from date of completion of installation, or eighteen (18) months from date of shipment, whichever occurs first.
Company shall be notified of and may witness any acceptance tests that may be specified or agreed upon. Such tests shall be conducted within the warranty period unless otherwise agreed on.
Liability.
If any failure to comply with the warranty appears within the time limited therein and the Purchaser promptly notifies Company, Company shall be liable, and shall have the right to remedy any such failure by, at Company's option, adjustment, or repair, or replacement f. o. b. shipping point of any affected part of the equipment.
Company's liability to purchaser whether in contract or in tort arising out of warranties, representations, instructions, or defects from any cause, shall be limited to correcting the equipment as aforesaid.
* * * * * *
General.
Company shall not in any event be liable for indirect, special, consequential or liquidated damages or penalties."

On July 3, 1958, plaintiff accepted the proposal by mailing to defendant plaintiff's Purchase Order No. 25091, ordering the equipment described in the proposal "all in accordance with Proposal DAV-2615 dated June 24, 1958 based on Skeleton Specifications."

On July 7, 1958, defendant sent to plaintiff its Order of Acceptance in which the conditions of sale above described were again set out.

The transformer had a failure on February 22, 1965, after being in service 6 years. Plaintiff requested defendant to repair the transformer at plaintiff's expense. Defendant accepted this request and incorporated in the acceptance the same conditions as have been heretofore set out. Plaintiff paid the defendant the agreed price for the repairs.

The transformer again failed on January 27, 1968. After this occurrence, plaintiff again requested defendant to furnish materials and certain services for repair of the transformer. Defendant complied, and plaintiff paid for the same.

The defendant, in its motion, urges that the contract between the parties be enforced in accordance with the "conditions of sale." The plaintiff contends that the disclaimers in the contracts do not preclude recovery.

I. Strict Liability in Tort.

With respect to plaintiff's Count IV, sounding in strict liability in tort, the defendant contends (1) that the disclaimers and limitations on damages found in the contracts preclude recovery on this theory, and (2) that the theory of strict liability does not encompass a prayer for commercial loss damages.

The Supreme Court of Iowa has approved recovery, in certain instances, under the tort theory of strict liability for defective products, adopting the principles found in Restatement, Second, Torts, Section 402A. Hawkeye Security Insurance Co. v. Ford Motor Co., 174 N. W.2d 672, 684 (Iowa 1970) hereinafter Hawkeye I. Section 402A allows recovery under strict liability in tort for physical harm to the ultimate user or consumer, or to his property, which is caused by a defective product.

The question of whether plaintiff waived his cause of action sounding in strict liability in tort because of disclaimers in the contracts must be resolved against the defendant. In Hawkeye Insurance Co. v. Ford Motor Co., 199 N.W.2d 373, 381 (Iowa 1972) hereinafter Hawkeye II, the court said: "Further, strict liability in tort is not based on the Uniform Commercial Code and is not subject to disclaimer." Comment (m) to Section 402A of Restatement, Second, Torts, states:

The rule stated in this Section is not governed by the provisions of the Uniform Sales Act, or those of the Uniform Commercial Code, as to warranties; and it is not affected by limitations on the scope and content of warranties, or by limitation to "buyer" and "seller" in those statutes. Nor is the consumer required to give notice to the seller of his injury within a reasonable time after it occurs, as is provided by the Uniform Act. The consumer's cause of action does not depend upon the validity of his contract with the person from whom he acquires the product and it is not affected by any disclaimer or other agreement, whether it be between the seller and his immediate buyer, or attached to and accompanying the product into the consumer's hands. In short, "warranty" must be given a new and different meaning if it is used in connection with this Section. It is much simpler to regard the liability here stated as merely one of strict liability in tort.

Defendant states many policy reasons in support of its position on disclaimer of strict liability in tort. The Court feels, however, that the adoption of such a rule of law would merely again confuse the area of law that Section 402A liability was intended to make simpler.

On the other hand, the Court concludes that defendant's argument with respect to the scope of damages under Section 402A is a good one. Courts and commentators have delineated at least four distinct categories of harm which could be held recoverable under the theory of strict liability in tort for defective products: (1) physical injury to persons; (2) physical damage to tangible things other than the product itself; (3) physical harm to the product itself; and, (4) commercial or economic loss which involves no physical harm but which are occasioned by the unfitness of the product. See Keeton, Products Liability—Some Observations about Allocation of Risks, 64 Mich.L.Rev. 1329, 1343 (1966). Clearly, the law in Iowa, as in most jurisdictions, allows recovery for damages described in categories (1) and (2). Hawkeye I, supra; Hawkeye II, supra; Restatement, Second, Torts, Section 402A ("liability for physical harm thereby caused to the ultimate user or consumer, or to his property"). Plaintiff in this case, however, seeks damages for repair of the transformer, acquisition of a temporary transformer in replacement, and "economic loss." Thus, the Court finds itself having to declare Iowa law in an area in which the Supreme Court of Iowa has not clearly spoken.

The Iowa Supreme Court, in the first Hawkeye opinion, cited a New Jersey case which allowed recovery for damage to the product itself under the theories of implied warranty and strict liability in tort.1 Law review writers have interpreted this to mean that the Iowa Court possibly would approve recovery for economic or commercial losses. The commentators note, however, that no such claim was made in the Iowa case.2

These commentaries were written before Hawkeye II was decided. That case did little to clear the air, however, because of the puzzling language it contains with respect to the instant problem. At page 382 of 199 N.W.2d, the Supreme Court states:

"Perhaps the best known case involving the conflict between the warranty theories (under the U.C.C.) and strict liability in tort, is the case of Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal. Rptr. 17, 403 P.2d 145. In the Seely case, Traynor, J., writing for the majority said when there was a personal injury involved, strict tort liability overrides recovery on a warranty theory (again under the U.C.C.); when the loss is purely property, he did not rule out the use of strict tort, but when the loss is economic, such as loss of profit, loss of bargain, loss of business, etc., then the right of recovery must be governed by the warranty approach.
In Seely, Peters, J., concurring in part and dissenting in part, contended it was not the type of loss which should determine the theory of recovery, but rather recovery should depend upon the parties involved; thus, if there was privity between the parties to the action, the warranty approach should control; if there was no privity, the action would be in strict tort."

The Court believes that it is necessary to trace the history of the Hawkeye litigation in order to understand the above quoted passage in Hawkeye II. The Hawkeye series of actions began when in 1964 a Ford truck operated by Thomas Kolby and owned by Tri-B Corporation ran into a farm-tractor and...

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