Carrier Corp. v. Detrex Corp.

• Decision Date: 31 March 1992
• Docket Number: No. B056060,B056060
• Citation: 4 Cal.App.4th 1522,6 Cal.Rptr.2d 565
• Court: California Court of Appeals Court of Appeals
• Parties: , 17 UCC Rep.Serv.2d 460 CARRIER CORPORATION, Plaintiff and Appellant, v. DETREX CORPORATION, et al., Defendants and Respondents.

Page 565

6 Cal.Rptr.2d 565

4 Cal.App.4th 1522, 17 UCC Rep.Serv.2d 460

CARRIER CORPORATION, Plaintiff and Appellant, v. DETREX CORPORATION, et al., Defendants and Respondents.

No. B056060.

Court of Appeal, Second District, Division 2, California.

March 31, 1992.

Review Denied June 18, 1992.

Hanna and Morton, Edward S. Renwick, John R. Zebrowski, David A. Ossentjuk and Stephen G. Mason, Los Angeles, for plaintiff and appellant.

Sheppard, Mullin, Richter & Hampton, Stephen C. Taylor, Roy G. Wuchitech, Stephen J. O'Neil and Michael John Miguel, Los Angeles, for defendants and respondents.

NOTT, Associate Justice.

Appellant Carrier Corporation ("Carrier") appeals from a judgment entered following the grant of summary judgment in favor of respondent Detrex Corporation ("Detrex").

The central issue on appeal is whether the statute of limitations under California Uniform Commercial Code section 2725 requires that an action for indemnification based on express or implied warranty be brought within four years from the date of delivery of the product.

FACTS

Carrier produces air conditioning units at its leased facilities in the City of Industry. In 1979, it contracted with Detrex to provide it with a system to remove the grease which accumulates on air conditioning coils during the manufacturing process. The contract provided that Detrex would design and manufacture the system, and then install and test it.

Detrex did in fact produce the degreasing system, and then sub-contracted the installation to South-Lyn Mechanical, Inc., a local pipe-fitting and welding company. The system was completed and on-line as of September 1979.

In April of 1985, Carrier noticed a higher than normal usage of PCE. ¹ Detrex was consulted, but neither company could identify the source of the problem. On April 25, 1985, Carrier discovered that PCE was being lost through the system's degreaser sump.

The sump was designed to serve as a catch-basin to contain wastewater condensate expelled by the system. It was a 55-gallon carbon steel drum dropped into a hole below floor level, having its lid flush with and cemented to the concrete floor. Inside the drum was a pump which pushed water through a connecting pipe across the ceiling and down to a floor drain approximately 50 yards from the central degreasing system.

Carrier found that PCE was being lost into the groundwater for two reasons: First, because the drum was not encased in concrete, the carbon steel was exposed not only to the material inside the drum, but also to the corrosive qualities of the soil. As a result, the skin of the drum failed, allowing its contents to leak into the groundwater. Second, due to a design flaw in the system, pure PCE was making its way into the sump.

Not surprisingly, Carrier attributed those problems to faulty design and installation by Detrex. As might further be anticipated, Detrex denied any such responsibility.

On April 26, 1985, Carrier notified the appropriate governmental agencies of the possibility that PCE had been contaminating the groundwater below its plant. Four days later, the County of Los Angeles Department of Public Works ordered Carrier to immediately implement "clean-up and abatement measures" to remedy the PCE contamination. On May 1, 1985, the California Regional Water Quality Control Board, Los Angeles Region, ("Water Board") also directed Carrier to investigate the extent of the contamination.

That investigation revealed that the PCE had indeed leached through the soil into the groundwater. On March 7, 1986, the Water Board issued Carrier a formal Clean Up and Abatement Order. ²

Since April of 1985, Carrier has made ongoing efforts to rectify the PCE contamination, and estimates that in doing so, it has expended $10,000,000--a sum vigorously contested by Detrex.

On October 3, 1986, Carrier made a written demand for indemnification. Detrex declined, and on October 28, 1988, Carrier filed a complaint for damages, alleging causes of action for breach of express warranty, implied warranty of merchantability, and implied warranty of fitness for a particular purpose.

Carrier's complaint was amended in March of 1990 to ask for indemnification as well as damages on all three counts.

In September of 1990, after completion of discovery and just before trial, Detrex filed three motions for summary judgment as follows: First, that the relief sought was barred by the four-year limitation provision of California Commercial Code section 2725, subdivision (2) and the three-year limitation of Code of Civil Procedure section 338, subdivision (b); second, there was no evidence showing that Detrex designed or installed the sump; and third, that Carrier was seeking consequential damages specifically exempted by the indemnification provisions contained in Detrex's proposal. ³

The trial court ruled in favor of Detrex on the first motion, and the other two were taken off calendar as moot.

DISCUSSION

Carrier and Detrex have agreed that the sale and purchase of the degreasing system places the parties within the ambit of California Commercial Code section 2725. That statute says, in pertinent part: "(1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued.... (2) A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made...." (Emphasis added.)

As Detrex points out, the complaint was filed in 1986, more than seven years after tender of delivery of the product. Therefore, if the relief sought was merely for breach of express or implied warranty, this would be a very brief opinion.

The request for indemnification, however, places matters in a different light. In that regard, Detrex urges that (1) the specific limitation period of California Commercial Code section 2725 takes precedence over general laws relative to statutes of limitations; (2) there is no true "indemnity" since (a) Carrier's indemnity provision never became part of the contract and (b) there was no third party to whom Carrier became liable or to whom it paid damages; (3) that even if the statute of limitations commenced in April of 1985, the four-year period expired since Carrier did not amend its complaint to include an action for indemnity until March of 1990. We will discuss each of these contentions in turn.

1. Whether "Date of Delivery" Triggers the Commencement of the Statute of Limitations

Where there has been a sale of goods under the California Commercial Code, when does the statute of limitations commence for indemnification of an express or implied warranty?

Detrex argues that the "date of delivery" under section 2725, subdivision (2) controls, in that the purpose of adding section 2725 was to introduce a uniform statute of limitations that "takes sales contracts out of the general laws limiting the time for commencing contractual actions and selects a four-year period as the most appropriate to modern business practice." (U.Com.Code Comm., Cal.U.Com.Code, § 2725, (West's 1991); Mysel v. Gross (1977) 70 Cal.App.3d Supp. 10, 138 Cal.Rptr. 873.)

Detrex asserts that there is a strong public policy to set a time certain to limit the exposure of a seller, and the Legislature has selected four years from the date of delivery. Detrex concludes that to allow Carrier to "plead around" section 2725, subdivision (2) by the device of asking for indemnification defeats the legislative intent. Although there are no California cases directly on point, Detrex cites cases from other jurisdictions that have considered the matter and have held that Uniform Commercial Code section 2-725 (and the counterpart provisions adopted by each state) will bar indemnity claims based on breach of warranty if those claims were brought more than four years after delivery. (See PPG Industries, Inc. v. Genson (App.1975) 135 Ga.App. 248, 217 S.E.2d 479; Maxfield v. Simmons (S.Ct.1983) 96 Ill.2d 81, 70 Ill.Dec. 236, 449 N.E.2d 110; Sheehan v. Morris Irr., Inc. (S.D.1990) 460 N.W.2d 413; Perry v. Pioneer Wholesale Supply Co. (Utah 1984) 681 P.2d 214; Farmers Nat. Bank v. Wickham Pipeline (S.Ct.1988) 114 Idaho 565, 759 P.2d 71; Anixter Bros., Inc. v. Central Steel & Wire (App.1984) 123 Ill.App.3d 947, 79 Ill.Dec. 359, 463 N.E.2d 913.)

There is another line of cases, headed by McDermott v. City of New York (1980) 406 N.E.2d 460, 428 N.Y.S.2d 643, 50 N.Y.2d 211, that takes the opposite view.

In McDermott, a city employee brought an action against the city after his arm was severed by the hopper mechanism of a sanitation truck. The truck had been delivered to the city on February 5, 1969, and the accident occurred on February 24, 1969.

The city did not file suit for indemnity against Heil Company (the manufacturer of the hopper and body of the truck) until June of 1975. Heil Company sought dismissal under the four-year limitation provision of Uniform Commercial Code section 2-725, as measured from the date of delivery of the truck. The trial court agreed with the rationale and ordered the city's action dismissed. The intermediate appellate court affirmed. New York's highest court, the Court of Appeals, had a different view. In reversing the dismissal, the court specifically held that the cause of action for indemnification accrued upon payment to the injured person, and not from the date of the delivery of the truck.

Rejecting the "date of delivery" concept of Uniform Commercial Code section 2-725, the court said "... the indemnity claim is a separate substantive cause of action, independent of the underlying wrong ...," and the fact that "... the city's indemnification cause of action stems from an allegedly defective product does not alter the general Statute of Limitations rules." (Id. 406 N.E.2d at pp. 462-463, 428 N.Y.S.2d at pp. 645-646.)

Finally, the court said that in applying the equitable...