CGM Valve Co., Inc. v. Gulfstream Steel Corp.

• Decision Date: 10 January 1980
• Docket Number: No. 17572,17572
• Citation: 596 S.W.2d 161
• Parties: 28 UCC Rep.Serv. 1035 CGM VALVE COMPANY, INC., Appellant, v. GULFSTREAM STEEL CORPORATION, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 161

596 S.W.2d 161

28 UCC Rep.Serv. 1035

CGM VALVE COMPANY, INC., Appellant, v. GULFSTREAM STEEL CORPORATION, Appellee.

No. 17572.

Court of Civil Appeals of Texas, Houston (1st Dist.).

Jan. 10, 1980.

Rehearing Denied March 6, 1980.

Talbert, Giessel & Stone, Inc., Mark Shelton, Houston, for appellant.

Butler, Binion, Rice, Cook & Knapp, W. N. Blanton, III, Houston, for appellee.

Before PEDEN and EVANS, JJ.

WARREN, Justice.

This is an appeal from a summary judgment awarding appellee recovery over against appellant for damages assessed against appellee in a Florida lawsuit.

The issues are: (1) whether the remedy of "voucher" or "vouching in", as provided by Section 2.607(e)(1) of the Texas Business and Commerce Code, is available under the facts of our case, and (2) whether this court can consider the proof offered by appellee for the purpose of determining its right to summary judgment under a common law indemnity action.

Appellee, a Florida corporation, contracted with Lang Afrique, Inc. to supply a large quantity of valves to be used at a sugar refinery Lang was building in Ivory Coast, Africa. Appellee then contracted with appellant, a Texas corporation, for appellant to furnish and ship the valves directly to Lang at the sugar refinery.

Some time after the receipt of the valves, Lang contended that many of the valves were defective and sued appellee in a state court in Florida. Appellee attempted to join appellant as a third party, but was unsuccessful. Appellee then filed suit against appellant in Texas seeking indemnity for all damages and expenses which would be incurred in the Florida suit.

After much pretrial discovery, the Florida suit was settled. Lang obtained a judgment against appellee for $251,000 damages, $14,108.65 court costs and $86,213.92 attorney fees and expenses, which totals $351,322.57.

Thereafter, appellee filed a Motion for Summary Judgment in Texas, alleging that it was entitled to judgment under Tex.Bus. and Com.Code, Section 2.607(e) (1) for the amount awarded against it in the Florida case, costs incurred in defense of the Florida action and attorneys' fees.

Appellant's Motion in Opposition to Summary Judgment contended among other things that the Florida judgment was not a "full dress, arm's length, good faith, adversary proceeding" as contemplated by Sec. 2.607(e)(1), which states:

(e) Where the buyer is sued for breach of warranty or other obligation for which he is answerable over

(1) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after reasonable receipt of notice does come in and so defend he is so bound.

It is undisputed that appellant was notified of and offered the opportunity to participate in all phases of the lawsuit and the settlement negotiations, and that it declined these offers.

The initial question is whether voucher is available to the defendant who settles the first cause of action as opposed to litigating the cause to judgment. We hold that it is not.

In Stewart & Foulke, Inc. v. Robertshaw Controls Company, 397 F.2d 971 (5th Cir. 1968), a case similar to ours, Stewart & Foulke, a retailer, sold a stove whose controls were manufactured by Robertshaw. The purchaser was injured and his residence damaged when the stove exploded. Stewart & Foulke tendered the defense of the Indiana suits to Robertshaw and this tender was refused. Thereafter, Stewart & Foulke reached an agreement in settlement of the disputes but proceeded to present facts to the trial court. Prior to the conclusion of the suit, judgment was entered in accordance with the agreements previously made. Findings of fact were prepared by Stewart and Foulke and signed by the trial judge. Stewart and Foulke then filed suit in the federal district court for the northern district of Texas for the amount of the Indiana judgment, plus costs and attorneys fees. A special issue was submitted to the jury inquiring whether the Indiana judgment resulted from a "full dress, arm's length, good faith, adversary proceeding." The jury was instructed that a "full dress, arm's length, good faith, adversary proceeding" meant an "actual trial with a contest of the issues for actual determination of the facts by court or jury and of law by court rather than a resolving of those same issues by agreement of the parties under a prior settlement agreement." Predictably, the jury answered "no." The United States Court of Appeals, Fifth Circuit, approved the special issue and the instruction as given. The court followed the holding in Grummons v. Zollinger, 341 F.2d 464 (7th Cir. 1965) which held that when a person is vouched in to defend, he will be bound by the judgment, but only where the initial litigation was a "full dress, arm's length, good faith, adversary proceeding"; and that settlement by agreement of the parties did not meet that standard. Other courts have also held that suit could not be maintained under the ...