Church of Nativity of Our Lord v. WatPro, Inc.

• Decision Date: 23 October 1992
• Docket Number: No. C5-91-99,C5-91-99
• Citation: 491 N.W.2d 1
• Parties: 18 UCC Rep.Serv.2d 1017 The CHURCH OF THE NATIVITY OF OUR LORD, Respondent, v. WATPRO, INC., Respondent, and Flag, S.p.A., a/k/a Flag S.A.S. and Flag, Ltd., and MacArthur Company, Defendants, and Montedison, S.p.A., and Montedison U.S.A., Inc., Appellants.
• Court: Minnesota Supreme Court

Page 1

491 N.W.2d 1

18 UCC Rep.Serv.2d 1017

The CHURCH OF THE NATIVITY OF OUR LORD, Respondent, v. WATPRO, INC., Respondent, and Flag, S.p.A., a/k/a Flag S.A.S. and Flag, Ltd., and MacArthur Company, Defendants,

and

Montedison, S.p.A., and Montedison U.S.A., Inc.,

Appellants.

No. C5-91-99.

Supreme Court of Minnesota.

Oct. 23, 1992.

Syllabus by the Court

1. In a breach of warranty claim, notice given by the buyer to the identified agent of a remote manufacturer is sufficient notice under Minn.Stat. Sec. 336.2-607(3)(a) (1990).

2. This action is not barred by the four-year statute of limitations.

3. The Minnesota Consumer Fraud Act, Minn.Stat. Sec. 325F.69 (1990), applies to transactions involving all consumers and, in this case, was violated by the making of false promises. Attorneys fees and costs were properly awarded.

4. The trial court properly ordered full indemnity to defendant WatPro from defendant Montedison.

Corey J. Ayling, McGrann, Shea, Franzen, Carnival, Straughn & Lamb, Chartered, Minneapolis (Anthony Watkins, Mesirox, Gelman, Jaffe, Cramer & Jamieson, Philadelphia, Pa., of counsel), for appellants.

Elizabeth Hoene Martin, Michael R. Doherty, Doherty, Rumble & Butler, P.A., St. Paul, for The Church of the Nativity of Our Lord.

John T. Chapman, Katharine L. MacKinnon, Arthur, Chapman, McDonough, Kettering & Smetak, Minneapolis, for WatPro, Inc.

Heard, considered and decided by the court en banc.

WAHL, Justice.

Montedison, S.p.A., and Montedison U.S.A., Inc. (collectively Montedison) appeal a decision of the court of appeals, 474 N.W.2d 605, affirming a district court judgment finding Montedison liable for breach of express warranty, breach of contract, breach of implied warranty, negligent misrepresentation and violation of the Minnesota Prevention of Consumer Fraud Act (Consumer Fraud Act) and awarding damages. Montedison also appeals an order denying its post-trial motions and awarding attorney fees. The grounds of the appeal are that Montedison was entitled to but did not receive timely formal notice of defect as required pursuant to Minn.Stat. Sec. 336.2-607(3)(a) (1990) and that this action is barred by the statute of limitations. The application of the Minnesota Consumer Fraud Act, Minn.Stat. Sec. 325F.69 (1990), to the present circumstances is also challenged because 1) the Uniform Commercial Code (U.C.C.) provides the exclusive remedy; 2) the Consumer Fraud Act applies only to cases involving individual consumers; and 3) the Consumer Fraud Act is not violated by a negligent or unintentional misrepresentation. We affirm.

Respondent Church of the Nativity of Our Lord (Nativity) brought this action seeking to recover for damages resulting from defective roofing materials installed on Nativity's school and convent in 1980 and 1982. The facts of the case were found by the trial court based on the evidence presented and the special verdict of the jury:

Montedison, S.p.A., a large Italian chemical corporation, developed and produced chemical compounds--Flagon SF and Flagon C (PVC pellets and powder)--which were transformed by Defendant Flag, S.p.A., under Montedison's direction and supervision, into membranes for use as roofing material. Montedison at all times maintained control of the chemical formulas. From the development of the formula through completion of the finished membrane, Montedison employees maintained quality control. ¹

Montedison U.S.A., a wholly owned subsidiary of Montedison, S.p.A., was involved in a joint venture with Montedison, S.p.A., to produce, develop, market and distribute Flagon roofing materials. Montedison U.S.A. coordinated all phases of marketing and distribution of the materials in the United States, including the use of the Montedison name.

Flag, S.p.A., an Italian corporation formed by former Montedison employees, is an agent of Montedison. A default judgment was filed in this action against Flag in January 1988.

The roofing materials used on Nativity's roofs were shipped through respondent WatPro, Inc., the sole distributor of Flagon roofing materials in the United States and the exclusive agent of Flag. As an agent of Flag, WatPro also was found to have an agency relationship with Montedison. The roofing materials were supplied by MacArthur Company ² and installed on Nativity's buildings by Ampco, an approved Flagon roofing applicator and local roofing contractor who is not a party to this suit.

In 1979, Nativity retained the architectural firm of Voight & Fourre ³ to inspect parish-owned buildings and to identify and prioritize repair, rehabilitation, and maintenance needs. The architect recommended the reroofing of certain sections of the roofs of the convent and school as a high priority and later participated with the parish priest and finance council in the selection of materials and contractors for the job. Nativity selected the Flagon materials because of representations made in the product literature ⁴ that the Flagon materials would provide a watertight roof and because a ten-year guarantee was available.

About 60% of the work was to be completed in 1980, the remaining 40% in 1982. Two consecutive five-year guarantees were issued for the first work completed. In these documents Flag guaranteed that it would "maintain the Flagon roof * * * in a watertight condition at its own expense for a period of five years from this date provided that the owner gives WatPro, Inc., our exclusive agent, written notice of any leaks within 30 days from discovery of such leaks." The first guarantee covered the period September 4, 1980, to September 3, 1985, and was apparently provided at no additional cost. Nativity paid separately for the second guarantee which covered the period September 4, 1985, to September 3, 1990. For the work completed in 1982 Nativity purchased two more five-year guarantees containing identical promises by Flag, the first covering the period July 14 1982, to July 13, 1987, and the second covering the period July 14, 1987, to July 13, 1992. All of the guarantees contain the names of Flag, WatPro, and Montedison. The guarantees, drafted and approved by both Flag and Montedison, identified WatPro as the exclusive agent of Flag.

In September 1980, a leak was discovered in the roof of the convent. This leak was satisfactorily repaired under the guarantee though the source of the problem was not discovered. In 1982, new leaks were discovered. It was later determined that the Flagon material was the cause of the leaks. Evidence at trial established that the Flagon roofing materials were defective and that the defect was caused by plasticizer migration. Plasticizer is the chemical that makes the PVC flexible. The plasticizer migration, which occurs when an improper chemical formula is used, makes the Flagon brittle and susceptible to tears and shrinkage.

In 1984, WatPro was given written notice of the problem. WatPro promised repairs and extended the guarantees, but the Flagon materials continued to deteriorate. In November 1986, WatPro informed Nativity that Flag was refusing to honor its guarantees. In 1987, after consulting with experts, Nativity removed and replaced the roofs at its own expense. Nativity sustained substantial interior damage to the walls and ceilings of the convent and school.

Nativity began this lawsuit through service of process against Flag, WatPro and MacArthur in August 1987. A third-party complaint was served on Montedison on August 24, 1989, by WatPro.

The case was tried in Ramsey County District Court before a jury in July 1990. At trial, the court granted Nativity's motion to allow direct claims against Montedison, granted motions by WatPro and MacArthur to bring crossclaims against Montedison, and granted motions by Montedison to bring cross-claims against WatPro and MacArthur.

By an exhaustive special verdict, the jury found Montedison liable to Nativity for breach of express warranty, ⁵ breach of contract, breach of implied warranty, negligent misrepresentation, and for violation of the Minnesota Consumer Fraud Act. The trial court entered judgment for Nativity in the amount of $358,613.54. ⁶ Based on the special verdict, the trial court dismissed with prejudice the claims against MacArthur and found WatPro to be entitled to full indemnity from Montedison.

We consider first whether the plaintiff satisfied the notice requirements of Minn.Stat. Sec. 336.2-607(3)(a). That section provides that where a tender has been accepted "the buyer must within a reasonable time after the buyer discovers or should have discovered any breach notify the seller of breach or be barred from any remedy." Minn.Stat. Sec. 336.2-607(3)(a). ⁷

Montedison asserts that it was not informed of Nativity's claimed defect until it was served with a third-party complaint, seven years after the last installation and two years after the roof had been replaced. This, Montedison claims, constitutes inadequate and untimely notice, unreasonable as a matter of law. Montedison insists that, as a remote seller, it is entitled to formal notice of warranty defect, separate from and in addition to any notice given to an immediate seller. Montedison also argues that the evidence is insufficient to support the jury's finding that an agency relationship existed between itself and Flag or WatPro for the purpose of receiving notice of the defect.

The notice requirement serves at least three purposes: "First, notice provides the seller a chance to correct any defect. Second, notice affords the seller an opportunity to prepare for negotiation and litigation. Third, notice provides the seller a safeguard against stale claims being asserted after it is too late for the manufacturer or seller to investigate them." Prutch v. Ford Motor Co., 618 P.2d 657, 661 (Colo.1980) (citations omitted).

Notification need not take a specific form. Oral notification for instance, satisfies the notice requirement. American Fertilizer Specialists, Inc. v....