Coastal Modular Corp. v. Laminators, Inc.

• Decision Date: 23 October 1980
• Docket Number: No. 79-1627,79-1627
• Citation: 635 F.2d 1102
• Parties: 30 UCC Rep.Serv. 103 COASTAL MODULAR CORPORATION, a corporation organized under the laws of the State of Maryland, Appellee, v. LAMINATORS, INC., a corporation organized under the laws of the Commonwealth of Pennsylvania, Appellant, v. PENNSYLVANIA MANUFACTURERS ASSOCIATION INSURANCE COMPANY, a corporation organized under the laws of the Commonwealth of Pennsylvania, Third-Party Defendant, and Albi Manufacturing Corporation and Harad Paint Co., Inc., Appellees, and Alumax Mill Products, Inc., Third-Party Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1102

635 F.2d 1102

30 UCC Rep.Serv. 103

COASTAL MODULAR CORPORATION, a corporation organized under

the laws of the State of Maryland, Appellee, v. LAMINATORS, INC., a corporation organized under the laws of

the Commonwealth of Pennsylvania, Appellant, v. PENNSYLVANIA MANUFACTURERS ASSOCIATION INSURANCE COMPANY, a

corporation organized under the laws of the

Commonwealth of Pennsylvania,

Third-Party Defendant,

and

Albi Manufacturing Corporation and Harad Paint Co., Inc., Appellees,

and

Alumax Mill Products, Inc., Third-Party Defendant.

No. 79-1627.

United States Court of Appeals Fourth Circuit.

Argued May 6, 1980.

Decided Oct. 23, 1980.

Jack L. Hardwick, Baltimore, Md. (Hardwick, Tripoda & Harris, Baltimore, Md., Georganne Daher Terrill, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., on brief), for appellant.

Neil J. Dilloff, Baltimore, Md. (Donald E. Sharpe, Piper & Marbury, Baltimore, Md., on brief), Charles M. Kerr, Baltimore, Md. (John H. Lewin, Jr., Venable, Baetjer & Howard, Baltimore, Md., on brief) and Alva P. Weaver, III, Baltimore, Md. (Frederick J. Green, Jr., Lord, Whip, Coughlan & Green, P. A., Baltimore, Md., on brief), for appellees.

Before WINTER, WIDENER and SPROUSE, Circuit Judges.

SPROUSE, Circuit Judge:

Laminators, Inc. (Laminators) appeals from the judgment of the district court in favor of Coastal Modular Corporation (Coastal) on its breach of warranty action and against Laminators on its third-party warranty action against Albi Manufacturing Corporation and Harad Paint Company, Inc. (Albi and Harad).

Coastal was notified in July 1978 by the United States Navy that panels in air traffic control towers assembled by Coastal for the Navy were defective and that they must be removed and replaced by Coastal. Coastal notified the manufacturer of the panels, Laminators, but the latter refused to replace them. Coastal brought this action against Laminators seeking anticipated damages for investigating the cause of the defects, and anticipated damages both for removing Navy-installed electrical elements from within the panels and replacing the panels. Laminators denied liability and filed a third-party action against Albi and Harad.

Coastal and the Navy had entered into a contract in mid-1975 for Coastal to produce thirty-one modules for the construction of air traffic control towers. The towers were for naval installations in Corpus Christi, Texas, and Charleston, South Carolina. At Coastal's initiation, the Navy allowed the modules to be constructed with panels consisting of aluminum bonded to plywood instead of corrugated steel, but required that all exposed wood surfaces be flame retardant. In response to Coastal's solicitation for a bid, Laminators submitted quotations and subsequently provided the panels required by the Navy/Coastal contract. At Coastal's request, Laminators' standard "Omega-Ply" panel was modified to consist of untreated wood bonded to aluminum with the backside of the wood coated with a fire-retardant paint manufactured by Albi and distributed by Harad.

Laminators supplied Coastal with an elaborate brochure describing its product. It warranted that the panels would maintain their original characteristics during the life of the original installation. Laminators agreed to refinish or repair panels not complying with the warranty. Alternatively, and at its election, Laminators agreed to pay for the cost of a replacement for each defective panel. The warranty contained no specific exclusion of consequential damages nor was there any disclaimer of implied warranties. The panels were warranted both for interior and exterior use.

Coastal paid Laminators $50,082.72 for the panels. Although the initial cost of installing the panels on the thirty-one involved modules is not reflected in the record, the cost of removing the defective panels and installing replacements was variously estimated as ranging from $335,000 to $400,000.

After manufacturing the panels, Laminators painted the edges and backs with fire-retardant paint, and stored them in an interior area. After they were shipped to Coastal, some of the twenty-seven modules designated for Charleston were briefly stored in the open and, although covered, were exposed to rain. The panels in the four modules delivered to Corpus Christi were neither stored in the open nor exposed to rain.

Coastal fabricated the tower modules by cutting down the Laminators panels to size and gluing them to blocks of insulation, aluminum face out. The panels were also glued to the interior side of the insulation blocks and fastened to the module frames, so that both the interior and exterior exposed sides of the frames were aluminum. Coastal delivered the first four modules to the Corpus Christi installation on February 13, 1976, with the remaining twenty-seven modules then assembled and shipped to the Charleston Naval installation. The Navy accepted all thirty-one modules, paid Coastal in full, and title to all modules passed to the Navy by the end of the summer of 1976. The Navy then installed electronic equipment in certain modules.

Corrosion appeared both on the inside and the outside walls of the panels, at both Corpus Christi and Charleston, after acceptance by the Navy. The Navy informally advised Coastal of the corrosion problem in October 1976, characterizing the defects as "latent." In September 1977, approximately a year after the defects were first discovered by the Navy, the Navy advised Coastal that the deterioration was continuing and had reached catastrophic proportions. The tabulations of panel damage accompanying the Navy's September 1977 letter disclosed that all but three of the modules contained defective panels. It also indicated that the number of corroded panels had drastically increased between October 18, 1976, and September 6, 1977. The Navy formally demanded that Coastal correct the latent defects pursuant to the contract between the Navy and Coastal. In July 1978, the Navy finally notified Coastal that if Coastal did not advise the Navy that it would replace the "defective material" the Navy would institute action to reprocure the material and would charge the cost of any procurement to Coastal.

Coastal advised Laminators of the defect immediately after it had received the first notification from the Navy; samples of corroded panels were sent to Laminators. Laminators' president inspected the panels in Charleston. Coastal and Laminators retained experts to investigate the cause of the corrosion, while the Navy had the panels analyzed at its laboratory at Charleston.

At the time of trial neither the Navy, Coastal, or Laminators had repaired or replaced the defective panels. The Navy remained in continuous communication with Coastal, but at no time contacted Laminators. Navy officials insisted both prior to trial and during their testimony that they looked only to Coastal for correction of the defective construction and had no intention of being involved with Laminators.

Coastal demanded that Laminators repair or replace the panels in accordance with the Navy-imposed deadlines, but Laminators refused. Coastal then filed the instant action. Coastal's complaint alleged breach of express and implied warranty, negligence and strict liability in tort, and breach of contract. The trial court found, however, that the action was "essentially an action for breach of contract," and it was tried on warranty principles.

Laminators contends on appeal that the district court erred in granting judgment to Albi and Harad in its third-party action. It also contends that the court erred in holding Coastal was entitled to maintain this action since its liability to the Navy was neither fixed in amount nor certain, in finding that Laminators had breached its limited warranty, in awarding Coastal consequential damages, in fixing the amount of the damages as $375,000.00, and in allowing the action to proceed without the joinder of the Navy under Fed.R.Civ.P. 19. Agreeing in most part with the district court's reasoning, and agreeing in the result, we affirm.

I. THE THIRD-PARTY CLAIMS

Albi narrowly agreed, by the warranty contained in its brochure, that the paint would perform to the specifications set out in the brochure, but specifically disclaimed both any warranty of merchantability or fitness for a particular purpose and any liability for consequential damages. ¹ Quite apart from the provisions in Albi's warranty, the court found that Albi's paint was not a proximate cause of the panels' corrosion. There is abundant evidence in the record to sustain that factual finding and little, if any, to negate it. Since the paint was not a proximate cause of the damage, Albi and Harad could not have been liable for breach of warranty. Mattos, Inc. v. Hash, 279 Md. 371, 368 A.2d 993 (1977); Sheeskin v. Giant Food, Inc., 20 Md.App. 611, 621, 318 A.2d 874 (1974), aff'd sub nom. Giant Food, Inc. v. Washington Coca-Cola Bottling Co., 273 Md. 592, 332 A.2d 1 (1975).

II. COASTAL'S RECOVERY AGAINST LAMINATORS FOR POTENTIAL LIABILITY TO THE NAVY

The trial court found that, since Coastal's potential liability to the Navy for the defective panels was both reasonably foreseeable and subject to calculation, it was properly the basis for the instant action. We agree. The Navy had notified Coastal that if Coastal did not acknowledge its liability and intention to replace the defective panels, the Navy would immediately contract for this construction work and charge the cost to Coastal. Since this demand was within the Navy's contractual rights, Coastal assumed liability and agreed to effect the repairs.

There can be no serious question but that Coastal is liable to the Navy to repair the defective panels. United States v. Franklin Steel Products, Inc., 482 F.2d 400 (9th Cir. 1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1416, 39 L.Ed.2d 472 (1974); United States v. Aerodex, Inc., 469 F.2d 1003 (5th Cir. 1972). The Navy's claim,...