Continental Oil Co. v. General Am. Transp. Corp.

Decision Date11 February 1976
Docket NumberCiv. A. No. 73-H-1479.
PartiesCONTINENTAL OIL COMPANY and Trans-Chem Facilities, Inc., Plaintiffs, v. GENERAL AMERICAN TRANSPORTATION CORPORATION, Defendant.
CourtU.S. District Court — Southern District of Texas

COPYRIGHT MATERIAL OMITTED

John D. Gilpin, Fulbright & Jaworski, Houston, Tex., for plaintiffs.

G. Irvin Terrell, Baker & Botts, Houston, Tex., for defendant.

MEMORANDUM AND OPINION

CARL O. BUE, Jr., District Judge.

I. INTRODUCTION

In this diversity action, plaintiffs seek to recover damages resulting from certain alleged defects in 46 railroad tank cars manufactured and sold by defendant to plaintiffs in 1966. Plaintiffs assert causes of action premised on negligence, strict liability in tort, breach of express and implied warranties, and breach of contract. Defendant has moved for partial summary judgment arguing that the warranty and breach of contract theories are barred by the applicable statute of limitations, § 2.725 of the Uniform Commercial Code, and that the strict tort liability theory is unavailable for recovery of "loss of bargain" in the absence of personal injury or casualty loss. Defendant does not challenge plaintiffs' cause of action grounded in negligence.

The Court has concluded that the actions for breach of implied warranties of merchantability and fitness are barred by the statute of limitations governing commercial transactions. However, summary treatment of the express warranty theory of recovery is not warranted at this time because material fact issues remain outstanding as to whether or not defendant made a warranty explicitly extending to future performance. Whether the breach of contract action is barred by the statute of limitations will be deferred pending further factual and legal development.

Defendant's challenge to plaintiffs' strict liability count raises an interesting choice-of-law question. As hereinafter discussed, the Court is of the opinion that the law of the state of manufacture, Ohio, applies, and that Ohio permits the maintenance of a strict liability action to recover for economic loss. Therefore, defendant's motion for partial summary judgment is granted in part, and denied in part.

II. SECTION 2.725 AS A STATUTORY BAR TO RECOVERY

It is undisputed that plaintiffs purchased 31 new tank cars in December, 1965 and January, 1966, and 15 used tank cars in August and September, 1966. It is further uncontested that all of the railroad cars were manufactured in Ohio, delivered in Pennsylvania, Ohio, or Texas, and that the contracts of sale for their purchase were entered into in Oklahoma. In November of 1971, plaintiffs received an "Early Warning Letter" from the Association of American Railroads indicating that the 46 tank cars purchased from defendant evidenced various defects. On December 10, 1971, the Association placed an embargo on these cars prohibiting their use. Plaintiffs thereupon expended certain dollar amounts to repair the cars, for which recovery is sought from defendant. The cause of action was filed by plaintiffs on October 26, 1973, some seven years following the second purchase.

A. Conflict of Laws Resolution

In a cause of action based on the parties' diversity of citizenship, it is necessary to apply Texas choice-of-law rules to determine which state's statute of limitations should apply to the warranties and breach of contract theories asserted by plaintiff. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The controlling Texas statute provides that when a cause of action based on breach of contract and warranty is filed within this State, the law of Texas should govern the substantive rights and duties of the parties if the disputed transaction bears an "appropriate relation to this state." Tex.Bus. & Comm.Code Ann. § 1.105(a). Comment 2 emphasizes that the mere fact a suit is filed in the forum state does not make that state's law necessarily appropriate.

The parties agree that the Court need not decide the choice-of-law question because there really is no "conflict" of laws insofar as the statute of limitations is concerned. See City Machine & Manufacturing Co. v. A & A Machinery Corp. 4 U.C.C.Rep.S. 461 (E.D.N.Y.1967); Stephan v. Sears, Roebuck & Co., 110 N.H. 248, 266 A.2d 855, 858 (1970). The parties indicate that all four states which have any significant contact with the two sales transactions, Texas, Ohio, Oklahoma and Pennsylvania, have adopted substantively identical statutes patterned on § 2-725 of the Uniform Commercial Code. However, although the statutes of limitations are comparable in the four states, the briefs submitted reveal that other aspects of the law of warranty, especially in the express warranty area, differ throughout the states. Therefore, because this Court must at some point decide which state's law should be applied to the merits of plaintiffs' contract-related claims, the appropriate law should be determined at this pre-trial stage.

The Court is of the opinion that the law of Oklahoma should control. As mentioned above, Texas is one of three states where a partial delivery under the contract was made. The only other link between the forum state and the transactions is that a portion of the repairs to the tank cars in 1972 occurred in Texas. At the time of performance under the contract, neither party had its principal place of business in this state. While there is no discovered Texas case law interpreting the "appropriate relation" test, this Court concludes that on the basis of the established facts and the case law of other jurisdictions, a Texas court would hold that the nexus between the disputed chain of events and the State of Texas is too slight to justify the use of Texas law. See, e. g., Aldon Industries, Inc. v. Don Myers & Associates, Inc., 517 F.2d 188 (5th Cir. 1975); Whitaker v. Harvell-Kilgore Corp., 418 F.2d 1010, 1016 (5th Cir. 1969); Lloyd v. Classic Motor Coaches, Inc., 388 F.Supp. 785 (N.D.Ohio 1975).

Both parties agree that the two contracts for sale were executed in Oklahoma. The contracts indicate that performance is deemed to have occurred upon "the date of the arrival of each car in the delivering railroad yards." The cars were subsequently delivered in Texas, Pennsylvania and Ohio. In Texas, the law of the place where the contract was made governs when the agreement is performed in more than one place. Hatchett v. Williams, 437 S.W.2d 334 (Tex.Civ.App. — Houston 1st Dist. 1968), cert. denied, 396 U.S. 963, 90 S.Ct. 437, 24 L.Ed.2d 427 (1969). Since the contract was performed in multiple states, Texas would apply the law of Oklahoma to plaintiffs' sales-related allegations.1 Because implied warranty and strict liability theories greatly overlap in products liability cases, this Court would hesitate to apply Oklahoma law to plaintiffs' implied warranty claims and Ohio law to the strict liability count (as discussed in Part III.A., infra). However, because the Court has decided that the implied warranty allegations are barred by the statute of limitations, there will be no "conflict of laws" if Oklahoma law only governs the express warranty and breach of contract theories, and Ohio law is applied to distinct theories of negligence and strict liability.

B. Application of Oklahoma Law to Plaintiffs' Contract Theories

The Oklahoma statute of limitations provides in pertinent part:

"(1) An action for breach of contract for sale must be commenced within five years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.
"(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, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered." 12A Okl.Stat.Ann. § 2-725 (1963).

Subdivision (2) unequivocally states that unless a warranty explicitly extends to future performance, any cause of action for breach of warranty commences to run at the time of delivery. Therefore, plaintiffs' allegations that defendant breached implied warranties of merchantability and fitness are barred by § 2-725 because of the seven-year gap between delivery of the cars in 1965 and 1966 and the filing of suit on October 26, 1973. See Binkley Co. v. Teledyne Mid-America Corp., 333 F.Supp. 1183 (E.D. Mo.1971), aff'd, 460 F.2d 276 (8th Cir. 1972); see, e. g., Val Decker Packing Co. v. Corn Products Sales Co., 411 F.2d 850, 851-52 (6th Cir. 1969).

The Oklahoma statute also states that an action for breach of contract must be commenced within five years from the date that the breach occurs. However, the parties have not provided the Court with Oklahoma law that defines the date on which such a breach should be deemed to have taken place. Therefore, the Court will defer consideration of whether the contract action is barred until the necessary facts have been developed in accordance with the relevant Oklahoma law.

Plaintiffs' major contention is that defendant made an express warranty explicitly extending to future performance of the cars and that the cause of action therefore accrued when the alleged defects were or should have been discovered. Plaintiffs argue that whether or not such a warranty was made is an outstanding fact issue which must be resolved by the finder of fact at trial. Defendant replies that the depositions of the employees who negotiated the two sales conclusively establish as a matter of law that no express warranty of future performance was made. While defendant has made a strong showing in this regard, it has not established to this Court's satisfaction that summary treatment is appropriate. Based on the...

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