Cyclops Corporation v. Home Insurance Company

• Decision Date: 23 January 1975
• Docket Number: Civ. A. No. 70-1053,70-1370.
• Citation: 389 F. Supp. 476
• Parties: CYCLOPS CORPORATION, Plaintiff, v. The HOME INSURANCE COMPANY, Defendant, v. FISCHBACH AND MOORE, INC., and Allis-Chalmers Manufacturing Company, Third-Party Defendants. CYCLOPS CORPORATION, Plaintiff, v. FISCHBACH AND MOORE, INC., and Allis-Chalmers Manufacturing Company, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

389 F. Supp. 476

CYCLOPS CORPORATION, Plaintiff, v. The HOME INSURANCE COMPANY, Defendant, v. FISCHBACH AND MOORE, INC., and Allis-Chalmers Manufacturing Company, Third-Party Defendants.

CYCLOPS CORPORATION, Plaintiff, v. FISCHBACH AND MOORE, INC., and Allis-Chalmers Manufacturing Company, Defendants.

Civ. A. Nos. 70-1053, 70-1370.

United States District Court, W. D. Pennsylvania.

January 23, 1975.

Kirkpatrick, Lockhart, Johnson & Hutchison, Pittsburgh, Pa., for Cyclops Corp.

Jones, Gregg, Creehan & Gerace, Pittsburgh, Pa., Hamilton, Kramer & Myers, Columbus, Ohio, for Home Ins. Co.

Thorp, Reed & Armstrong, Pittsburgh, Pa., for Fischbach and Moore, Inc.

Egler, McGregor & Reinstadtler, Pittsburgh, Pa., for Allis-Chalmers Manufacturing Co.

WEBER, District Judge.

This case involves a clause in a contract of sale for a large electrical motor manufactured by Defendant Allis-Chalmers and sold by Defendant Fischbach and Moore to Plaintiff Cyclops Corporation.

The motor was installed in July of 1967 and suffered a breakdown on January 20, 1969. There was no injury to persons or property other than that to the motor itself. The motor was repaired by Allis-Chalmers at no cost to the plaintiff and was placed back in operation.

The plaintiff's claim here is against the manufacturer and selling agency and is almost entirely for lost profits incurred during the time that the motor was out of service being repaired with a small claim for "direct charges, freight, removal reinstallation, etc." The claim against both manufacturer and distributor is based on the sale of a defective product in breach of warranty, against the distributor it is asserted as breach of contract and against the manufacturer it is based on negligence.

We have previously determined another claim arising out of the same incident involving the nature of the damage suffered from the event. See Cyclops v. Home Insurance Company et al., 352 F. Supp. 931 (W.D.Pa.1973).

The defendants have jointly moved for Summary Judgment on the grounds that the written provisions of the sales documents explicitly exclude liability for consequential damages.

There has been very extensive discovery, production of documents, interrogatories, depositions and requests for admissions as to documents in this case, much of which we now find immaterial to the disposition of the controlling question before us. The parties have been afforded a full exploration of all relevant evidence. As to the controlling question we are convinced that there is no genuine issue of material fact.

The pertinent contract provisions read as follows:

"Company's liability to Purchaser whether in contract or in tort arising out of warranties, representations, instructions, or defects from any cause, shall be limited exclusively to correcting the equipment and under the conditions as aforesaid."

"Company shall not in any event be liable for indirect, special, consequential or liquidated damages or penalties."

"Conditions of Service.

* * * * * *

The Company shall in no event be liable for indirect, special, or consequential damages."

We omit the provisions in the contract documents pertaining to the exclusions of implied warranties and the waiver of statutory warranties because we believe that the sole controlling question is the limitation of damage clauses and their effect under Sec. 2-719 of the Uniform Commercial Code, and not the express or implied warranties under Secs. 2-313 to 2-316 of the Uniform Commercial Code.

The above recitals are contained in Motion Exhibit 4 which is a Proposal and Contract, No. IS-2255, dated November 23, 1965 from Allis-Chalmers to Fischbach and Moore, which was transmitted to Cyclops by Fischbach and Moore with a letter stating that the motor supplied would be in accordance with Allis-Chalmers specification and warranty. This proposal was accepted by Cyclops in their purchase order No. 4766, dated December 15, 1965 confirming its order for the equipment as specified in Allis-Chalmers Specification IS-2255.

Fischbach and Moore served as a distributor in this transaction. Title passed through its hands and it served as a contractor for installation. They had served in this capacity in prior transactions between these parties. Cyclops stated that it wished to buy equipment manufactured by Allis-Chalmers. The purchase was made through Fischbach and Moore because that firm would aid in financing the transaction. The transaction was in all other respects a transaction between Allis-Chalmers and Cyclops for equipment as specified by Allis-Chalmers as set forth in the initial letter and specifications sent directly by Allis-Chalmers to Cyclops on October 27, 1965. (Motion Exhibit 33), Cyclops Purchase Order to Fischbach and Moore, dated December 15, 1965 ordered the equipment as specified in Allis-Chalmers' specifications, (Motion Exhibit 2). The warranties of Allis-Chalmers and Fischbach and Moore both run to the benefit of Cyclops, and the limitation of damages clause runs to the benefit of both the manufacturer and the distributor. See: Southwest Forest Industries v. Westinghouse Electric Corp., 422 F.2d 1013 (9th Cir. 1970) and K & C Inc. v. Westinghouse Electric Corp., 437 Pa. 303, 263 A.2d 390 (1970).

The negotiations in this sale occurred in the Cyclops' office in Ohio, the equipment was delivered and installed in Ohio. The contact with other states is minimal; the home office and plant of Allis-Chalmers is in Wisconsin; the home office of Fischbach and Moore is in New York, the forum state is Pennsylvania. There is no contract provision governing the applicable law. We apply the conflict of law rule of Pennsylvania which requires the application of the law of the state with the most significant relationship to the parties and the transaction, or the "center of gravity" of the transaction. Griffith v. United Airlines, Inc., 416 Pa. 1, 203 A.2d 796 (1964); Slaughter v. Philadelphia National Bank, 417 F.2d 21 (3rd Cir. 1969). We conclude that the law of Ohio governs the issues in this suit.

Ohio has adopted the Uniform Commercial Code and the key provision of the Code applicable here is Sec. 2-719, which in Ohio is found in the Ohio Revised Code at Sec. 1302.93. The identical provision is adopted in the forum state as 12A P.S. § 2-719. The text of the Ohio statute is as follows:

"1302.93 (UCC 2-719) Contractual modification or limitation of remedy.

(A) Subject to the provisions of divisions (B) and (C) of this section and of section 1302.92 of the Revised Code on liquidation and limitation of damages:

(1) the agreement may provide for remedies in addition to or in substitution for those provided in section 1302.01 to 1302.98, inclusive, of the Revised Code and may limit or alter the measure of damages recoverable under such sections, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and

(2) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

(B) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in Chapters 1301., 1302., 1303., 1304., 1305., 1306., 1307., 1308., and 1309. of the Revised Code.

(C) Consequential damages may be limited or excluded unless the limitation of exclusions is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not. (129 v. 13. Eff. 7-1-62)."

The loss in this case is entirely commercial, and limited to consequential damages for loss of profits because of business interruption. Thus the exclusion of Par. C of Sec. 1302.93 pertaining to personal injury from consumer goods is not applicable.

Ohio case law prior to the adoption of the Uniform Commercial Code held that where a contract "contains exclusive remedies available to the purchaser in the event of any defect in the design, construction, material or workmanship of such goods, the purchaser is bound by and limited to such remedies in the event of any such defect". 40 Ohio Jur.2d Sales § 170 (1971 Supp.). Ohio cases prior to the adoption of the Uniform Commercial Code have endorsed such a limitation. Marion Machine Foundry and Supply Co. v. Cincinnati Coffin Co., 162 Ohio St. 455, 124 N.E.2d 132 (1955); Federal Insurance Co. v. International Harvester, 91 Ohio App. 369, 108 N.E.2d 352. In a post-code case, County Asphalt Inc. v. Lewis Welding and Engineering Corp., 323 F.Supp. 1300, affd. 444 F.2d 372 (2nd Cir. 1971) (cert. den. 404 U.S. 939, 92 S.Ct. 272, 30 L.Ed.2d 252) Ohio law was applied by the court under the terms of the contract, and an exclusion of consequential damages was enforced under UCC 2-719 as adopted in Ohio. The exclusion was enforced despite a claim of unconscionability. The determination of this issue was made by the judge on a review of the record of a prior trial without a separate hearing.

A choice of law problem is not presented unless the determination of the case on the merits would vary according to which related jurisdiction supplies the governing internal substantive law. Dale System, Inc. v. General Teleradio, Inc., 105 F.Supp. 745 (S.D.N. Y.1952). We have been shown no authority to the effect that the substantive law of Ohio varies from that of the forum state, or would produce a different result from that produced by the law of any other state having contacts with the case, or from the rule applied generally in all jurisdictions, particularly that of the forum state.

We are dealing with the provisions of the Uniform Commercial Code, a uniform statute widely adopted and applied throughout the United States, and our review of case law indicates a uniformity of construction.

We find no difference between the controlling law of Ohio and that of other...