Delhomme Industries, Inc. v. Houston Beechcraft, Inc.

Decision Date11 March 1982
Docket NumberNo. 80-3335,80-3335
Citation669 F.2d 1049
Parties33 UCC Rep.Serv. 490 DELHOMME INDUSTRIES, INC., Plaintiff-Appellee Cross-Appellant, v. HOUSTON BEECHCRAFT, INC. and Beech Aircraft Corporation, Defendants-Appellants Cross-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Howard Daigle, Jr., New Orleans, La., for defendants-appellants cross-appellees.

Ross A. Brupbacher, Lafayette, La., for plaintiff-appellee cross-appellant.

Appeals from the United States District Court for the Western District of Louisiana.

Before GEE and RUBIN, Circuit Judges, and SPEARS *, District Judge.

ALVIN B. RUBIN, Circuit Judge:

After a corporation bought an airplane pursuant to two separate written agreements, it claimed that the airplane was defective. The buyer sold the airplane back to the seller for considerably less than its original price, then sued the seller and the manufacturer of the airplane for damages, invoking the diversity jurisdiction of a federal district court in Louisiana. The resolution of this litigation depends on whether we apply the law of Louisiana, where the two agreements were executed and where the buyer received and used the airplane and later filed suit, or the law of Kansas, which was elected in one of the two agreements. There is, and can be, no dispute that, because our jurisdiction is based on diversity, we must apply Louisiana's rules in making this critical decision. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Long Island Trust Co. v. Dicker, 659 F.2d 641, 648 (5th Cir. 1981); Vicon, Inc. v. CMI Corp., 657 F.2d 768, 772 (5th Cir. 1981).

Construing the two agreements together, we conclude that in this case Louisiana courts would apply Kansas law and require the seller to perform express contractual warranties, but not the Louisiana implied warranty against redhibitory, or hidden, defects, or any warranties implied under Kansas law. We, therefore, reverse the judgment in favor of the buyer based on the Louisiana implied warranty, and remand for further proceedings to determine whether the buyer has a cause of action under Kansas law, which is, in this litigation, surrogate Louisiana law.

I

As found by the district court, with ample support in the record, Fed.R.Civ.P. 52(a), these are the facts. Delhomme Industries, Inc. ("DI"), a Louisiana corporation, sells and rents large generators and related equipment to companies that explore for and produce oil and gas. Richard Delhomme is its principal stockholder and chief executive officer. He was a pilot and either he or the corporation has owned a number of airplanes.

In March 1977, DI owned a twin-engine Cessna 340 A/II. Delhomme decided that DI should buy a larger and faster airplane. After surveying the market, Delhomme decided on a Beech B-100 King Air and entered into negotiations with Houston Beechcraft, Inc. ("HB"), a corporation domiciled in Houston, Texas. HB sells and services airplanes manufactured by Beech Aircraft Corporation, a corporation domiciled in Wichita, Kansas.

Delhomme agreed to buy a Beech B-100 King Air from HB. The airplane had been used as a demonstrator, but was to be sold under the same warranty as if it were new. The airplane, however, was in Denver, Colorado, and Delhomme had not inspected it. On March 30, 1977, Delhomme and a representative of HB signed an agreement for the purchase of the airplane. In the blanks provided on the printed form that they used, they stated that the price of the airplane was $842,000, which was to be paid in part by DI's transfer of its Cessna, valued at $170,000, to HB. The agreement stated that DI had paid $50,000 in cash and was to pay the balance of $622,000 in cash upon delivery of the airplane. The agreement listed seven "Contingencies of Sale," 1 including provisions that the airplane was "to be delivered to Purchaser free of squawks," and that the sale was "(s)ubject to Purchaser obtaining suitable financing." Delhomme was to be flown to Denver to inspect the airplane. If he did not then accept it, the $50,000 deposit would be refunded, but he would be charged $1,700 for the trip to Denver.

In April 1977, Delhomme and DI's chief pilot, Leo Carlin, went to Denver where, after inspecting the airplane, they accepted it. Dave Yount, a Beech Aircraft Corporation pilot, then flew the airplane to Houston with Delhomme and Carlin aboard. The three then flew to DI's home office in New Iberia, Louisiana, where Yount instructed Delhomme and Carlin how to use the airplane. Apparently in New Iberia (although an attestation was executed in Houston), Delhomme signed a second agreement, dated April 6, on behalf of DI. This agreement provided the "suitable financing" on which the first agreement had been conditioned.

After the airplane was delivered, DI reported a number of problems which the district court set forth in detail in its opinion. The district court found that none of these problems resulted from DI's failure to operate the airplane in accordance with the manufacturer's instructions.

DI operated the airplane for seven months, during which it paid monthly financing installments greater than $12,000 per month. In October, DI grounded the airplane because of the claimed defects. Delhomme wrote to HB seeking to get it to make the necessary repairs. HB responded in November, when it flew the airplane to Houston for repairs. It removed the left engine and discovered heat damage, which it contended resulted from improper starting of the airplane. HB demanded that DI pay the cost of the engine repair work, estimated to be between $10,000 and $12,000, before HB did any other repair work. The district judge found, however, that the engine damage was attributable to faulty instruments and was chargeable to HB, not DI.

Three weeks after the dispute about the engine repairs, DI sold the airplane to HB for $625,000. HB paid $6,000 in cash and canceled the amount due on the purchase agreement. The parties executed no writing concerning the effect of this transaction, and the district judge found as a fact that the parties did not intend it to be a compromise. Later, after repairing the airplane, HB sold it to a third party for $662,500.

II

The March 30 agreement is on a printed form apparently prepared by Beech Aircraft Corporation. Although it is captioned "Airplane Purchase Order," it provides: "This purchase order when accepted by Seller becomes a binding contract of purchase and sale .... (T)his purchase order, when accepted by Seller, is the only contract controlling this sale and purchase, and ... contains all agreements, express or implied, either verbal or in writing ...." It sets forth a manufacturer's limited warranty together with a manufacturer's limited remedy of repair or replacement of defective parts 2 for breach of warranties. Another provision, printed in uppercase type, states: "To the extent allowed by applicable law, the obligations of manufacturer (Beech Aircraft) set forth herein shall be the exclusive remedies for any breach of warranty hereunder, and, to the same extent neither manufacturer nor seller shall be liable for any general, consequential or incidental damages ...." As we have already noted, note 1 supra, a sentence is typed on the front of the form that appears to be an express warranty-" Aircraft to be delivered to Purchaser free of squawks."

The April 6 agreement, which according to HB supersedes the March 30 agreement, is on a printed, legal-sized form captioned with the words "Beech Acceptance Corporation, Inc." Near the top of the form, immediately below those words, is a line with the words "Retail Installment Contract," and immediately below that line are the words "Conditional Sales Contract and Security Agreement." About two inches below these words is this statement: "Secured Party (HB) hereby sells the aircraft described (below) to Debtor (DI)." On the back of the form, about three inches from the top, in uppercase, boldface type, is the following statement: "There are no express warranties unless they appear in writing signed by the seller and there are no implied warranties of merchantability or fitness for a particular purpose made in connection with the sale of the collateral." 3 About one inch below this statement, under the heading "Additional Agreements and Affirmations," is the choice of law provision: "The law governing this secured transaction shall be that of the State of Kansas in force at the date of this Security Agreement." Below this, near the middle of the form, is the following statement in uppercase type: "Notice to the Buyer: Do not sign this contract before you read it ...."

The district court found that the warranties in the March 30 agreement were "in writing and signed by the seller" and that "the parties intended these representations to survive the execution of the April 6 contract." It found that "squawk-free" meant that HB was required to provide DI with "a like-new aircraft ... free of defects which could be operated trouble-free during the early life of the airplane." 4 The district court then held that the sale was "a Louisiana sale," and, applying Louisiana law, concluded that Delhomme did not waive the implied warranty against redhibitory vices and defects under La.Civ.Code Ann. arts. 2474-2475, 2520-2548 (West 1952 & Cum.Supp.1981). 5 The district court made no finding concerning the applicability of the choice of law provision in the April 6 agreement.

Applying Louisiana law, the district court also found that the airplane had hidden defects, that the buyer's claim was to be treated as one in quanti minoris (reduction of the price) rather than rescission, and calculated DI's damages as the difference between the initial purchase price, $842,000, and the price paid on the sale of the airplane back to HB, $625,000, amounting to a net of $217,000. It also allowed DI to recover attorney's fees, and offset the value of DI's use of the airplane...

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