FMC Corp. v. Continental Grain Co.

• Decision Date: 08 September 1977
• Docket Number: No. 7792,7792
• Citation: 355 So.2d 953
• Parties: FMC CORPORATION v. CONTINENTAL GRAIN COMPANY
• Court: Court of Appeal of Louisiana — District of US

Page 953

355 So.2d 953

FMC CORPORATION v. CONTINENTAL GRAIN COMPANY.

No. 7792.

Court of Appeal of Louisiana,

Fourth Circuit

Sept. 8, 1977.

Rehearing Denied Oct. 12, 1977.

Charles Kohlmeyer, Jr., Mack E. Barham, Lemle, Kelleher, Kohlmeyer & Matthews, New Orleans, for Continental Grain Company, defendant-appellant.

John V. Baus, Timothy T. Roniger, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, for FMC Corp., plaintiff-appellee.

Before BOUTALL, SCHOTT and BEER, JJ.

BOUTALL, Judge.

This suit arises from a contract in which Link-Belt Company, a division of FMC Corporation, undertook to design, furnish and erect a grain barge unloading facility at the Westwego Grain Elevator of Continental Grain Company. As a result of problems which arose with the operation of the installation, Continental Grain refused to pay the last installment due on the contract, and FMC Corporation entered suit for that amount. Continental Grain defended on the theory that the contract had not been performed as agreed, claimed a setoff, and reconvened for damages for breach of contract. From an adverse judgment, Continental Grain appeals. The issues are whether there was a breach of contract and what is the extent of liability for damages caused the defendant.

We set out some preliminary facts in order to assist in an understanding of the contract in this case. In 1965, Continental Grain Company, one of the largest grain handlers in the world, realized that it was necessary to develop a new system to improve the grain barge unloading facilities it operated in the New Orleans area because the existing system did not appear to be able to meet the growing volume of traffic. It was discovered that FMC Corporation, through Link-Belt Company, had in operation a number of coal barge unloading devices wherein the coal was scooped from a barge with an endless chain of buckets unloading onto a conveyor belt system. After some initial contacts between Continental and FMC, it was arranged to observe an experimental unloading of a barge of corn by one of the FMC unloaders to see if the coal barge system would work when applied to grain. The experiment was successful, and FMC and Continental entered into discussions resulting in an arrangement whereby Continental commissioned FMC for the amount of $41,000 to perform some preliminary concept engineering to determine if the coal barge unloader could be practically applied to Continental's facility in Westwego, Louisiana. The result of this was a contract proposal of September 18, 1967, revised May 22, 1968 after additional engineering studies, and finally accepted July 8, 1968 wherein FMC agreed to furnish and install grain barge unloading equipment designed on certain specifications to remove free flowing grain from barges and deliver it to Continental's belt conveyor system. The price of the contract was in excess of $1,800,000 and the equipment was to be installed and erected as a portion of the entire grain handling facility constructed by Continental at a total cost in excess of $5,000,000.

It is admitted that the grain barge unloader was operating satisfactorily, with one exception, at time of trial. Initially however, the facility encountered a number of problems in its operation, and it is these problems which have caused the defendants to withhold the last payment due under the contract and reconvene for additional damages. There were a number of problems encountered during the construction phase of the project, and there were still a number of small items left to be completed at the time of the acceptance of the project in January, 1971. However, the major basis upon which the defendant relies, and which formed the basis of the reconventional demand, is succinctly set out in the testimony of Max Spencer of Continental Grain:

"There were five breakdowns involved with the unloader; one was the collapse of the entire carriage as a result of the separation of the coupling. The second major instance was the misalignment of the entire gear train and reducer at which time it was discovered that this was a result of negligent field erection. The third one was the failure of the load brake reducer. The fourth failure was the main drive motor rotor and the fifth one was the failure of the main head shaft dividing the bucket elevator."

As a result of these breakdowns and failures Continental Grain was forced to use the antiquated system it was replacing and it was stipulated that these damages would amount to $197,000 for actual expenditures for the use of the old system plus the cost of demurrage on barges and ships caused by delay. Additionally, the stipulated sum of $34,000 is claimed for repairs made by Continental Grain in an effort to mitigate damages resulting from the 4th and 5th failures testified to.

The record shows without question that the breakdowns were due solely to the fault of FMC. The collapse of the entire carriage from which the unloader was suspended and the misalignment and excessive wear and tear on the entire gear train were found to be the result of use of excessively long bolts tightening down a set of bearings along the gear train. This defect resulted when it became necessary to eliminate several washers which spaced the bolts such that the bolts now went through the lower portion of the bearing assembly and their tightening had a jacking effect which pushed the shaft up out of line. We consider this to be negligent field erection. The load brake failure was misapplication of a particular load brake system and was corrected by exchanging parts of the braking system for other parts better designed for the application necessary. Similarly, it was necessary to replace the rotor on the main drive motors with other rotors of different types to correct the misapplication to the kind of service and load encountered. The last breakdown, the breaking of the head shaft was due to improper welding by or under the authority of FMC.

FMC Corporation does not seriously dispute that the above items were occasioned by its fault. Instead it contends that the damages sought are not due, because its liability is limited only to replacement of equipment under the contract, that it has made the necessary repairs and furnished the necessary parts called for under its limited warranty specified as follows:

"2:10 Warranty, Liability and Indemnification of Customer:

"A WARRANTY: All Link-Belt equipment is of high quality and is manufactured in conformity with the best commercial practices in the various lines. We guarantee all equipment manufactured by us to be free from defects in material and manufacture at the time of shipment for a period of one (1) year from the date of starting operation of the equipment, provided such start is not delayed by you or for other reasons beyond our control, in which latter events the warranty period shall commence upon the date of completion of installation. We will furnish without charge, but will not install, replacements for such parts as we find to have been defective. Unless otherwise stated in Section 1, this warranty is based on operation of the equipment for a period not exceeding eight hours per day.

"This guarantee shall not apply to any equipment which has been subjected to misuse, neglect or accident, or has been altered or tampered with, or if corrective work has been done thereon without our specific written consent. No allowances will be made for such corrective work done without such consent. Improper lubrication, deterioration by chemical action, and wear caused by the presence of abrasive materials, do not constitute defects. Equipment manufactured by others, and included in our proposal, is not warranted in any way by us but carries only the manufacturer's warranty, if any.

"All warranty claims must be submitted within ten (10) days of discovery of defects or shall be deemed waived. No representative of our company has any authority to waive, alter, vary or add to the terms hereof without prior approval in writing. The foregoing is in lieu of all other warranties (including that of merchantability), whether express or implied.

"B LIABILITY: It is expressly understood that our liability for our products is limited to the furnishing of such replacement parts, and that we will not be liable for any other expense, injury, loss or damage, whether direct or consequential including but not limited to loss of profits, production, increased cost of operation, or spoilage of material, arising in connection with the sale or use of, or inability to use, our equipment or products for any purpose, except as herein provided."

On this appeal, Continental Grain argues to us that the contract, although couched in the terms of a contract of sale, is actually a contract for construction or a contract "to do". It is pointed out that the Louisiana Civil Code divides conventional obligations into obligations to give and obligations to do or not to do. LCC Articles 1761, 1905 et seq., 1926 et seq. An example of an obligation to give is a sales contract. LCC Articles 2439, 1909. On the other hand, an example of an obligation to do is a building contract. LCC Articles 2745 et seq. It is contended that since this contract is an obligation to do, the statutory warranty pertinent thereto becomes effective, and since a large part of the defects was due to the negligent work of FMC, there can be no contractual removal of liability for such negligent acts.

We do not see the necessity for division of this contract at all or the necessity of classifying it in a particular way. The contract document is a large and involved document concerning a rather complicated project. It required numerous hours of investigation, development, and application of engineering expertise in order to be able to plan for the production of the basic equipment and then install it in order to achieve a certain desired end product or result. In other words, this...