Indust-Ri-Chem Laboratory, Inc. v. Par-Pak Co., Inc.
| Decision Date | 23 April 1980 |
| Docket Number | PAR-PAK,INDUST-RI-CHEM,No. 20073,20073 |
| Parties | 29 UCC Rep.Serv. 794 LABORATORY, INC., Appellant, v.COMPANY, INC., and Southline Metal Products Co., Appellees. |
| Court | Texas Court of Appeals |
Alan Wilson, Law, Snakard, Brown & Gambill, Fort Worth, for appellant.
J. Carlisle DeHay, Jr., Hance W. Burrow, Larry L. Gollaher, Dallas, for appellees.
Before AKIN, STOREY and HUMPHREYS, JJ.
This is an appeal from a joint and several judgment rendered against Par-Pak and Southline and in favor of Indust-Ri-Chem. The suit was based on an alleged breach of express warranty by sample in a sale from Par-Pak to Indust-Ri-Chem of lined 55-gallon drums manufactured by Southline. The Southline, the manufacturer, also appeals from both Indust-Ri-Chem's judgment against it and a judgment in favor of Par-Pak for indemnity, complaining of a lack of jury findings to establish an express warranty between it and Par-Pak, and of a lack of privity with Indust-Ri-Chem. Appellee Par-Pak asserts by cross-point the absence of a jury issue on reliance by Indust-Ri-Chem on the express warranty. We reverse the judgment against Southline and remand for a new trial both Indust-Ri-Chem's suit against Southline and Par-Pak's claim against Southline for indemnity. We modify Indust-Ri-Chem's judgment against Par-Pak by eliminating the 25% reduction of damages based on the jury finding of Indust-Ri-Chem's negligent failure to test, because we hold that negligence is not a defense to an action in contract. The damages awarded Indust-Ri-Chem for breach of the express warranty are trebled, and attorney's fees are awarded to Indust-Ri-Chem pursuant to the Deceptive Trade Practices Act. As so modified, the judgment against Par-Pak is affirmed.
appellant, Indust-Ri-Chem, obtained a jury finding of breach of an express warranty by Par-Pak, but the jury also found Indust-Ri-Chem negligent in failing to test the drums and that such negligence proximately caused 25% of Indust-Ri-Chem's damages. Accordingly, the trial court reduced Indust-Ri-Chem's damage award by 25%; refused to award treble damages and attorney's fees even though Indust-Ri-Chem pleaded a cause of action under the Deceptive Trade Practices Act; denied prejudgment interest; and refused to submit four deceptive trade practice issues. Indust-Ri-Chem appeals from these rulings.
The record reflects that in late August of 1976, a salesman for Par-Pak, H. C. Crago, approached Walter Jeanes, Indust-Ri-Chem's plant manager, inquiring if Indust-Ri-Chem needed any of Par-Pak's products. Jeanes sought a drum lining to ship a highly corrosive chemical used in the electronics industry, known as Restrip J-100. Accordingly, Jeanes gave Crago a bung from a lined drum Indust-Ri-Chem was using to ship J-100 as an example of what was needed. Crago arranged to have Southline provide sample pans with lining which Indust-Ri-Chem could test. After testing with J-100 at temperatures up to 130o centigrade, Indust-Ri-Chem placed an order in January 1977, for a truckload of drums with lining like the sample pans. Jeanes testified that he told Crago the sample pans had "SL-254" stamped on the lining and that he specifically ordered the lining like the samples. Indust-Ri-Chem then issued a written purchase order, which Crago denied having seen, for 240 steel drums "with lining No. 254." Crago testified that he called Southline and was told that the pans tested by Indust-Ri-Chem were lined with "SL-259." Accordingly, Par-Pak issued a purchase order to Southline on January 24, 1977, for 240 steel drums lined with "SL-259 . . . like samples." A copy of this purchase order was not sent to Indust-Ri-Chem.
Southline shipped 239 steel drums with the lining it designated as "SL-259" to Indust-Ri-Chem on March 2, 1977. The designation "SL-259" did not appear on the drums or on the bill of lading. Upon visual inspection, the drums received by Indust-Ri-Chem appeared to have exactly the same lining as the sample pans previously tested by Indust-Ri-Chem. Forty-five drums were filled with J-100 and placed in inventory. Forty drums were used to ship J-100 to IBM in New York. Upon delivery to IBM, it was discovered that the chemical had destroyed the drum lining, thus ruining the contents. The shipment was rejected, repackaged by IBM, and returned to Indust-Ri-Chem. Indust-Ri-Chem disposed of the contaminated J-100 and obtained substitute containers to replace the IBM shipment.
After the order for 239 drums was placed but before delivery of that order, Indust-Ri-Chem asked for four drums to ship J-100 to Delco. These four drums were received before the 239 drum shipment and were filled with J-100 and sent to Delco. These drums also failed but Indust-Ri-Chem did not discover the failure until after the IBM order was shipped.
By tests Indust-Ri-Chem determined that Southline and Par-Pak had provided a different drum lining than the sample pans which had been successfully tested. Upon their refusal to honor Indust-Ri-Chem's demand for damages, this litigation ensued. We address first Southline's cross-point with respect to lack of privity between it and Indust-Ri-Chem and the failure of the trial judge to submit issues pertaining to a breach of warranty as to Par-Pak's indemnity claim against Southline.
Southline, the manufacturer, complains by cross-point that the judgment against it was erroneous because no privity of contract existed between it and Indust-Ri-Chem. Southline also asserts that the record does not support a finding that it made an express warranty. We reject the first contention. Because we find that a fact issue exists with respect to whether the sample pans tested were a part of the basis of the bargain in the sale by Southline, we agree with the latter contention. Accordingly, we reverse Indust-Ri-Chem's judgment against Southline. Because the judgment in favor of Par-Pak for indemnity against Southline was likewise predicated upon an express warranty, that judgment is also reversed.
Undisputedly, Southline dealt solely with Par-Pak and Par-Pak in turn sold the lined drums to Indust-Ri-Chem. Southline contends that Indust-Ri-Chem cannot recover from Southline for breach of an express warranty because it was not in privity of contract with Indust-Ri-Chem. We cannot agree. We hold that privity of contract is not required where the manufacturer furnishes samples to a middleman with the knowledge that these samples are likely to be submitted to the ultimate buyer so as to induce a sale of the product. 1 Clarostat Manufacturing Co. v. Alcor Aviation, Inc., 544 S.W.2d 788 (Tex.Civ.App. San Antonio 1976, writ ref'd n.r.e.); Ford Motor Co. v. Lemieux Lumber Co., 418 S.W.2d 909, 911 (Tex.Civ.App. Beaumont, 1967, no writ). We see no distinction between the situation here and the situation in Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77 (Tex.1977). In that case the supreme court held that a manufacturer can be liable, absent privity of contract, for a plaintiff's economic loss resulting from a breach of an implied warranty under Tex.Bus. & Com.Code Ann. §§ 2.314 and 2.315 (Tex. UCC) (Vernon 1968). In reaching this result, the supreme court noted that the definition of seller under Tex.Bus. & Com.Code Ann. § 2.103(4) (Tex. UCC) (Vernon 1968), is not limited to the immediate seller of a product but is defined as "a person who sells or contracts to sell goods." The supreme court's rationale for its decision is as follows:
To hold otherwise, would encourage manufacturers to use thinly capitalized "collapsible corporations" to sell their commercially inferior products leaving no one for the buyer to sue for his economic loss. See, Roberts, The Case of the Unwary Home Buyer: The Housing Merchant Did It, 52 Cornell L.Rev. 835, 836 (1967). Further, by holding that implied warranty remedies apply to economic injuries, we are consistent with, "the well developed notion that the law of contract should control actions for purely economic losses and that the law of tort should control actions for personal injuries." Comment, The Vexing Problem of Purely Economic Loss in Products Liability: An Injury in Search of a Remedy, 4 Seton Hall L.Rev. 145, 175 (1972).
We conclude that the same policy reasons for dispensing with the privity requirement in implied warranty also exist with respect to express warranties by sample. Accordingly, we hold that privity is not required where a manufacturer induces the purchase by furnishing samples to a middleman, knowing that the middleman will use the samples to induce sales of the product. In such a situation, as here, Southline knew or should have known that Par-Pak, its distributor, intended to use the sample pans to Our holding is also supported by United States Pipe & Foundry Co. v. City of Waco, 130 Tex. 126, 108 S.W.2d 432 (1937). In that case, the city had an agreement with a pipeline contractor for construction of a water line. Within a short period after installation, the line commenced to leak. The supreme court affirmed a judgment in favor of the City of Waco against the manufacturer of the pipe based on a breach of an express warranty, although no privity existed between them. The contract for sale of the pipe was between the manufacturer and the pipeline contractor and the city was not a party to it. The basis for the holding was that the court would look behind formal contractual relations because the evidence showed that the manufacturer knew that the City of Waco was the ultimate purchaser of the pipe and had made representations to the city as to the quality of the pipe. We hold that the same principle applies to this express warranty by sample. As in United States Pipe, the court may look through the formal contractual relations to the substance of the transaction. The middleman is merely a conduit for a sale from the...
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