International Petroleum Services, Inc. v. S & N Well Service, Inc.

• Decision Date: 15 January 1982
• Docket Number: No. 51782,51782
• Citation: 639 P.2d 29,230 Kan. 452
• Court: Kansas Supreme Court
• Parties: , 33 UCC Rep.Serv. 217 INTERNATIONAL PETROLEUM SERVICES, INC., Appellee, v. S & N WELL SERVICE, INC., Appellant.

Page 29

639 P.2d 29

230 Kan. 452, 33 UCC Rep.Serv. 217

INTERNATIONAL PETROLEUM SERVICES, INC., Appellee, v. S & N WELL SERVICE, INC., Appellant.

No. 51782.

Supreme Court of Kansas.

Jan. 15, 1982.

Syllabus by the Court

1. "Merchant" means a person who deals in goods of the kind, or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. K.S.A. 84-2-104.

2. The implied warranties recognized in K.S.A. 84-2-314 and 84-2-315 may arise from sales of both new and used goods.

3. The provisions of K.S.A. 84-2-315, covering the warranty of fitness for a particular purpose, are frequently confused with the implied warranty of merchantability which covers fitness for ordinary purposes. The warranty of fitness for a particular purpose is narrower, more specific, and more precise.

4. When goods are acquired for the ordinary purposes for which such goods are generally used, no implied warranty of fitness for a particular purpose arises. A use for ordinary purposes falls within the concept of merchantability.

5. The general measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. K.S.A. 84-2-714(2).

6. Under K.S.A. 84-2-715(2)(a) consequential damages have been construed generally to include loss of profits.

7. A party claiming buyer's incidental and consequential damages not only has the burden of presenting evidence demonstrating these damages with reasonable certainty, but also has the duty to establish compliance with K.S.A. 84-2-715(2)(a) which requires proof of possible cover or mitigation.

8. When a verdict is attacked for insufficiency of the evidence, the duty of the appellate court extends only to a search of the record for the purpose of determining whether there is any competent substantial evidence to support the findings.

Ervin E. Grant, of Grant & Fillmore, El Dorado, argued the cause and was on the brief for appellant.

No appearance by appellee.

FROMME, Justice:

International Petroleum Services, Inc., plaintiff, brought this action to recover for materials and repairs to three units of oil well servicing equipment. Two of these units had been sold previously by plaintiff to S & N Well Service, Inc., defendant herein. The third unit, which was repaired by plaintiff, was leased by defendant from another individual. Defendant filed an answer and a cross-petition. In the cross-petition defendant claimed breach of implied warranties arising from the sales of the equipment and asked for both ordinary and consequential damages. In addition, defendant sought disallowance of certain amounts claimed by plaintiff because plaintiff's charges were said to be unreasonable.

The case was tried to the court and judgment was entered on the petition in favor of plaintiff and against the defendant in the amount of $17,385.83. On defendant's cross-petition, defendant was given judgment against the plaintiff for $1,042.69. A judgment for the net amount of $16,343.14 was entered in favor of plaintiff and against the defendant. The defendant appealed and the Court of Appeals affirmed, 637 P.2d 496, under Rule No. 7.042(b) and (d) (228 Kan. lii, liii). The case is now before this court on an order granting defendant's Petition for Review.

There are two principal questions to be answered in this appeal. The first is whether the implied warranties mentioned in K.S.A. 84-2-314 and 84-2-315 apply to the sale of used goods. The second question is whether consequential damages resulting from a seller's breach of warranty are recoverable, and, if so, under what circumstances.

The uniform commercial code sections on implied warranties arising from the sale of goods cover merchantability, found in K.S.A. 84-2-314, and fitness for a particular purpose, found in K.S.A. 84-2-315. These sections are as follows:

"(1) Unless excluded or modified (section 84-2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

"(2) Goods to be merchantable must be at least such as

"(a) pass without objection in the trade under the contract description; and

"(b) In the case of fungible goods, are of fair average quality within the description; and

"(c) are fit for the ordinary purposes for which such goods are used; and

"(d ) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and

"(e) are adequately contained, packaged, and labeled as the agreement may require; and

"(f ) conform to the promises or affirmations of fact made on the container or label if any.

"(3) Unless excluded or modified (section 84-2-316) other implied warranties may arise from course of dealing or usage of trade." K.S.A. 84-2-314.

"Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose." K.S.A. 84-2-315.

Considering the above provisions of 84-2-314 it would be inaccurate to say the code defines merchantability. What this statute does is set minimum standards of merchantability. The statutory language is that "(g)oods to be merchantable must be at least such as ...." Emphasis supplied. Thus more may be required by the parties' agreement, course of dealing, or usage of trade, but the minimum standards assure a buyer that if the goods received do not conform at least to normal commercial expectations, the buyer will have a cause of action by which he or she can secure compensation for losses suffered. Even though the seller may be careful not to make a single assertion of fact or promise about the goods, the ordinary buyer in a normal commercial transaction has a right to expect that the goods which are purchased will not turn out to be completely worthless. The purchaser cannot be expected to purchase goods offered by a merchant for sale and use and then find the goods are suitable only for the junk pile. On the other hand, a buyer who has purchased goods without obtaining an express warranty as to their quality and condition cannot reasonably expect that those goods will be the finest of all possible goods of that kind. Protection of the buyer under the uniform commercial code lies between these two extremes. If an item is used or is second hand, surely less can be expected in the way of quality than if the item is purchased new. See Nordstrom, Law of Sales § 76, pp. 232-238 (1970); and White-Summers, Uniform Commercial Code § 9-6, pp. 343-355 (second edition 1980) for further discussion of this subject.

In addition, we note that for a sale to give rise to the implied warranty of merchantability the seller must be a merchant. K.S.A. 84-2-104 defines a merchant as follows:

"(1) 'Merchant' means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill." See also Decatur Cooperative Association v. Urban, 219 Kan. 171, Syl. P 2, 547 P.2d 323 (1976).

All parties to this action agree that the plaintiff, International Petroleum Services, Inc., does manufacture and deal in well servicing equipment of the kind sold to defendant. We conclude that plaintiff was a merchant within the statutory definition when it sold the two units to the defendant.

In passing we note under K.S.A. 84-2-315, relating to the implied warranty of fitness for a particular purpose, there is no requirement that the seller be a merchant. However, the seller at the time of contracting must have reason to know the goods are being purchased for a particular purpose, and the seller must know further that the buyer is relying on the skill and judgment of the seller to select or furnish suitable goods. In such case an implied warranty that the goods shall be fit for such purpose may arise. Further discussion on the subject will follow later.

After examining the uniform commercial code-sales, we find no provision excluding the sale of used goods from the provisions of the code. K.S.A. 84-2-102 merely states that Article 2 on sales applies "to transactions in goods." K.S.A. 84-2-105(1) states:

" 'Goods' means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (article 8) and things in action."

The commentators generally have agreed that the implied warranties recognized by K.S.A. 84-2-314 and 84-2-315 apply to sales of both new and used goods. Note, Sales: Extension of Implied Warranty of Merchantability to Used Goods, 46 Mo.L.Rev. 249, 250 (1981); Stasney, UCC Implied Warranty of Merchantability and Used Goods, 26 Baylor L.Rev. 630, 637 (1974); Hunt, Implied Warranties of Quality on Used Motor Vehicles in Texas, 9 St. Mary's L.J. 308, 315 (1977); Article Two Warranties in Commercial Transactions, 64 Cornell L.Rev. 30, 85 (1978). Texas seems to be the only state which...