K-Lines, Inc. v. Roberts Motor Co.

• Decision Date: 16 October 1975
• Docket Number: K-LINE,INC
• Citation: 541 P.2d 1378,273 Or. 242
• Parties: , Appellant, v. ROBERTS MOTOR COMPANY, an Oregon Corporation, and Paccar, Inc., a Delaware Corporation, Respondents. . *
• Court: Oregon Supreme Court

Page 1378

541 P.2d 1378

273 Or. 242

K-LINES, INC., Appellant, v. ROBERTS MOTOR COMPANY, an Oregon Corporation, and Paccar, Inc., a Delaware Corporation, Respondents.

Supreme Court of Oregon, In Banc. ^*

Argued and Submitted March 4, 1975.

Decided Oct. 16, 1975.

Larry N. Sokol, Portland, argued the cause for appellant. With him on the briefs were Franklin, Bennett, Ofelt & Jolles, P.C., Portland.

E. Richard Bodyfelt, Portland, argued the cause for respondents. With him on the brief were Tooze, Kerr, Peterson, Marshall & Shenker and Bullivant, Wright, Leedy, Johnson, Pendergrass & Hoffman and Darrel L. Johnson, Portland.

DENECKE, Justice.

This is a products liability case in which the trial court held for the defendants because they contracted with the plaintiff to limit their liability.

The plaintiff brought this action to recover for damages to its truck and trailers. The defendant Paccar manufactured the truck. Apparently, Paccar did business by the name 'Kenworth Motor Truck Company.' Kenworth's distributor, the defendant Roberts Motor Company, sold the truck to the plaintiff. Plaintiff contends that a defect in the truck caused the damage. The trial court granted defendants' motion for an involuntary nonsuit.

The plaintiff brought its action on the theory of § 402A, 2 Restatement (Second) 356, Torts; that is, strict liability in tort. We affirm the trial court's ruling for the defendants on the same reasoning used by the trial court. ¹

The plaintiff bought five truck-tractors from the defendant Roberts Motor Company for $93,000. ² About a year and one-half later, after one of the trucks had been driven 113,000 miles, the truck failed to make a curve, went off the freeway, and incurred the damage. Plaintiff contends this damage was caused by a defective assembly connecting the fifth wheel to the truck.

The defendants alleged as an affirmative defense that the parties to the sale contracted to limit the defendants' liability to repairs and replacement of defective parts and excluded any further liability.

At trial the plaintiff introduced into evidence a document entitled, 'WARRANTY and OWNERS SERVICE POLICY.' A portion of this document provides as follows:

'Kenworth Motor Truck Company hereby warrants only to the original purchaser (Buyer) from Selling Distributor during the period of time and upon the conditions hereinafter set forth each new motor vehicle sold by it to be merchantable, free from defects in material and workmanship under normal use, maintenance and service. Except for the above warranty, it is expressly agreed that NO WARRANTY OF FITNESS FOR PARTICULAR PURPOSE, nor other warranty expressed, implied or statutory is made by Kenworth or the Selling Distributor.

'Kenworth's liability shall be limited to repair or replacement, including labor, at its factory or authorized distributor, of any part or parts which Kenworth's examination shall disclose to its satisfaction to have been defective in material or workmanship under normal use, maintenance and service, in accordance with the warranty schedule on the reverse hereof.

'* * *.

'The foregoing shall be Buyer's sole and exclusive remedy whether in contract, tort or otherwise, and Kenworth shall not be liable for injuries to persons or property.

'In no event shall Kenworth be liable for incidental or consequential damages or commercial losses nor for any other loss or damage except as above set forth.

'* * *.'

Plaintiff contends:

'* * * (A) disclaimer/limitation of remedy clause in a warranty is ineffective to disclaim strict tort liability. * * *.'

Plaintiff supports his argument by reference to Comment M. of 2 Restatement (Second) 356, Torts, § 402A, as follows:

'* * * The rule stated in this Section is not governed by the provisions of the Uniform Sales Act, or those of the Uniform Commercial Code, as to warranties and it is not affected by limitations on the scope and content of warranties, or by limitation to 'buyer' and 'seller' in those statutes. Nor is the consumer required to give notice to the seller of his injury within a reasonable time after it occurs, as is provided by the Uniform Act. The consumer's cause of action does not depend upon the validity of his contract with the person from whom he acquires the product, And it is not affected by any disclaimer or other agreement, whether it be between the seller and his immediate buyer, or attached to and accompanying the product into the consumer's hands. In short, 'warranty' must be given a new and different meaning if it is used in connection with this Section. It is much simpler to regard the liability here stated as merely one of strict liability in tort.' (Emphasis added.)

There has been some confusion about the distinction between disclaimers of warranties and exclusion or limitation of remedies. In our opinion, the two are substantially identical. Disclaimers, we believe, grew up as a contractual modification of warranties which would otherwise flow, by operation of law or interpretation of the agreement, to the purchaser. Comment M. to Restatement (Second) § 402A was meant to explain that such garden variety disclaimers were not sufficient to disclaim the strict liability established by 402A because 402A was not based on warranty. It means simply that a disclaimer of 'warranties' is not sufficient to affect strict liability in tort. We do not take it to mean that an agreement to bar all tort remedies is treated the same, regardless of whether such agreement is denominated a disclaimer, exclusion or limitation.

The Third Circuit, applying Pennsylvania law, held Comment M., § 402A, did not apply to contract limitations on tort liability. In Keystone Aeronautics Corp. v. R. J. Enstrom Corp., 499 F.2d 146, (3d Cir. 1974), a business concern bought used helicopters from a helicopter manufacturer. The buyer brought an action to recover property damage sustained when one of the helicopters crash landed. The contract of purchase could be construed that the manufacturer was released from all liability whether in contract or tort except to replace defective parts. Recovery was sought on the theories of negligence and strict liability. The court held:

'We conclude therefore that Pennsylvania law does permit a freely negotiated and clearly expressed waiver of § 402A between business entities of relatively equal bargaining strength. * * *.' 499 F.2d at 149.

The Fifth Circuit similarly held, applying California law, in Delta Air Lines, Inc. v. McDonnell Douglas Corporation, 503 F.2d 239 (5th Cir. 1974).

The Tenth Circuit held to the contrary in Sterner Aero AB v. Page Airmotive, Inc., 499 F.2d 709 (10th Cir. 1974).

In a very recent analysis of these three cases the author concluded:

'The issue of whether strict tort can and should apply to property damage suffered by a commercial buyer in privity of contract with the seller where the parties have clearly attempted to exclude that liability by agreement, is both difficult and in doubt. Three federal courts have assumed that strict tort can apply. Importantly, two have held that a disclaimer could be effective even if strict tort, rather than the Code, controls. That position is surely preferable. * * *.' McNichols, Strict Tort Disclaimers, 28 Okl.L.Rev. 494, 528--529 (1975).

Plaintiff and defendant in this case have agreed to a sole limited remedy for defects. That agreement purportedly bars all other remedies including the remedy sought by the plaintiff. The only question left for decision is whether such an agreement is valid in the circumstances of this case.

Agreements to exonerate a party from liability or to limit the extent of the party's liability for tortious conduct are not favorites of the courts but neither are they automatically voided. The treatment courts accord such agreements depends upon the subject and terms of the agreement and the relationship of the parties.

In Irish & Swartz Stores v. First Nat'l Bk., 220 Or. 362, 349 P.2d 814 (1960), we examined the law in this field. The plaintiff allegedly deposited money in defendant's night depository but the money was never found or accounted for. The written deposit agreement signed by the plaintiff completely exonerated the defendant bank from any liability. While the agreement did not expressly include exoneration for tort, the court's discussion indicates it construed the agreement to include exoneration from tort liability. We commented:

'There is nothing inherently bad about a contract provision which exempts one of the parties from liability. The parties are free to contract as they please, unless to permit them to do so would contravene the public interest. * * *.' 220 Or. at 375, 349 P.2d at 821.

We held:

'* * * (W)e are of the opinion that the peculiar character of the bailment bargained for in the present case warrants the recognition of an enforceable exculpatory clause. * * *.' 220 Or. at 377, 349 P.2d at 822.

We quoted with approval § 574 of 2 Restatement, Contracts, which provides:

'A bargain for exemption from liability for the consequences of negligence not falling greatly below the standard established by law for the protection of others against unreasonable risk of harm, is legal except in the cases stated in § 575.' 2 Restatement, Contracts, at 1079--1080. (Section 575 is not applicable to the present case.)

The comment to this section states:

'By negligence is meant any conduct not recklessly disregardful of the interests of others which falls below the standard established by law for the protection of others against unreasonable risk of harm. By gross negligence is meant conduct falling greatly below that standard.' 2 Restatement, Contracts, supra, at 1080.

In considering this section of the Restatement permitting exemption from liability for the consequences of negligence, it should be remembered that strict liability in tort imposes liability without proof of negligence.

Harper and James term an agreement limiting the...