Keystone Aeronautics Corp. v. RJ Enstrom Corp.
| Decision Date | 26 June 1974 |
| Docket Number | No. 73-1915.,73-1915. |
| Parties | KEYSTONE AERONAUTICS CORPORATION, a corporation, Appellant, v. R. J. ENSTROM CORPORATION, a corporation v. FOUNDRY ALLIED INDUSTRIES, INC., a corporation. |
| Court | U.S. Court of Appeals — Third Circuit |
Kenneth S. Robb, Raymond H. Conaway, Meyer, Darragh, Buckler, Bebenek & Eck, Pittsburgh, Pa., for appellant.
Gilbert J. Helwig, John T. Tierney, III, Alan G. Keith, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for appellee, R. J. Enstrom Corp.
Before HUNTER and WEIS, Circuit Judges and BECKER, District Judge.
When a purchaser claims damages from a seller because of a defective product, there is often a need to evaluate the proper roles of Section 402A of the Restatement of Torts 2d and the Uniform Commercial Code. This appeal presents such an occasion. Specifically, we are confronted with the question of whether a seller may disclaim responsibility for any potential liability under § 402A, and, if so, what conditions must be met.
This is a diversity case, and we must be guided by the Erie light of Pennsylvania law, an uncertain illumination at best since the appellate courts of that state have not yet addressed themselves to the issue. We are mindful that our assigned role is to predict and not to form state law and so will utilize those guide posts which are available.
The factual background arises from three transactions in which the plaintiff Keystone purchased used helicopters from the defendant, R. J. Enstrom Corporation, which manufactured them. The first sale of No. 24 occurred on December 11, 1969 and was accompanied by a printed "Purchase Agreement" prepared by the defendant manufacturer. On the back of this document appeared a "Warranty" purporting to limit the obligation of the manufacturer to replacement of defective parts occurring within six months after delivery or 400 hours of operation, whichever would first occur. This undertaking was stated to be in lieu of all other warranties and "all other obligations and liability, direct or consequential . . ."1
The second purchase occurred on March 27, 1970 when two demonstrators, Nos. 46 and 34, were obtained by the plaintiff. On this occasion, there was added to the front page of the purchase agreement form the following provision:
"Customer takes `as is\' without warranty of any kind except Enstrom will convey good title."
On the back of the form, the standard warranty provision was "X'ed" out, and the following language inserted:
On September 23, 1970, No. 46 crashlanded while being flown by a Keystone pilot. There was no personal injury, but the aircraft was damaged substantially.
At the request of the Federal Aviation Administration, Keystone grounded Nos. 24 and 34, the remaining undamaged craft, until the cause of the crash could be determined and necessary corrections made, if needed.
Keystone brought suit in the district court for damages, alleging liability under theories of negligence, strict liability under § 402A, and breach of warranty. The last ground was abandoned by the plaintiff in the trial court, and we do not consider it here.
The district court granted summary judgment for the defendant, holding that in the commercial setting involved here the provisions of § 402A could be waived by the parties and that the language in the purchase agreement was effective both as to that cause of action and negligence as well.
While Pennsylvania has adopted § 402A,2 its courts have not yet had the opportunity to pass upon comment m which reads, inter alia:
The Supreme Court of Pennsylvania has tended to adopt other comments to this section of the Restatement, and we expect similar consideration of comment m. However, the interpretation of the district court is not necessarily in conflict.
In essence, the district court reasoned that while sound public policy would prohibit disclaimer of the benefits of § 402A in the "garden variety" consumer situation, the same result need not follow where the sale was a pure commercial transaction between two knowledgeable corporations which have consciously negotiated terms and price, and only property damage is at issue.
The trial court held that freedom of contract should be permitted so that a corporate purchaser may exercise its business judgment to forego claims for liability against the seller in exchange for a lower price. There is much to be said for this approach and its recognition that relief from restrictions in a commercial context is not inconsistent with the purposes of § 402A, i. e., protection of the average consumer who is not really in a position to bargain effectively or intelligently.3
If a disclaimer on the label of a product or in a printed form sales contract would be effective to limit liability under § 402A, then obviously sellers would utilize such devices to nullify their responsibility. And it is significant that the application of § 402A is limited to a ". . . product in a defective condition unreasonably dangerous . . ." A social policy aimed at protecting the average consumer by prohibiting blanket immunization of a manufacturer or seller through the use of standardized disclaimers engenders little resistance. But when the setting is changed and the buyer and seller are both business entities, in a position where there may be effective and fair bargaining, the social policy loses its raison d'etre.4 The transaction then tends to be more influenced by gravitational pull of the Uniform Commercial Code than by the consumer oriented § 402A.
Since the Code is tolerant of disclaimers and limitation clauses within certain defined limits,5 that same philosophy would be equally approving of a negotiated waiver of § 402A. Such a limitation on comment m would avoid the not unfamiliar result of "overkill" when a legal principle completely valid in its original context is extended so far that the mischief caused may be equal to the original disorder sought to be remedied.
We have no reason to believe that the courts of Pennsylvania would not come to the same conclusion as we do. Exculpatory clauses to relieve a person of his own negligence have been enforced in less favorable circumstances, and it would appear that the advantages of freedom of contract would overcome any inclination to adopt a narrow and restrictive interpretation of comment m.
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. Nevertheless, we must reverse the entry of summary judgment here because the language used in the sales agreement, the only evidence of the disclaimer before the district court, fails to show a clearly expressed waiver. While Pennsylvania does give effect to exculpatory clauses against liability for negligence, stringent standards have been imposed upon their recognition. See Employers Liability Assurance Corp. v. Greenville Business Men's Ass'n, 423 Pa. 288, 224 A.2d 620 (1966); Dilks v. Flohr Chevrolet, Inc., 411 Pa. 425, 192 A.2d 682 (1963). Equally demanding requirements are appropriate when § 402A is under consideration. The defendant claims that both negligence and § 402A were comprehended by the immunizing language and we will apply the same criteria to them.
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