Lovely v. Burroughs Corp.

• Decision Date: 21 October 1974
• Docket Number: No. 12569,12569
• Citation: 527 P.2d 557,31 St.Rep. 824,165 Mont. 209
• Parties: Orvis G. LOVELY and Donald R. Laubach, Plaintiff and Respondent and Cross-Appellant, v. BURROUGHS CORPORATION, a corporation, Defendant and Appellant.
• Court: Montana Supreme Court

Page 557

527 P.2d 557

165 Mont. 209

Orvis G. LOVELY and Donald R. Laubach, Plaintiff and Respondent and Cross-Appellant, v. BURROUGHS CORPORATION, a corporation, Defendant and Appellant.

No. 12569.

Supreme Court of Montana.

Submitted June 13, 1974.

Decided Oct. 21, 1974.

Landoe, Gary & White, Bozeman, H. B. Landoe, appeared, Bozeman, Henson & Tully, Minneapolis, Minn., Robert F. Henson, argued, Minneapolis, Minn., for defendant and appellant.

Conrad B. Fredricks and Richards W. Josephson, argued, Big Timber, for plaintiff and respondent and cross-appellant.

HASWELL, Justice.

In a nonjury trial in the district court of Park County, plaintiffs were awarded damages in the amount of $16,760.82 for losses resulting from the defective operation of electronic accounting equipment supplied byt the defendant. Defendant appeals from the judgment. Plaintiffs cross-appeal from the damages awarded.

The issues raised by the defendant on appeal are: 1) Liability for breach of express or implied warranty; 2) Measure of damages; 3) Assessment of costs. Plaintiffs' cross-appeal concerns only the measure of damages.

Given the complex nature of the facts and issues involved, a detailed consideration of both is required.

Plaintiff Orvis Lovely commenced an accounting practice in Livingston, Montana, in 1953. In 1964 he formed a partnership with the other plaintiff, Donald Laubach. In 1966, the partnership purchased an additional practice in nearby Big Timber, Montana, and maintained an office there. The addition of this practice increased the workload of the partnership to the point where additional help had to be hired or the work had to be automated.

Plaintiffs were approached by David Larsen, as sales representative of the defendant, concerning the use of Burroughs equipment in their expanded practice. A series of meetings, correspondence and demonstrations of available equipment ensued, resulting in a purchase order for a small Burroughs computer. That order was superseded in February, 1967 by a similar order for a larger, more expensive computer. The second order bore a handwritten notation that it was to be converted into a lease prior to delivery.

Although the computer was delivered and installed in June, 1967, no formal lease was ever executed. Plaintiffs submitted an application and a check, through Larsen, for consideration by a third-party leasing firm in November of 1967. Plaintiffs forwarded a second check in December in the same amount to Burroughs before learning that the application had been denied. Defendant then offered to lease directly to plaintiffs at a higher monthly rental. Plaintiffs' rejection of this offer prompted the removal of the computer in February of 1968.

The district Court found that defendant, at the time of the order, knew the particular purposes for which the equipment was required and that plaintiffs were relying on defendant's judgment in furnishing suitable goods. It further found that the equipment delivered was not fit for the purposes intended, and that plaintiffs were damaged thereby.

These findings of fact are amply supported by the record. During the course of plaintiffs' negotations with Larsen, the latter became thoroughly familiar with the operations of their accounting practice. Plaintiffs testified that they relied heavily on Larsen's assessment of the computer's suitability for their particular needs. That reliance prompted plaintiffs to solicit additional business from their customers which was to be provided by the expanded capabilities of the new machine.

Following installation and debugging of the machine, a number of customer accounts were transferred to the automated process. Within a short time, problems arose in the operation of the computer, requiring numerous visits by Burroughs' repairmen. These difficulties occurred as frequently as daily and often necessitated shutting the computer down until the repairs could be made. The problems experienced adversely affected the plaintiffs' ability to promptly and accurately service their customers' accounts. The damage to the reputation of the firm was one of the factors which led to the sale of the practice.

Given this evidence, the district court concluded that defendant had breached both express and implied warranties of fitness for intended use. It further concluded that this breach was the proximate cause of the damages which we shall deal with later.

Defendant argues that there was no transactional basis for any warranty; that breach of warranty, if such warranty existed, was not established by the record; and that if there was a breach of warranty, the plaintiffs waived their claim for relief.

Defendant maintains that the transaction here amounted to nothing more than a gratuitous bailment, giving rise to no express or implied warranty of fitness for intended use. We disagree.

At the very least, a bailment for mutual benefit arose as both parties received the benefits of the transaction. Global Tank Trailer Sales v. Textilana-Nease, Inc., 209 Kan. 314, 496 P.2d 1292; Miller v. Hand Ford Sales, Inc., 216 Or. 567, 340 P.2d 181; 8 C.J.S. Bailments § 8a. Plaintiffs had the use of the computer while the defendant had the expectation of profit from a lease directly with the plaintiffs or a sale the third-party leasing company. Defendant further benefitted by the receipt of the two checks as well as the sale of forms to be used with the computer. To argue that defendant gratuitously placed a $38,000 computer at the disposal of the plaintiffs without expectation of profit does not square with the facts.

Bailments for mutual benefit fall within the scope of section 42-101, R.C.M.1947, which provides:

'Hiring is a contract by which one gives to another the temporary possession and use of property, other than money, for reward, and the latter agrees to return the same to the former at a future time.' (Emphasis supplied)

The Legislature, by the use of the word 'reward', obviously contemplated benefits other than money as being included in a hiring. We find no sound reason for excluding anticipated rewards from the scope of the statute.

Section 42-211, R.C.M., provides:

'One who lets personal property must deliver it to the hirer, secure his quiet enjoyment thereof against all lawful claimants, put it into a condition fit for the purpose for which he lets it, and repair all deteriorations thereof not occasioned by the fault of the hirer and not the natural result of its use.' (Emphasis supplied)

This statute expresses the common law of bailments requiring fitness for use in bailments for mutual benefit. Atlantic Tug & Equip. Co. v. S. & L. Paving Corp., 40 A.D.2d 589, 334 N.Y.S.2d 532, 8 Am.Jur.2d Bailments § 144. When a bailor has reason to know the use for which the property is required, there arises an implied warranty of fitness for that use-particularly when the bailee relies upon the bailor's expertise as to the suitability of that property for that use.

Accordingly, defendant's delivery of the computer created a bailment for mutual benefit, and that relationship gave rise to an implied warranty of fitness for use in plaintiffs' practice. The district court found, and the evidence clearly shows, that that warranty was breached. From the time of installation to the time of removal, the computer suffered malfunctions which made it incapable of providing timely and accurate information. Defendant's protestations that a complex piece of equipment such as this is expected to have such problems are not persuasive. While the problems might be normal for this machine, and we are not convinced of that, defendant should have then known that the computer would never be suitable for plaintiffs' needs. His representations to the contrary would then be fraudulent.

Defendant further suggests that plaintiffs waived their claim of breach of warranty by failing to reject the computer during the approximately eight months after delivery. We cannot agree. Even if the defense of waiver had been timely raised, in accordance with Rule 8(c), M.R.Civ.P., the evidence does not conform to the theory. While the plaintiffs did retain possession for almost eight months, the evidence clearly shows that they did not accept the computer in its defective condition. The record is replete with repeated complaints made by the plaintiffs, resulting in numerous service calls directed at remedying the many problems. Plaintiffs' actions amount to a good faith attempt to permit defendant to remedy the defects, not an acceptance of them. We therefore find no waiver of the protection of warranties of fitness for intended use. For similar holdings see: Ekco Products Company v. United States, 312 F.2d 768, 160 Ct.Cl. 75 (1963); KLPR TV, Inc. v. Visual Electronics Corporation, D.C., 327 F.Supp. 315, 465 F.2d 1382 (8th Cir. 1972); Carlo Bianchi & Co. v. Builders' Equipment & Supply Co., 347 Mass. 636, 199 N.E.2d 519.

The district court awarded damages in the following amounts:

1) $4,000 for time spent attempting to make the computer work and time spent correcting the mistakes made by the computer-time which otherwise could have been billed to clients.

2) $1,302.37 for hiring additional help required by the computer problems.

3) $3,000 in wages for hiring another accountant to conduct the Big Timber practice...