Mostek Corp. v. Chemetron Corp.

• Decision Date: 16 September 1982
• Docket Number: No. 21128,21128
• Citation: 642 S.W.2d 20
• Court: Texas Court of Appeals
• Parties: 40 UCC Rep.Serv. 840 MOSTEK CORPORATION, Appellant, v. CHEMETRON CORPORATION, Appellee.

Page 20

642 S.W.2d 20

40 UCC Rep.Serv. 840

MOSTEK CORPORATION, Appellant, v.CHEMETRON CORPORATION, Appellee.

No. 21128.

Court of Appeals of Texas Dallas.

Sept. 16, 1982.

Rehearing Denied Oct. 18, 1982.

Travis E. Vanderpool, Worsham, Forsythe & Samples, Dallas, for appellant.

Clayton E. Devin, Ray, Anderson & Shields, Dallas, for appellee.

Before ROBERTSON, CARVER and WHITHAM, JJ.

TED Z. ROBERTSON, Justice.

This is a product liability case.Mostek Corporation, as buyer, and Chemetron, an Illinois corporation, as seller, entered into a contract for the sale of nitrogen.¹Chemetron was to deliver nitrogen to Mostek by means of a bulk storage tank owned and maintained by Chemetron but located on the grounds at Mostek's manufacturing facilities.The nitrogen drawn by Mostek from Chemetron's bulk storage tank was found to contain an unidentified contaminate described as a "fine black powdery substance."As a result, Mostek was forced to close down the manufacturing facility in order to effectuate repairs.Thereafter, the nitrogen supply was again found to be contaminated.Mostek then shut down its manufacturing facilities and replaced the nitrogen transmission equipment and pipes.

Mostek sought damages for breach of warranty and negligence as well as in strict tort.Chemetron's motion for summary judgment was granted.We affirm as to warranty and negligence.We reverse and remand for trial on strict tort liability.

By its summary judgment evidence, Chemetron alleged that notwithstanding Mostek's ability to establish the essential elements of its causes of action, Chemetron was insulated from liability by the limitation of remedies provisions of the contract.Paragraph 8 of the contract between Mostek and Chemetron provided for a limitation of warranties:

Products supplied under this Agreement shall be of a purity of 99.5% or better and shall be commercially dry.Any non-conforming product may be rejected by the Buyer at time of delivery, and Seller shall replace such product at no cost to Buyer.SELLER MAKES NO OTHER WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTY OF MERCHANTABILITY.

Paragraph 21 provided for a limitation of remedies:

21.Seller shall in no event be liable to Buyer or to any person who shall purchase from Buyer or use any products supplied pursuant to this agreement for damages of any kind, including, but not limited to, direct, indirect, special or consequential damages or loss of production or loss of profits resulting from any cause whatsoever, including, but not limited to, any delay, act, error or omission of Seller, and Seller's sole liability shall be to replace any products covered by this agreement which do not conform to the specifications set forth herein at the time of delivery by Seller.If Buyer fails to notify Seller of any nonconforming products within five days of delivery, Buyer shall have no remedy.

Paragraph 26 provided that:

The interpretation and performance of this Agreement shall be construed in accordance with and governed by the laws of the State of Illinois.

The trial court, construing Illinois law as per the contractual choice of law in paragraph 26, determined that the limitation of remedies provisions of paragraphs 8 and 21 effectively limited Mostek's recovery to replacement of the defective nitrogen.We conclude that the trial court's application of Illinois law was correct, as was its judgment that under Illinois law the contract effectively limited Mostek's recovery for breach of warranty or negligence to replacement of the nitrogen.We hold, however, that the limitations of remedies provisions of paragraphs 8 and 21 should not be enforced insofar as they limit recovery in strict tort.Consequently, we reverse and remand as to this element of Mostek's causes of action.

It is elementary that "[w]hen a defendant moves for summary judgment, he accepts the burden of establishing that no genuine issues exist as to any material facts, and that he is entitled to judgment as a matter of law as to any of plaintiff's theories of recovery for which he seeks summary judgment."American Petrofina Co. v. Crump Business Forms, Inc., 597 S.W.2d 467, 470(Tex.Civ.App.--Dallas1980, writ ref'd n.r.e.).In reviewing a summary judgment record, this court must apply the following rules:

1) The movant for summary judgment must show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law;

2) Evidence favorable to the non-movant will be taken as true;

3) Every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor.

Wilcox v. St. Mary's University, 531 S.W.2d 589, 592-93(Tex.1975).Although a motion for summary judgment does not shift the burden of proof imposed by the parties' own pleadings, Cloyd v. Champion Home Builders Co., 615 S.W.2d 269, 271(Tex.Civ.App.--Dallas1981, writ ref'd n.r.e.), every reasonable inference is indulged in favor of the non-movant.Accepting Mostek's allegations as true, Chemetron had the option of conclusively showing: 1) that a fact required to establish at least one element necessary to each of Mostek's causes of action did not exist, American Petrofina, 597 S.W.2d at 470; or, 2) conclusively showing that notwithstanding Mostek's ability to prove its claims, Chemetron was insulated from liability by some defense.Chemetron elected the second course of action.With this in mind, we must discern what facts, if proved by Chemetron, would have precluded Mostek's recovery.To do so, of course, it is essential to determine whether the substantive law of Texas applies or whether the parties' contractual selection of Illinois law is to be honored.

Section 1.105(a) of the Texas Business and Commerce Code provides in part:

(a)[W]hen a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law either of this state or of such other state or nation shall govern their rights and duties.

Id.§ 1.105(a)(Vernon Supp.1982).

The official Code Comment to section 1.105(a) states that "ordinarily, the law chosen must be that of a jurisdiction where a significant enough portion of the making or performance of the contract is to occur or occurs."Tex.Bus. & Com.Code Ann. § 1.105(a) Comment 1 (Vernon 1968).The Comment continues, "[i]n general, the test of 'reasonable relation' is similar to that laid down by the Supreme Court in Seeman v. Philadelphia Warehouse Co., 274 U.S. 403[47 S.Ct. 626, 71 L.Ed. 1123](1927)."

Seeman involved an action by a Pennsylvania creditor for conversion of personal property pledged to it as security for a loan made to a New York debtor.The New York debtor claimed the loan was usurious, a question which depended upon whether New York or Pennsylvania law was to be applied to the transaction.The contract provided that Pennsylvania law was to be applied.The Supreme Court upheld the validity of the agreed upon choice of law emphasizing that the creditor was a Pennsylvania corporation, that the loan agreement was entered into in Pennsylvania, and that payment was to be made in Pennsylvania.The court stated:

Here respondent, organized and conducting its business in Pennsylvania, was subject to the laws of that state, and had a legitimate interest in seeking their benefit.

Id. at 408-09, 47 S.Ct. at 627-628;seeWoods-Tucker Leasing Corp. v. Hutcheson-Ingram Development Co., 642 F.2d 744, 751(5th Cir.1981);²Hi Fashion Wigs Profit Sharing Trust v. Hamilton Investment Trust, 579 S.W.2d 300, 302(Tex.Civ.App.--Eastland 1981, no writ);cf.Securities Investment Co. v. Finance Acceptance Corp., 474 S.W.2d 261, 272(Tex.Civ.App.--Houston [1st Dist.]1971, writ ref'd n.r.e.).

The record before us reflects that Chemetron is an Illinois corporation with its headquarters and principal place of business located in Chicago, Illinois.Although Chemetron had an office in Texas, the contract made the basis of this suit was prepared by the Chicago office and the permanent records concerning the delivery of nitrogen to Mostek were kept in Chicago.Finally, the central engineering department responsible for investigating customers' complaints was located in Chicago.

Chemetron, organized and conducting its business pursuant to the laws of Illinois, had a reasonable and legitimate interest in seeking the benefit of those laws.While it is true that deliveries of the nitrogen occurred in Texas, it is equally clear that the parties' choice of law was not made in order to avoid "at will, fraudulently or capriciously," the law of the State of Texas which would otherwise have governed the transaction.SeeSeeman v. Philadelphia Warehouse Co., 274 U.S. 403, 408-09, 47 S.Ct. 626, 627-628, 71 L.Ed. 1123(1927).For these reasons, we hold that the transaction bore reasonable relation to the State of Illinois and that the parties' choice of law satisfies the "reasonable relation" requirement of the Code.See generallyid. at 408-09, 47 S.Ct. at 627-628;First Commerce Realty Investors v. K-F Land Co., 617 S.W.2d 806, 807-09(Tex.Civ.App.--Houston [14th Dist.]1981, writ ref'd n.r.e.).See alsoTex.Bus. & Com.Code Ann. § 1.105 Comment 1 (Vernon 1968).We now consider the effect of the disclaimer of warranty and limitation of remedies provisions of the contract under Illinois law.

The Illinois Uniform Commercial Code provides:

[T]o exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous.Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof."

Ill.Rev.Stat. ch. 26, § 2-316(2)(1963).It is abundantly clear...