Ohio Sav. Bank v. H.L. Vokes Co.

• Decision Date: 03 January 1989
• Docket Number: No. 53391,53391
• Parties: , 13 UCC Rep.Serv.2d 92 OHIO SAVINGS BANK, f.k.a. Ohio Savings Association, Appellant, v. H.L. VOKES COMPANY et al., Trane Company, Appellee.
• Court: Ohio Court of Appeals

Page 68

54 Ohio App.3d 68

560 N.E.2d 1328, 13 UCC Rep.Serv.2d 92

OHIO SAVINGS BANK, f.k.a. Ohio Savings Association, Appellant, v. H.L. VOKES COMPANY et al., Trane Company, Appellee.

No. 53391.

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

Jan. 3, 1989.

Syllabus by the Court

1. The remedies for fraud provided by the Uniform Commercial Code are not exclusive. Therefore, a plaintiff bringing a common-law cause of action for fraud in a commercial setting is not limited by the UCC provisions governing warranties, warranty disclaimers and limitation of remedies, but is entitled to seek all damages incurred as a result of the fraud.

2. The doctrine of strict liability in tort is not available for the recovery of purely economic losses as between two commercial parties in privity of contract. Such parties are restricted to the remedies provided by the contract and by the applicable provisions of the Uniform Commercial Code governing the transaction.

Roy E. Lachman, Cleveland, for appellant.

David A. Schaefer, Cleveland, for appellee.

NAHRA, Chief Judge.

Ohio Savings Bank is appealing the directed verdict rendered against it in favor of the Trane Company.

This case involves a seventy-five-ton rooftop air-conditioning unit manufactured by the Trane Company, sold to the Hattenbach Company and installed in the newly constructed, three-story Ohio Savings Bank Building in Rocky River. When alleged problems arose regarding the installation and performance of the air-conditioning unit, the owner of the building, Ohio Savings Bank, brought suit against the following parties: H.L. Vokes Company, the general contractor, now bankrupt and subsequently dismissed as a party; Hattenbach, which contracted to design and install the air-conditioning system; Evans & Associates, the engineering firm hired by Hattenbach to design the heating, ventilating and air-conditioning system; George Evans, a consulting engineer (and, at the time of trial, President of Evans); Drake Construction Company, the entity responsible for the tenant suites and installation of the ducts; and Trane, the manufacturer and supplier of the air-conditioning unit. Ohio Savings sued for breach of contract, breach of express and implied warranties, negligence, strict liability, and willful misrepresentations and failure to disclose. Prior to trial, Ohio Savings dismissed George Evans individually and entered into settlements with all the remaining defendants except Trane. Trane moved for summary judgment, which motion was denied, and the case was transferred to a visiting judge.

On the morning of trial the court granted Trane's motion to exclude evidence of consequential damages pursuant to Trane's warranty. At the close of Ohio Savings' case, Trane moved for a directed verdict contending that (1) Trane had no contract with Ohio Savings; (2) if Ohio Savings is considered to be a third-party beneficiary, Trane's warranty contains a disclaimer and limitation of remedies provision to preclude recovery on contractual warranty claims; (3) there was no evidence of negligence since the design specifications were prepared after the unit was selected and, furthermore, there can be no recovery in Ohio on a negligence claim for economic loss only; (4) strict tort liability is inapplicable since there was no evidence that Trane's unit was unreasonably dangerous; and (5) there was no evidence of fraud. After counsel's arguments and the court's deliberation, the court directed a verdict for Trane on each cause of action for the reasons stated by Trane's attorney. Ohio Savings timely appealed.

I

Ohio Savings' first assigned error is that:

"The trial court erred in excluding evidence of Trane's fraudulent misrepresentation, nondisclosure and concealment, and resulting damage."

During trial the court precluded Ohio Savings from presenting evidence relating to its fraud claim. In particular, the court sustained objections to questions regarding (1) what Trane's representative Robert Wolff told Evans's engineers, (2) what Evans's engineers relied on in determining the specifications for the cooling system, and (3) what consequential damages were suffered. ¹ Trane argues that this evidence was properly excluded because (1) its warranty limited damages and excluded statements of warranty other than those within the written document, (2) Ohio Savings waived any right to a fraud claim since it did not promptly notify it after discovering the alleged fraud, (3) the parol evidence rule barred admission of this testimony, and (4) there was no contract between it and Ohio Savings, thereby precluding any reliance on it by Ohio Savings. The first issue to decide is whether a cause of action for fraud may be maintained in addition to a cause of action pursuant to the Ohio Uniform Commercial Code ("UCC"). If so, Trane's warranty disclaimer and limitation of remedies are of no effect.

The UCC was not enacted to eliminate all common-law causes of action other than a UCC cause of action. Principles of law and equity, including common-law fraud, supplement the provisions of the UCC governing transactions in goods "[u]nless displaced by * * * particular provisions of [the UCC] * * *." R.C. 1301.03. No provisions of the UCC have displaced actions for fraud. ² See, generally, 1 White & Summers, Uniform Commercial Code (3 Ed.1988) 19-20. In fact, unlike the exclusive remedy provisions of the old Uniform Sales Code, see Saberton v. Greenwald (1946), 146 Ohio St. 414, 32 O.O. 454, 66 N.E.2d 224, the UCC provides that remedies for fraud include those remedies available under the UCC sales provisions without making them exclusive. R.C. 1302.95. Accordingly, we hold that a cause of action for fraud is maintainable in addition to a UCC cause of action. A plaintiff bringing an action for fraud is therefore not limited by the UCC provisions governing warranties, warranty disclaimers and limitations of remedies, but is entitled to seek all damages incurred as a result of the fraud. The trial court, therefore, wrongfully precluded Ohio Savings from presenting evidence of a possible fraud claim against Trane.

None of the remaining arguments advanced by Trane operates to bar Ohio Savings' fraud claim as a matter of law. The parol evidence rule will not bar the admission of oral representations made to induce one to enter into a contract in an action for fraud. Walters v. First Natl. Bank of Newark (1982), 69 Ohio St.2d 677, 681, 23 O.O.3d 547, 550, 433 N.E.2d 608, 611; Finomore v. Epstein (1984), 18 Ohio App.3d 88, 89, 18 OBR 403, 404, 481 N.E.2d 1193, 1195. Therefore, the representations of Trane's salesman relied upon by the purchaser are admissible. Privity is not required to assert a claim of fraud. Haddon View Investment Co. v. Coopers & Lybrand (1982), 70 Ohio St.2d 154, 158, 24 O.O.3d 268, 271, 436 N.E.2d 212, 215. Finally, a claim for fraud does not accrue until the wrongdoer and the fraud are discovered. Burr v. Stark Cty. Bd. of Commrs. (1986), 23 Ohio St.3d 69, 76, 23 OBR 200, 206, 491 N.E.2d 1101, 1105. Although Ohio Savings acknowledged cooling problems early on, Ohio Savings' evidence indicates that the alleged wrongdoer was not discovered until June 1984. Ohio Savings notified Trane sometime before meeting with Wolff in November, learned of the alleged misrepresentation at the November meeting, and commenced suit on June 26, 1985, well within the four-year statute of limitations. Ohio Savings has not waived its fraud claim under these circumstances.

The trial court thus erred in excluding evidence pertinent to Ohio Savings' cause of action for fraud. Accordingly, this assignment of error is sustained.

II

Ohio Savings' second assigned error is that:

"The trial court erred in excluding evidence of Trane's breach of contract and warranties, and resulting damages."

A. Contract

Ohio Savings contends the court erred in excluding evidence of the contracts between the various parties involved in constructing the bank building. It is well established that a contract is binding only upon the parties to the contract and those in privity with them and that an action for breach of contract can be maintained only by the parties to the contract or those deriving rights from the contracting parties. Cincinnati, Hamilton & Dayton R.R. Co. v. Bank (1896), 54 Ohio St. 60, 42 N.E. 700; Evans v. Warwick (1969), 20 Ohio Misc. 217, 221, 49 O.O.2d 78, 80, 252 N.E.2d 328, 331; see United States Fid. & Guar. Co. v. Truck & Concrete Equipment Co. (1970), 21 Ohio St.2d 244, 50 O.O.2d 480, 257 N.E.2d 380, paragraph one of the syllabus (contractual relationship necessary to maintain UCC action for breach of implied warranty of merchantability based upon sales contract). Therefore, in order for Ohio Savings to maintain a contract action against Trane, it was necessary for Ohio Savings, which had no contract with Trane, to establish its status as a third-party beneficiary of Hattenbach's and Trane's contract for the air-conditioning unit. Evidence relating to this issue should not have been excluded.

The exclusion in this case, however, appears to be harmless since Ohio Savings was able to establish its status as a third-party beneficiary with other admitted evidence, specifically Plaintiff's Exhibit 4, where Trane's submittal data to Hattenbach, dated January 10, 1980, lists the projects as "Ohio Savings." It is clear that Hattenbach purchased the Trane unit and Trane supplied its unit for Ohio Savings' benefit.

B. Warranty

As a third-party beneficiary, however, Ohio Savings acquires no greater rights than those set forth in the contract between Hattenbach and Trane. See Union Savings & Loan Co. v. Cook (1933), 127 Ohio St. 26, 186 N.E. 728, paragraph one of the syllabus. For purposes of UCC analysis, both Trane and Hattenbach are "merchants"--Trane because it deals in goods of this kind and Hattenbach because it held itself out as having knowledge or skill peculiar to the goods involved...