Pan Am. World Airways, Inc. v. United Aircraft Corp.

• Decision Date: 13 July 1960
• Citation: 3 Storey 7,53 Del. 7,163 A.2d 582
• Parties: , 53 Del. 7 PAN AMERICAN WORLD AIRWAYS, INC., a New York corporation, Plaintiff, v. UNITED AIRCRAFT CORPORATION, a Delaware corporation, Defendant. PAN AMERICAN WORLD AIRWAYS, INC., a New York corporation, Plaintiff Below, Appellant, v. UNITED AIRCRAFT CORPORATION, a Delaware corporation, Defendant Below, Appellee.
• Court: Supreme Court of Delaware

Page 582

163 A.2d 582

3 Storey 7, 53 Del. 7

PAN AMERICAN WORLD AIRWAYS, INC., a New York corporation, Plaintiff, v. UNITED AIRCRAFT CORPORATION, a Delaware corporation, Defendant.

PAN AMERICAN WORLD AIRWAYS, INC., a New York corporation, Plaintiff Below, Appellant, v. UNITED AIRCRAFT CORPORATION, a Delaware corporation,

Defendant Below, Appellee.

Supreme Court of Delaware.

July 13, 1960.

Reargument Denied Sept. 9, 1960.

Appeal and certification from the Superior Court of New Castle county.

James M. Tunnell, Jr., and Andrew B. Kirkpatrick, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, and David L. Corbin of Haight, Gardner, Poor & Havens, New York City, for appellant.

William Prickett of Prickett & Prickett, Wilmington, for appellee.

SOUTHERLAND, C. J., and WOLCOTT and BRAMHALL, JJ., sitting.

SOUTHERLAND, Chief Justice.

These proceedings bring up to us for review rulings of the Superior Court of New Castle County upon three issues arising in a suit brought by Pan American World Airways, Inc. against United Aircraft Corporation.

The facts are these:

Pan American is one of the world's great airlines. United is a large manufacturer of airplane engines and propellers.

In 1954, the companies were contemplating continued purchasers by Pan American of United's goods, and deemed it desirable to agree upon a set of conditions applicable to such purchases. They negotiated and as of August 2, 1954, executed a contract, called the 'General Terms Agreement'. Its provisions apply to all orders which may be accepted by the seller from the buyer after its date, and also to orders either wholly or partially unfilled before its date.

In 1954, Pan American ordered from United a number of 'governors'. A governor is a device used to control in certain respects the functioning of the airplane's propeller. There was some correspondence about this order, relating to the type of governor to be supplied. Eventually, the model designated 5U18-66 was chosen and installed in aircraft operated by Pan American. These governors were not manufactured by United, but by the Woodward Governor Company, from which United purchased them.

In December, 1955, the drive gear shafts of two of these governors, installed on different aircrafts, broke while the airplanes were in flight. Serious damage resulted.

Pan American brought suit in the court below to recover for this damage. The two counts of the complaint set forth two causes of action--(1) breach of warranty of fitness, and (2) negligence in not using care in the design, selection of material, inspection and testing of the governors. After discovery proceedings United moved for summary judgment on both counts. The trial court granted judgment on the first count, holding that the General Terms Agreement had expressly disclaimed any liability for warranty of goods not manufactured by United. The court refused to grant judgment on the second count, holding that the General Terms Agreement had not exonerated United from the consequences of its own negligence. Pan American appeals from the judgment against it, and the trial court has certified to us for review its ruling on the second count.

The issues of the case turn almost entirely on the wording of Article VIII of the General Terms Agreement. Paragraphs (A) and (C) of this Article read:

'(A) Seller warrants that at the time of delivery thereof the goods manufactured by it, hereinafter referred to as 'products', will be free from defects in material and manufacture. Such warranty is limited to replacing or repairing at its shops any products which have been returned to the original point of delivery and which are demonstrated to Seller's reasonable satisfaction to have been defective at the time of delivery thereof, provided that transportation charges and any and all sales and use taxes, duties, imposts or excises thereon shall be paid by the Buyer. This warranty shall not apply (1) unless prompt written notice of any such defect is given by the Buyer to Seller within ninety (90) days after the beginning of the first flight in which the products are included or within one (1) year after the date of delivery of its products, whichever shall first occur; (2) to its products (a) which are not properly installed; (b) which are operated or maintained contrary to the then current recommendations or instructions of Seller as stated in its overhaul manuals, service bulletins or otherwise; (c) which are repaired or altered outside Seller's plants in such a way as to impair their safety, operation or efficiency; (d) if a substitute for any part thereof not manufactured, supplied, or approved in writing by Seller for use in the operation thereof shall have been used in place of any part manufactured or supplied by Seller for such use; or (e) which have been subject to misuse, neglect or accident if the malfunctioning of the product complained of under this Article results from the happening of any of the events referred to in items (a) through (e) hereof; (3) to any labor charges of the Buyer for replacement of parts, adjustments or repairs, or any work, unless such charges be assumed or authorized in writing by Seller; or (4) to any apparatus, instrument or other trade accessory not manufactured by Seller. This warranty is expressly accepted by the Buyer in lieu of any or all other warranties or representations, express or implied, in fact or in law arising out of the sale of the goods and of all duties or liabilities of Seller to the Buyer arising out of the use of the goods; and no agreement or understanding varying or extending the same will be binding upon Seller unless in writing, signed by a duly authorized officer of Seller. Seller reserves the right to make changes in design or additions to or improvements in its products at any time without imposing any liability on itself to install the same in any products manufactured prior thereto. [Emphasis supplied.]

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'(C) Seller agrees to use its best efforts to obtain warranties from manufacturers of apparatus, instrument or other trade accessory not manufactured by Seller the benefits of which will be available to and run directly to the Buyer to the extent that such manufacturers warrant their products to the Seller.'

1. The question of warranty.

Does the disclaimer contained in the underlined language apply to goods not manufactured by United, or does it apply only to United's own products? United contends for the former construction; Pan American for the latter.

It will be noted that the paragraph at the outset defines 'the goods manufactured by' United as 'products'; whereas the language of the disclaimer refers to 'the goods' generally and not to 'the products'. This distinction suggests that the disclaimer was intended to apply to all goods sold under the contract. This is the natural reading of the language, for the difference in terminology must have some significance. And this construction of the language is, we think, the reasonable one. Pan American's contention comes to this: that United's liability for breach of warranty in respect of its own products is strictly limited by the contract to replacement or repair; whereas its liability for breach of warranty in respect of goods made by others is not limited at all by the contract. This seems highly unreasonable. Why should United, after having carefully limited its liability in respect of defects in its own products, leave itself 'wide open' to liability in respect of defects in goods manufactured by others?

Pan American attempts to develop an argument that there is nothing unlikely, or unreasonable, in such a result, but it is wholly unconvincing.

Moreover, the provisions of paragraph (C) are inconsistent, to some extent at least, with an intent to subject United to its common-law liability of implied warranty in respect of goods of others sold by it. If United was intended to be so liable to Pan American, the additional warranty from the manufacturer would be unnecessary; whereas, if United was intended to be released from such liability, the covenant in paragraph (C) has real value to Pan American.

Such a warranty in respect of Woodward governors was actually obtained by United from Woodward. Before the General Terms Agreement was executed, Pan American inquired about Woodward's warranty of its governors to United. United then advised Pan American that Woodward's warranty of material and workmenship and of fitness ran to United's purchasers as well as to United. This was satisfactory to Pan American's counsel. He wrote that he would recommend that the goods should be excluded from the United warranty in the proposed General Terms Agreement....