Posttape Associates v. Eastman Kodak Co.

Decision Date17 June 1976
Docket NumberNo. 75--2162,75--2162
Parties19 UCC Rep.Serv. 832, 2 Fed. R. Evid. Serv. 581 POSTTAPE ASSOCIATES, Appellee, v. EASTMAN KODAK COMPANY, Appellant.
CourtU.S. Court of Appeals — Third Circuit

Henry T. Reath, Joseph M. Hankins, Duane, Morris & Heckscher, Philadelphia, Pa., for appellant.

Joseph G. Manta, Edward R. Paul, Alan Letofsky, Philadelphia, Pa., for appellee; LaBrum and Doak, Philadelphia, Pa., of counsel.

Earl W. Kintner, Jack L. Lahr, Marc L. Fleischaker, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., for Association of Cinema and Video Laboratories, Inc. as amicus curiae.

John C. Fontaine, New York City, Jay Kelly Wright, Washington, D.C., for National Association of Photographic Manufacturers, Inc. as amicus curiae; Hughes, Hubbard & Reed, New York City, of counsel.

Before VAN DUSEN and WEIS, Circuit Judges, and STERN, District Judge.

OPINION OF THE COURT

JOSEPH F. WEIS, Circuit Judge.

In this case, we are required to evaluate the competing gravitational pulls of the Uniform Commercial Code and the law of torts in a claim for consequential damages arising from the sale of a defective product. We conclude that § 402A of the Restatement of Torts does not apply and that under the circumstances of this case the Commercial Code provides appropriate guidelines for proving an agreement between buyer and seller to limit damages resulting from negligence. Although the trial judge properly charged the jury on the applicability of trade usage to supplement the agreement, we reverse because of trial errors which precluded adequate consideration of that factor.

Plaintiff Posttape Associates was formed in September, 1970 to produce documentary films. Its first effort, scheduled for shooting in October, 1970 and release in April, 1971, was an unrehearsed motion picture of an encounter group, entitled 'Childhood II.' In preparation for the production, Richard Gibson, one of Posttape's principals, contacted two Kodak sales representatives who recommended the use of No. 7252 Ektachrome film for the venture. Subsequently, Gibson ordered 105 four hundred-foot rolls and followed his oral request with a written purchase order. On October 12, 1970, he picked up the film from the Kodak distributor. Each roll was individually packaged and each cannister and box bore the legend:

'READ THIS NOTICE

This film will be replaced if defective in manufacture, labeling, or packaging, or if damaged or lost by us or any subsidiary company even though by negligence or other fault. Except for such replacement, the sale, processing, or other handling of this film for any purpose is without warranty or liability. Since color dyes may change in time, this film will not be replaced for, or otherwise warranted against, any change in color.'

The film was shot during a two and a half day period, beginning on October 16, 1970, and was sent to a Kodak-approved developer. During the developing process, scratches appeared on the film which made it commercially worthless. Kodak's attempts to treat the damaged rolls by special means were unsuccessful. As a result, Posttape was required to reshoot the sequences and the film did not reach the market until early 1972. In October, 1971, another film of the alleged same genre, entitled 'Together,' was released by another producer, was well received by the public, and amassed receipts of more than $3 million.

Alleging breach of warranty, negligence and strict liability, Posttape commenced this suit claiming damages for its increased costs and lost profits because of the defective film. The court ordered the issues of liability and damages to be tried separately. During the liability portion of the trial, Kodak attempted to show that the limitation of damages to replacement of film was a custom and usage of the trade. To establish Posttape's knowledge, it introduced the deposition of another of Posttape's principals, Martin Spinelli, stating that he knew of the trade usage. The defense requested the trial judge to instruct the jury that the partnership should be thereby charged with this knowledge. The court refused the tendered point.

In another effort to demonstrate that Posttape was aware of the trade usage, Kodak sought to introduce evidence of Posttape's purchase of liability insurance covering loss from defective film. The court denied admission of this testimony on the ground of undue prejudice to the plaintiff.

The jury, in answers to special interrogatories on liability, found that:

1. Kodak had been negligent in the manufacture of the film;

2. the film had been in a 'defective condition unreasonably dangerous to the property of plaintiff (including the film itself) at the time of its delivery to plaintiff;' and

3. neither by their intentions nor by the usage of trade at the time did the parties intend to limit Kodak's liability for negligence or strict liability merely to replacement of the film. 1

The record contains adequate evidence from which the jury could find Kodak was negligent in the manufacture of the film, and it has conceded a breach of warranty. But the jury also found liability against Kodak under § 402A of the Restatement (Second) of Torts. We meet this issue first.

This is a diversity case, and the parties have agreed that Pennsylvania law applies. In Webb v. Zern, 422 Pa. 424, 220 A.2d 853 (1966), the Pennsylvania Supreme Court adopted § 402A of the Restatement (Second) of Torts. 3 In a recent decision, Berkebile v. Brantley Helicopter Corp.,462 Pa. 95, 337 A.2d 893 (1975), some members of that court questioned the necessity of proving an 'unreasonably dangerous' condition, despite the language in the Restatement. However, since a majority of the court has not rejected that element, it still is viable. See Bair v. American Motors Co., 535 F.2d 249 (3d Cir. May 17, 1976) (Per Curiam), interpreting Berkebile v. Brantley Helicopter Corp., supra. The flaw in the film in no way made it a threat to person or tangible property. The product was defective and did not perform as expected, but by no stretch of the imagination could it be considered 'unreasonably dangerous.' There was no evidence from which a jury could reach that conclusion, and the trial court erred in submitting the question of § 402A liability. Accordingly, Kodak's motion for judgment on that count should have been granted.

More important here is the issue of whether the seller properly limited the amount of damages which it must pay to buyer notwithstanding the finding of negligence. We note at the outset that defendant does not seek complete exculpation, but instead desires to limit plaintiff's recovery. Though it is possible that an agreement setting damages at a nominal level may have the practical effect of avoiding almost all culpability for wrongful action, the difference between the two concepts is nevertheless a real one. See Cyclops Corp. v. Home Insurance Co., 389 F.Supp. 476 (W.D.Pa.), aff'd, 523 F.2d 1050 (3d Cir. 1975). The distinction becomes more apparent in a situation which the damage level set is substantial rather than minimal, e.g., the Warsaw Convention restricting recovery for death and injury caused by airline accidents.

The line of demarcation between the two types of agreements has significance here because of the findings needed to establish their existence. Pennsylvania permits parties to contractually relieve themselves from the consequences of negligent acts, but any agreement must spell out the intention of the parties with particularity. Keystone Aeronautics Corp. v. R. J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974); Neville Chemical Company v. Union Carbide Corporation, 422 F.2d 1205 (3d Cir. 1970); Employers Liability Assurance Corp. v. Greenville Business Men's Assn., 423 Pa. 288, 224 A.2d 620 (1966).

We find no Pennsylvania cases which delineate the requirements necessary to establish an agreement for limitation of damages caused by negligence. Presumably in most cases the same rules should apply as in the exculpatory clause situation. However, in commercial sales transactions, at least those in which no personal injury or physical property damage is involved, the Uniform Commercial Code plays a predominant role in governing the relationships between buyer and seller. Since the parties to this case fall into that category, we turn to the Code for appropriate guidance, recognizing that there are problems engendered by the overlapping of tort and sales law.

Typical of the controversy generated by this propinquity is the lively scholarly debate about the proper scope of § 402A of the Restatement (Second) of Torts as opposed to the provisions of the Uniform Commercial Code. The superiority of § 402A to compensate the average consumer for personal injury or property damage from a defective product is commonly acknowledged. However, there is considerably less enthusiasm for its application in a commercial setting when the damages are consequential and arise from a non-dangerous impairment of quality of the product. In this context, even Chief Justice Traynor, an ardent advocate of § 402A under other conditions, has favored the provisions of the Uniform Commercial Code. See Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). Accord, Titus, Restatement (Second) of Torts Section 402A and the Uniform Commercial Code, 22 Stan.L.Rev. 713 (1970); Speidel, Products Liability, Economic Loss and the UCC, 40 Tenn.L.Rev. 309 (1973). A contrary view was espoused by the New Jersey Supreme Court in Santor v. A and M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965). Pennsylvania has not yet made its position clear. See Kassab v. Central Soya, 432 Pa. 217, 246 A.2d 848 (1968); Miller v. Preitz, 422 Pa. 383, 221 A.2d 320 (1966). Murray, Pennsylvania Products Liability: A Clarification of the Search for a Clear and Understandable Rule, 33 U.Pitt.L.Rev. 391 (1972).

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