Prairie Production, Inc. v. Agchem Division-Pennwalt Corp.

• Decision Date: 19 November 1987
• Docket Number: No. 23A01-8612-CV-351,DIVISION-PENNWALT,23A01-8612-CV-351
• Parties: 5 UCC Rep.Serv.2d 83, Prod.Liab.Rep. (CCH) P 11,640 PRAIRIE PRODUCTION, INC., Appellant, (Plaintiff below), v. AGCHEMCORPORATION and MBM Helicopter Service, Inc., Appellees, (Defendants below).
• Court: Indiana Appellate Court

Page 1299

514 N.E.2d 1299

5 UCC Rep.Serv.2d 83, Prod.Liab.Rep. (CCH) P 11,640

PRAIRIE PRODUCTION, INC., Appellant, (Plaintiff below), v. AGCHEM DIVISION-PENNWALT CORPORATION and MBM Helicopter Service, Inc., Appellees, (Defendants below).

No. 23A01-8612-CV-351.

Court of Appeals of Indiana First District.

Nov. 19, 1987.

Rehearing Denied Dec. 22, 1987.

Stephen E. Yeager and Donald M. Clementson-Mohr, Cooke Bache Moore, Laszynski & Yeager, Lafayette, for appellant.

Arthur P. Kalleres, Debra H. Miller, Ice Miller Donadio & Ryan, Indianapolis, for appellees.

ROBERTSON, Judge.

Appellant-plaintiff Prairie Production, Inc. (PPI) appeals from the trial court's entry of summary judgment in favor of appellee-defendant Agchem Division-Pennwalt Corp. (Pennwalt). MBM Helicopter Service is not a party to this appeal.

We affirm in part and reverse in part.

PPI is a seed growing company in Indiana. Around August 15, 1984, the president of PPI, Stephen Ratcliff, spoke with John Townsend of MBM about the infestation of corn earworms in PPI's seed corn crop. MBM applies pesticides by helicopter to crops. In their discussion regarding the product which MBM should apply, Townsend suggested the use of Penncap-M, a micro-encapsulated pesticide manufactured by Pennwalt. Penncap-M is a restricted use pesticide which may only be sold to, and applied by, licensed applicators such as Townsend.

Townsend had received product information about Penncap-M from Pennwalt in the past. Included in this information was a label update, describing the pests for which the product was effective. The label stated that Penncap-M was effective against corn earworms. After his conversation with PPI's Ratcliff, Townsend contacted Bill Smith, a sales representative for Pennwalt, to discuss the use of Penncap-M in reducing corn earworms. Smith informed Townsend of expected "kill" percentages of corn earworms with Penncap-M. Townsend then told Ratcliff what Smith had represented. Pennwalt also disseminated information about Penncap-M and its effectiveness by way of sample labels, brochures, and written advertisements appearing in trade magazines, including Seedmen's Digest. This information was sent to growers and farmers as well as to applicators, and stated that Penncap-M was effective against corn earworms.

MBM sprayed PPI's growing seed corn with Penncap-M on August 18, 1984 and again on August 20, 1984. MBM billed PPI for the application and for the Penncap-M. Subsequently, PPI lost a portion of its seed corn crop to corn earworms.

PPI's complaint against Pennwalt and MBM read in three counts, alleging breach of express warranties, breach of implied warranties and negligence of Pennwalt in the manufacture, sale, labeling and distribution of Penncap-M. PPI is seeking damages solely for loss of profits occasioned by the failure of Penncap-M to control corn earworms.

The trial court granted Pennwalt's motion for summary judgment, finding that there was no privity of contract between PPI and Pennwalt with respect to the sale of Penncap-M and concluding that PPI did not have a cause of action against Pennwalt on the warranty theories. The court also found that PPI may not recover against Pennwalt on the negligence claim for purely economic loss. PPI appeals from the adverse judgment.

We have consolidated PPI's three issues into the following two:

I. Does the absence of privity of contract between PPI and Pennwalt in the sale of Penncap-M bar recovery under the theories of implied and express warranties?

II. May PPI recover purely economic damages on its negligence claim against Pennwalt?

We begin our discussion of the issues by stating our oft-repeated standard of review with respect to summary judgment. On appeal, this court applies the same standard of review as does the trial court. We look to determine whether any genuine issue of material fact exists and whether the law was correctly applied. In determining whether a genuine issue of material fact exists, we accept as true all facts set forth by the non-moving party and resolve all doubts against the movant. Only where there is no dispute as to the material facts or the inferences to be drawn therefrom and the moving party is entitled to summary judgment as a matter of law, may the court grant such a motion. Naughgle v. Feeney-Hornak Shadeland Mortuary (1986), Ind.App., 498 N.E.2d 1298.

ISSUE I

Implied warranty

PPI asserts that technical privity with Pennwalt is not required in order to maintain a cause of action based on the implied warranty of merchantability and on other implied warranties. The parties do not dispute that there was no privity of contract between PPI and Pennwalt. In fact, the record establishes that MBM purchased Penncap-M from G & W Spreading Company, an applicator of pesticides, who had purchased it from Strong & Strong, apparently a distributor of Penncap-M.

Indiana has adhered to the general rule that implied warranties, as they relate to economic loss from the bargain, cannot ordinarily be sustained between the buyer and a remote manufacturer. Richards v. Goerg Boat and Motors, Inc. (1979), 179 Ind.App. 102, 384 N.E.2d 1084; Candlelight Homes, Inc. v. Zornes (1981), Ind.App., 414 N.E.2d 980; Dutton v. International Harvester (1987), Ind.App., 504 N.E.2d 313; Ridge Co., Inc. v. NCR Corp. (N.D.Ind.1984), 597 F.Supp. 1239.

In support of its argument, PPI refers us to several cases in which a remote manufacturer was found to be liable for economic loss to the buyer on a theory of implied warranty. First, it points to the result in Richards v. Goerg Boat and Motors, Inc., supra. In Richards, this court found that summary judgment was improper against Richards, the buyer of a houseboat, because the court found there were factors which were sufficient to bring Kenner, the manufacturer of the boat, into the transaction directly as a seller. Richards had purchased the boat from Goerg, who was a dealer. When he purchased the boat, Richards made payment directly to Goerg. However, Richards talked with Kenner personnel at a boat show, and had attended a demonstration and inspection at the Kenner plant. Richards dealt directly with Kenner concerning problems with the boat. Kenner assured Richards that the boat "would be made right" in order to consummate the sale. The court concluded from this evidence that Kenner had entered the transaction directly as a seller. Richards, supra, 384 N.E.2d at 1092.

In Thompson Farms, Inc. v. Corno Feed Products (1977), 173 Ind.App. 682, 366 N.E.2d 3 the court permitted the plaintiff Thompson Farms to recover economic loss on an implied warranty because it found a special agency relationship between Triple T, a dealer in Corno's "plan," and Corno, the manufacturer of hog feeder houses. The special agency was implied from evidence that Triple T's function was to bring about, between Corno and a customer, a contractual relationship which would provide financing to increase the customer's investment in hog production in exchange for an agreement to buy Corno's feeds. Thompson, supra, 366 N.E.2d at 11. Also, Corno had solicited Thompson Farms directly as a customer for the hog houses and had inspected the units for conformity to Corno blueprints, thereby meeting the U.C.C. definition of a seller. Thompson, supra, 366 N.E.2d at 14.

PPI urges that, as in Richards and Thompson, Pennwalt significantly participated in the sale of Penncap-M to PPI, since it disseminated product labels and advertising brochures to growers, making Pennwalt a "seller" under the U.C.C., IND.CODE 26-1-2-103(d). We disagree. Pennwalt had never directly contacted PPI; all the discussions leading to the sale of Penncap-M were between PPI and MBM. PPI makes no argument that we should find an implied agency relationship between Pennwalt and MBM. Indeed the consultation which Townsend had with Bill Smith could not constitute even a special agency relationship described in Thompson, supra. No agency is established where the evidence shows merely that an immediate seller is a dealer of the manufacturer's product. Candlelight, 414 N.E.2d at 982. Here, MBM is not even a dealer in Pennwalt's products, but merely consulted with the manufacturer on the subject of the proper application of the product and its effectiveness against corn earworms. Therefore, we hold that Pennwalt did not directly participate in the sale of Penncap-M to PPI, nor were there any facts from which a trier of fact could find an implied agency or special agent relationship between MBM and Pennwalt. It follows that, in conformance with the general rule, PPI could not maintain a suit for breach of implied warranties, claiming damages for only economic loss against Pennwalt, a remote manufacturer.

Express Warranty

In Count II of its complaint, PPI alleged that Pennwalt expressly warranted by written and oral affirmations that Penncap-M would control corn earworms. PPI claimed damages in the form of economic loss as a result of Pennwalt's breach of these express warranties. Specifically, PPI averred that statements of Penncap-M's effectiveness contained in advertisements, brochures and product labels were express warranties made by Pennwalt. As in our previous discussion on implied warranties, the fundamental question here is whether PPI may maintain its cause of action for breach of express warranties against a manufacturer not in privity with PPI. Indiana has not squarely faced this question to date. For the reasons stated below, we hold that PPI is not precluded from suing Pennwalt because of lack of privity of contract, where Pennwalt allegedly made express warranties to PPI.

Although we rely principally on the seminal case cited by PPI, Randy Knitwear v. American Cyanamid Co. (1962), 11 N.Y.2d 5, 226 N.Y.S.2d 363, 181 N.E.2d 399, the authority in favor of discarding the privity requirement in express warranty cases is overwhelming. The New York court in Randy Knitwear was called upon to decide...