S.M. Wilson & Co. v. Smith Intern., Inc.
| Decision Date | 19 December 1978 |
| Docket Number | No. 75-2936,75-2936 |
| Citation | 587 F.2d 1363 |
| Parties | 25 UCC Rep.Serv. 1066 S. M. WILSON & COMPANY, Plaintiff-Appellant, v. SMITH INTERNATIONAL, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Robert B. Flaig, Thelen, Marrin, Johnson & Bridges, Los Angeles, Cal., for plaintiff-appellant.
Richard F. Oetting, Gilbert D. Jensen, Voegelin & Barton, Los Angeles, Cal., for defendant-appellee.
Appeal From the United States District Court for the Central District of California.
Before WALLACE and SNEED, Circuit Judges, and ENRIGHT, * District Judge.
This case presents the familiar question of the circumstances under which a seller in a commercial sale can limit its liability through contractual exclusions of warranty and remedy.
The district court found that the contract involved here was effective in excluding the buyer's recovery of consequential damages and granted summary or final judgment for defendant Smith International, Inc., on all claims. Our jurisdiction is based on 28 U.S.C. §§ 1291 and 1294. For reasons set out hereafter we affirm.
Facts.
To understand this case it is necessary to set out the facts, including a description of the contract between the seller and buyer, and to describe in some detail the procedural state in which this case reaches us. We begin by characterizing the sales contract as one between parties who dealt in a commercial setting from positions of relatively equal bargaining strength and who bargained and negotiated concerning the specifications of the product being sold and the risks of loss arising from any of its defects. Cf. Kaiser Steel Corp. v. Westinghouse Electric Corp., 55 Cal.App.3d 737, 748, 127 Cal.Rptr. 838, 845 (1976) (). The buyer is not "a single inexperienced individual" dealing with a large corporate seller vending a standard product to the general public by means of a standard form, the "fine print" of which purports to relieve the seller of all meaningful liability. Cf. Delta Air Lines, Inc. v. Douglas Aircraft Co., 238 Cal.App.2d 95, 102, 47 Cal.Rptr. 518, 523 (1965) (). More particularly, the contract involves the purchase of a tunnel boring machine by McGuire Shaft & Tunnel Corporation, a predecessor of appellant S. M. Wilson & Company, 1 from the Calweld Division of appellee Smith International, Inc. Wilson is a Delaware corporation, Smith a California corporation.
In 1971 Wilson contracted to construct a mine shaft in Kennsburg, Illinois, for the Ayrshire Coal Company, a division of American Metal Climax, Inc. To assist in performing that contract, Wilson began negotiations with Smith for the purchase of a tunnel boring machine. In due course Wilson agreed to pay $550,000 for a "Calweld 17'-0 diameter, 600 H.P. rock tunnel boring machine," which Smith agreed to design, build and deliver.
The documents which reflect this agreement are as follows. Smith sent Wilson an April 9, 1971, quotation and an April 16, 1971, revised quotation consisting of virtually the same documents. In these Smith attempted to limit its warranty on the machine and the scope of its liability. The applicable provisions are set out in the margin. 2 In brief, these provisions warranted that the machine would be free from defects in material and workmanship. That warranty was established "expressly in lieu of all other warranties, express or implied . . . not set forth in a writing signed by an authorized representative of Calweld (Smith)." This disclaimer was set forth in capital letters. Smith limited its liability for any breach of warranty to repair or replacement of defective parts. It generally excluded any liability resulting from the use or loss of use of the machine as well as for certain specific instances of such injuries. The proposal also contained a merger clause.
Smith's documents also provided that the contract was to be interpreted in accordance with California law. In addition, Smith agreed to "provide one competent tunnel boring machine specialist free of charge, to supervise installation, to demonstrate initial operation, and train customer's operator, for a period of 30 working days." This provision appears in a paragraph captioned "Installation Personnel" and follows one captioned "Shipping and Installation" which provides in part: These two provisions are set forth in the margin. 3 Attached to the April 9 quotation was a cover letter signed by Brickle, a Smith employee, which estimated that the machine would bore at an approximate rate of 2.5 feet per hour through the hardest material expected to be encountered in the Ayrshire project.
On April 22, 1971, Wilson accepted the proposal by mailing Smith its purchase order. The reverse side of Wilson's purchase order, however, contained a printed liability provision 4 substantially different from that in Smith's proposal. This conflict was resolved by an April 28, 1971, letter in which Smith's vice president for administration objected to the Wilson liability provision and reiterated the terms of Smith's proposal. Wilson, by signing an acceptance of Smith's April 28 letter, acceded to Smith's original terms as to liability as expressed in its April 16 quotation.
Consistent with the terms of the contract Smith constructed the machine at its California plant, then disassembled it into component parts for shipment to the Illinois mine site. It was reassembled in Illinois by Wilson's employees under the direction of a supervisor provided by Smith.
The machine did not perform as expected. Wilson alleges that it bored at a rate slower than the expected 2.5 feet per hour, overheated, broke down, and wore out blades faster than had been projected. Smith's representatives visited the mine site but were unable to correct the machine's problems. Owing at least in part to problems with the machine, the Ayrshire project required 210 days to complete, rather than an expected 80 days. Near the completion of the project, Wilson's employees discovered that the machine's thrust rollers had been installed in a reverse position. The thrust rollers are a major link in the delivery of turning pressure to the machine's cutting wheel. Wilson contends that the backward installation of the thrust rollers was a major cause of the machine's poor performance and that such installation had taken place during the machine's reassembly in Illinois under the direction of Smith's supervisor. Smith not only attempted to discover the source of the machine's difficulties but also provided replacement thrust rollers as well as other replacement parts as requested by Wilson.
Problems with the machine continued even after it was removed from the completed Ayrshire project, repaired, and located at a project undertaken by Wilson at United States Steel's Dilworth mine in Pennsylvania. There it was discovered that one of 10 Staffa hydraulic motors was operating in opposition to the other nine because of the reversal of an internal valve in the motor. The Staffa motors had been installed in the machine in factory-built condition.
Wilson alleges that the difficulties with the Calweld machine caused it losses of approximately $1,844,559. It brought the present suit on November 29, 1972, in the United States District Court for the Eastern District of Illinois. Upon Smith's motion, the action was transferred on May 29, 1974, to the Central District of California.
Wilson lists eight causes of action. They are breach of contract for failure to reassemble the machine properly (first cause of action), breach of contract for failure to provide a competent installer (second cause), breach of implied warranty of fitness (third cause), negligence in design, construction, reassembly, and in failure to provide a competent reassembly supervisor (causes four through seven), and misrepresentation as to the machine's boring rate (eighth cause).
The district court held that Wilson could recover on none of its causes of action. This was done in two orders, the first dated March 21, 1975, and the second July 18, 1975. In the first, nine findings of fact appear and these are set forth in the margin. 5 Seven conclusions of law follow which are also set forth in the margin. The effect of these findings and conclusions was to dismiss causes of action three through eight. A separate order granting summary judgment to Smith on these causes was entered on the same day, March 21, 1975.
The July 18, 1975, order was predicated on a stipulation in open court by counsel for Wilson that it had suffered by reason of the machine's defects "no damages other than consequential damages." Record, vol. 3, at 688. The court excluded evidence of such damages with respect to the two remaining causes of action and granted final judgment thereon in favor of Smith. Contemporaneously with these actions Smith's counterclaims against Wilson in the amount of $123,000 for goods sold to Wilson were dismissed by stipulation by Smith's counsel "without prejudice."
The exclusion of evidence of consequential damages by the July 18, 1975, order, which is set forth in the margin, was based on several grounds. 6 The first was that inasmuch as the consequential damages resulted from the breach of the warranty that the machine would be free from defects in workmanship, the remedy of repair provided the exclusive remedy. Moreover, consequential damage recovery was barred by the limitation of liability for losses resulting "from the use or loss of use" of the machine. Consequential damages resulting from the defects of the Staffa motor were not recoverable because under the contract only the warranty of the manufacturer exists. ...
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