Smithco Engineering, Inc. v. International Fabricators, Inc.

Decision Date16 June 1989
Docket NumberNo. 88-66,88-66
Citation775 P.2d 1011
PartiesSMITHCO ENGINEERING, INC., an Oklahoma corporation, Appellant (Defendant), v. INTERNATIONAL FABRICATORS, INC., an Oklahoma corporation, Appellee (Plaintiff).
CourtWyoming Supreme Court

Roger Cowan of Harris and Morton, Evanston, for appellant.

Timothy O. Beppler and Sharon M. Rose of Vehar, Beppler, Jacobson, Lavery & Rose, P.C., Evanston and Jack L. Brown of Patton and Brown, Tulsa, Okl., for appellee.

Before CARDINE, C.J., and THOMAS, URBIGKIT, MACY and GOLDEN, JJ.

URBIGKIT, Justice.

A subcontractor, Smithco Engineering, Inc. (Smithco), and its supplier, International Fabricators, Inc. (IFI), an equipment fabricator on Exxon Corporation's LaBarge gas plant construction project present this appeal. Diverse arguments developed, including performance, warranty and termination with awarded attorneys' fees under Oklahoma law also addressed. We affirm the judgment for the supplier in principle sum and reverse the award of attorneys' fees.

ISSUES

Smithco comprehensively addresses the issues as whether:

I. * * * the court failed to give effect to the term "turnkey" as the term was used by I.F.I. and Smithco.

II. * * * there were express warranties made by I.F.I.

III. * * * I.F.I. effectively disclaimed express warranties and if not whether there was evidence, as a matter of law sufficient to establish breach of express warranty.

IV. * * * I.F.I. effectively limited its liability and remedies for breach of express warranty, and if not whether Smithco was entitled to incidental and consequential damages.

V. * * * award of attorneys fees as part of costs was error.

IFI restates each issue to apparently present the same inquiry from its perspective, except to add a sixth issue of appellate attorneys' fees. 1 We discern as issues of this case:

(1) sufficiency of the evidence to sustain the trial court as to "turn key" terminology and its contractual effect; (2) existence and breach of express warranties; (3) limitation clause and its effect on the relationship

between the supplier and the purchaser; and (4) award of attorneys' fees resulting from purchase agreement litigation where attorneys' fees are statutorily provided in Oklahoma but not in Wyoming. The chief concern in relation to attorneys' fees is a conflict of law dilemma of whether statutory provisions for litigative attorneys' fees will follow the Oklahoma litigants and their dispute into another forum where a similar statutory provision or common law rule does not exist.

FACTS

Smithco, an Oklahoma corporation, was a subcontractor on the Wyoming Schute Creek Exxon gas plant construction near LaBarge, Wyoming. The plant customizes CO2 as the major ingredient of the produced natural gas for oil field secondary recovery uses and other purposes. The plant was a large facility costing more than a billion dollars to construct. As part of its portion of construction, Smithco needed approximately 22,000 square feet of movable louvers for construction of air-cooled heat exchangers for a total purchase price of $425,499.73. IFI, also an Oklahoma corporation, was in the business of providing louvers for industrial plant construction.

These parties negotiated through a bid process and struck a deal, referenced in the record by Quote No. I-2066 Rev. 2, dated October 16, 1984. A few days later, an amendment dated October 19, 1984 was made to the original agreement changing certain terms of the quotation which was duly accepted by IFI by written notation. Unfortunately, these documents lacked clarity about who had the responsibility to design to operational sufficiency for the weather extremes in Lincoln and Sweetwater Counties of high altitude, dry climate and, in the winter, very cold temperatures. At that time, IFI was the only known supplier, since a competitor, Dunlop, elected not to bid. The process for production and installation of the individual louver systems contemplated a multi-step procedure. First, all necessary components were manufactured or acquired and delivered to Smithco who, after receipt, arranged for first one, then another, Salt Lake City firm to assemble them from the IFI parts which had been delivered unassembled in Tulsa, Oklahoma. The assembled units were then taken to the project for a third step installation at the Exxon plant in Wyoming.

Concerning the contract interpretation, two provisions occupied considerable attention during litigation. The last paragraph of the acceptance letter included the following:

In addition I.F.I. will provide a turn key or total responsibility service to SMITHCO as required by but not limited to job specifications and notes, which will include documentation, instrumentation drawings, etc.

Invoice forms used by IFI as statements on the reverse of the printed form captioned General Terms and Conditions of Sale included:

Seller warrants products it manufactures to be free from defects in material and workmanship under normal use and service when operated in accordance with conditions stated in the proposal, and will, within one year after shipment by Seller repair or replace without cost any Seller product (when returned with transportation charges prepaid, properly crated) which upon Seller inspection proves to be defective. This warranty is in lieu of all other warranties, liabilities and obligations expressed or implied, and any implied warranty of merchantability or fitness for use is expressly disclaimed. Warranty on products or accessories not manufactured by Seller is limited to warranty furnished by respective manufacturers. Seller assumes no responsibility for improper use, deterioration, erosion, corrosion, etc., or for any consequential damages. Any unauthorized attempt at local repairs voids the warranty. All capacities specified are based on our understanding of your requirements and on apparatus being properly installed and operated. Liability under the above warranty is limited to repair or, in our judgment, replacement of equipment or parts, F.O.B. our factory, after the equipment has been returned, inspected and found Unfortunately for whatever reason, which was not made completely clear on this record, the assembled equipment did not work well following the fabrication into working units in Salt Lake City by Smithco's third-party contractors and after delivery to Exxon's Schute Creek plant. Corrective efforts were mutually attempted until IFI discontinued its participation and modification thereafter continued by Smithco through other avenues. Never completely satisfactory, changes were finally achieved, but qualified acceptance by Stearns-Roger for Exxon was derived after extensive expenditures by Smithco. From the sum of $425,499.73 total contract price, Smithco withheld payment from IFI of $112,566, who then sued. This appeal follows the trial court's ruling generally for the supplier in the resulting balance due litigation.

defective by us. In no event shall we be liable unless written notice has been made upon discovery of defect and written acceptance made by us. Seller maintains facilities for customer representative to review and inspect equipment at our shop. Upon a signed receipt by customer representative prior to shipment, acceptance of the equipment is deemed to transpire.

In the detailed findings of fact, the trial court found:

9. IFI did not design the louver, cable and actuator package, rather it was designed by Smithco using IFI promotional material and other information possessed by Smithco without the involvement of IFI.

* * * * * *

12. The agreement between IFI and Smithco included the following items:

* * * * * *

C. Except as noted in paragraph 14 below, the louvers, actuators, cables and other items supplied by IFI to Smithco were to conform to the drawings and specification furnished by Smithco.

D. The contract was turn key.

E. By the term "turn key", IFI and Smithco intended and understood that IFI was to marshal for delivery to Smithco the various louvers, actuators, cables and other items required by the contract.

F. Except as noted in paragraph 14 below, IFI expressly warranted to Smithco that the louvers, actuators, cables and other items would conform to the drawings and specifications furnished by Smithco.

G. IFI disclaimed any implied warranty that the louvers, actuators, cables and other items were fit for the use intended by Smithco.

H. Smithco's remedy for the breach of any warranty by IFI was effectively limited to the cost to repair or replacement of defective parts; Smithco was not entitled to recover consequential or incidental damages as the result of the breach of any warranty by IFI.

* * * * * *

19. After receiving the purchase orders, IFI prepared approval drawings which contained the same information and designs supplied by Smithco through Smithco's purchase orders and louver lay-out drawings. IFI submitted the approval drawings to Smithco for review prior to manufacturing of the louvers. During this process, IFI did not design the louver system; rather the design for this system and the specification of the component parts was controlled by Smithco.

In summary, the trial court found that Smithco did design the system, that the design specifications were not sufficient, and that IFI did meet specification criteria, even if a workable unit was not produced after assembly. Furthermore, the trial court discerned that:

22. The testimony at the trial did indicate that there were some items supplied by IFI that did not conform to Smithco specifications. As to those items which did not conform to Smithco's specifications, IFI satisfied any Smithco claim in that IFI repaired or replaced those items which were not so conforming with conforming items.

As a result, Smithco owed IFI $112,566 plus interest and $35,000 as attorneys' fees for the collection litigation.

SUFFICIENCY OF THE EVIDENCE

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