Transamerica Oil Corp. v. Lynes, Inc., 81-1505

• Decision Date: 21 December 1983
• Docket Number: No. 81-1505,81-1505
• Parties: 37 UCC Rep.Serv. 1076 TRANSAMERICA OIL CORPORATION, Plaintiff-Appellee, v. LYNES, INC. and Baker International Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 758

723 F.2d 758

37 UCC Rep.Serv. 1076

TRANSAMERICA OIL CORPORATION, Plaintiff-Appellee, v. LYNES, INC. and Baker International Corporation,

Defendants-Appellants.

No. 81-1505.

United States Court of Appeals, Tenth Circuit.

Dec. 21, 1983.

Stephen J. Jones of Hershberger, Patterson, Jones & Roth, Wichita, Kan., for defendants-appellants.

M. Ralph Baehr of Nieto, Baehr & Hollander, Wichita, Kan. (P. David Egan, Peabody, Kan., on brief), for plaintiff-appellee.

Before McWILLIAMS and LOGAN, Circuit Judges, and ARRAJ, District judge. ^*

LOGAN, Circuit Judge.

This appeal arises out of a diversity action in which the plaintiff, Transamerica Oil Corporation, prevailed in a jury trial against Baker International Corporation and its subsidiary, Lynes Inc., for damages resulting from the breach of an express warranty. We must determine, under the Kansas Uniform Commercial Code (UCC), the appropriate statute of limitations and the effect and validity of disclaimers of warranties and limitations of remedies in invoices accompanying shipments of equipment.

Transamerica is in the business of drilling and completing oil and gas wells. Transamerica's president, Harold Brown, saw defendants' advertisement for "production injection packers" in a trade journal. A packer is a device inserted into an oil and gas well to seal off one zone from another, generally to stop water from entering the well bore and interfering with production. Frequently, packers are employed for temporary use in holes that have been cased and cemented. ¹ The defendants' advertisement, however, stated that its production injection packer was suitable for permanent use in open holes. Because Brown wanted to avoid the expensive casing and cementing process he was interested in the advertised device. He telephoned Lynes and spoke with a sales representative. Lynes then sent Brown additional advertising and descriptive literature. This literature also stated that the production injection packer was suitable for use as a permanent completion device in open well holes.

Later, Brown telephoned Baker's district manager, Jack Spencer, to whom the Lynes representative had referred him, and told Spencer that he was interested in purchasing the production injection packer for use as a permanent completion device for oil and gas wells in lieu of the casing and cementing process. The substance of that conversation is controverted. Spencer testified that he replied, "I think they would be applicable." Brown testified that Spencer "assured" him that the packers would work as advertised.

Plaintiff purchased ten production injection packers in six shipments from defendants during the period at issue here. ² Defendants delivered invoices to plaintiff with at least five of those shipments. Each invoice contained language on its reverse side disclaiming any express or implied warranties other than that the products were free from defects in materials and workmanship. Each invoice also purported to limit the purchaser's remedy to replacement of or credit for defective equipment or parts. Plaintiff later filed suit, claiming that the production injection packers failed to perform properly. At trial, plaintiff dropped its claim based on implied warranty and submitted to the jury only its claim based on breach of express warranty. The jury awarded plaintiff $196,577.62, much more than the purchase price of the packers.

I

Defendants assert that plaintiff's claims are barred by the statute of limitations. The Kansas statute of limitations generally applicable to suits on oral contracts is three years. Kan.Stat.Ann. Sec. 60-512. For actions brought pursuant to the UCC, however, the statute of limitations is four years. Id. Sec. 84-2-725. If Sec. 60-512 applies to the instant case, plaintiff's claims are barred; if Sec. 84-2-725 applies, plaintiff's claims are timely.

In contending that Sec. 60-512 applies defendants rely on Miller v. William A. Smith Constructing Co., 226 Kan. 172, 603 P.2d 602 (1979). Miller held that the three-year statute for oral contracts, rather than the five-year statute for written contracts, applied to an agreement that was partly in writing and partly oral. However, Miller involved a rental rather than a sale of equipment, and apparently the parties did not contend that the UCC applied. The instant case involves a sale of goods within the meaning of the UCC, Kan.Stat.Ann. Secs. 84-2-102, 84-2-105, and 84-2-106. Therefore, the Code's four-year statute of limitations applies. See Atlas Industries, Inc. v. National Cash Register Co., 216 Kan. 213, 531 P.2d 41 (1975). That statute of limitations does not bar plaintiff's claim for breach of express warranty.

II

Under Kansas law, an express warranty may be created as follows:

"(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description."

Kan.Stat.Ann. Sec. 84-2-313. Defendants contend that Spencer's statements and the descriptions in the trade journals regarding the packers were merely the sellers' opinions and thus were insufficient to create an express warranty. See Topeka Mill & Elevator Co. v. Triplett, 168 Kan. 428, 435, 213 P.2d 964, 969 (1950). But Brown testified that Spencer "assured" him that the production injection packers were suitable for use as permanent completion devices in open holes. This testimony, if believed, is sufficient to support a finding of an express warranty. See Boehm v. Fox, 473 F.2d 445, 449 (10th Cir.1973). Also, defendants' advertisements stated that the production injection packer was designed for permanent use in open holes. Under Kansas law, advertising may form a part of an express warranty. Scheuler v. Aamco Transmissions, Inc., 1 Kan.App.2d 525, 528, 571 P.2d 48, 51 (1977). Thus, the trial court did not err in presenting the issue of express warranty to the jury unless language in the invoices disclaiming all express warranties was effective.

A party generally may not disclaim an express warranty under Kansas law. Kan.Stat.Ann. Sec. 84-2-316(1) provides:

"Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this article on parol or extrinsic evidence (K.S.A. 84-2-202) negation or limitation is inoperative to the extent that such construction is unreasonable."

The official UCC comment states that this section is designed to deal with "those frequent clauses in sales contracts which seek to exclude 'all warranties, express or implied.' It seeks to protect a buyer from unexpected and unbargained language of disclaimer by denying effect to such language when inconsistent with language of express warranty." U.C.C. Sec. 2-316 official comment 1. The 1983 Kansas comment to the same section elaborates:

"Subsection (1) deals with attempted disclaimers of express warranties. Once made, express warranties rarely can be disclaimed.... The only exception to this rule is found when the language creating the warranty is oral and is made prior in time to a written disclaimer. Even in these circumstances, however, the language creating warranty takes priority unless the parol evidence rule, 84-2-202, applies. The parol evidence rule must apply on its own terms, however, and there is no intent to render ineffective all oral express warranties."

See also Young & Cooper, Inc. v. Vestring, 214 Kan. 311, 324, 327, 521 P.2d 281, 291, 293 (1974).

Section 84-2-202 declares that when a writing is intended by the parties "as a final expression of their agreement" its terms may not be contradicted by evidence of any prior agreement. The section in essence requires the trial court, before admitting parol or extrinsic evidence, to determine whether the parties intended some document--here the invoice--to be a final expression of their agreement on the terms of the sale. In Jordan v. Doonan Truck & Equipment, Inc., 220 Kan. 431, 552 P.2d 881 (1976), the court refused to admit parol evidence of express warranty when both parties had read and signed a sales contract containing a disclaimer hand-written across its face. It ruled that in these circumstances the parties intended the purchase contract to be a final expression of their agreement. However, the court implied that a different rule would apply to unexpected and unbargained for disclaimers in a printed form prepared by the seller. See 552 P.2d at 884.

The question whether the parties intended that a document constitute the final expression of their agreement is one of fact. 2 R. Anderson, Uniform Commercial Code 154-55 (3d ed. 1982); 3 A. Corbin, Corbin on Contracts Sec. 595 (1960). Thus, we may reverse the trial court's finding only if it is clearly erroneous. King v. Horizon Corp., 701 F.2d 1313, 1315 (10th Cir.1983). The district court here permitted the jury to consider the testimony of Brown and the advertisements because it concluded that the disclaimers on the invoices were not binding on the plaintiff. It seems clear the district court found the parties did not intend the invoice to constitute the final written agreement between the parties. There was no negotiated document signed by both parties evidencing the sale of one or all of these packers; Brown apparently entered the purchase orders personally or by telephone. The written documents the defendants rely on were each titled "Sales and Service Invoice." The introductory sentence on the face of the invoice above the signature line for the purchaser's agent begins, "I certify that the above materials or services have been received." That sentence also purports to require...