Valley Farmers' Elevator v. Lindsay Bros. Co.

• Decision Date: 02 January 1987
• Docket Number: Nos. C6-85-1639,C0-85-2057,s. C6-85-1639
• Citation: 398 N.W.2d 553
• Parties: 2 UCC Rep.Serv.2d 1495 VALLEY FARMERS' ELEVATOR, petitioner, Appellant, v. LINDSAY BROTHERS COMPANY, Respondent, v. MARTIN STEEL CORPORATION, Respondent.
• Court: Minnesota Supreme Court

Page 553

398 N.W.2d 553

2 UCC Rep.Serv.2d 1495

VALLEY FARMERS' ELEVATOR, petitioner, Appellant, v. LINDSAY BROTHERS COMPANY, Respondent, v. MARTIN STEEL CORPORATION, Respondent.

Nos. C6-85-1639, C0-85-2057.

Supreme Court of Minnesota.

Jan. 2, 1987.

Syllabus by the Court

1. A hybrid commercial transaction involving the sale of goods and the provision of services is examined by reference to the "predominant factor" test, Bonebrake v. Cox, 499 F.2d 951 (8th Cir.1974). The proper characterization of this transaction as a sale of goods renders Article 2 of the Uniform Commercial Code and the principles of Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn.1981) applicable to this action.

2. The fact that a sale of goods is also an improvement to real property does not create by operation of Minn.Stat. Sec. 541.051 (1984) a cause of action separate from the breach of warranty claims.

Robert M. Halvorson, William A. Moeller, New Ulm, for appellant.

Garrett E. Mulrooney, Gordon J. Apple, St. Paul, for Lindsay Bros.

Eric J. Magnuson, Keith J. Kerfield, Minneapolis, for Martin Steel.

Heard, considered and decided by the court en banc.

COYNE, Justice.

The plaintiff Valley Farmers' Elevator has obtained further review of a decision of the court of appeals affirming the trial court's entry of summary judgment in favor of the defendant Lindsay Brothers Company. 380 N.W.2d 874. The effect of the decision was to dismiss the plaintiff's claim for economic loss arising from the damage to a grain storage system purchased from the defendant. We affirm.

Intending to expand its grain storage facilities, the plaintiff's predecessor in interest, Wegdahl Co-operative Elevator Association, contacted Lindsay Brothers, a distributor of agricultural equipment and industrial supplies, in early 1977. While there is substantial dispute over the extent to which Lindsay actually designed the system and selected its component parts, the record discloses that Lindsay's grain drying and storage system proposal was approved, although never formally signed, and the three-bin system was completed and operational by November 1977. The final payment of the full contract price of more than $500,000 was tendered on September 12, 1977.

The system was designed not only for grain storage, but also for the retention of the product in optimum condition. To dry and cool the stored grain, the three ring-bolted steel grain bins were equipped with negative flow aeration systems which, through the use of fans located at or near the base of the structures, draw air from the outside through roof vents and exhaust it near the base. The fans were controlled manually and were not equipped with automatic control switches activated by changes in humidity or air pressure.

With the exception of a repair to the center bin's sagging roof in 1978, the system functioned properly from 1977 to December 1981. On Friday, December 4, 1981, the manager of the elevator started the aeration fans, intending them to operate throughout the ensuing weekend. While the weather on that Friday was clear and cool, it became foggy and cool on Saturday. After the aeration fans had been in operation approximately 15 hours, another employee noticed that the roof and sides of the center bin had collapsed inward, as if a partial vacuum had been created. An accumulation of frost on the exterior roof vents had prevented the free flow of air, apparently severely damaging the bin. The 100,000 bushels of soybeans stored in the bin were unharmed.

The owner's manual for the system cautions against operating the aeration devices during the winter and spring months when the relative humidity generally exceeds 50 percent, and, while Valley has neither admitted nor denied receipt of an owner's manual in 1977, it has indicated that it possesses four manuals containing the warning. We note that the record discloses that Martin Steel Corporation, the manufacturer of the bins, contends that it advised Lindsay that inclusion of the automatic control switch was necessary and that its cost was minimal, approximately $200.

Valley commenced this action against Lindsay seeking recovery under tort theories of negligence, with regard to the system design and the failure to warn, and strict liability for damage to the grain storage bin. It claimed damages totalling $86,247.57, including $74,247.50 for the cost of repair to the bin, $10,000 for the loss of use of the bin during its repair, and $2,000 for the cost of transferring the soybeans to another storage facility. The parties then stipulated that Lindsay would implead Martin Steel as a third-party defendant.

The trial court, relying upon Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn.1981), granted Lindsay's motion for summary judgment. The court of appeals affirmed.

The thrust of the plaintiff's argument on appeal is that economic losses arising out of this hybrid commercial transaction involving the provision of services and the sale of goods are recoverable under negligence and strict liability theories. It has attempted to factually distinguish Superwood to conclude that the Uniform Commercial Code (U.C.C.), Minn.Stat. ch. 336 (1984), to the extent it is viewed as an exclusive remedy, is inapplicable.

It is well settled in this state that Article 2 of the U.C.C. provides the exclusive remedy for economic losses arising from commercial transactions not involving personal injury or damage to other property. Superwood, 311 N.W.2d at 162. By its terms, Article 2 applies only to contracts involving the sale of goods, Minn.Stat. Sec. 336.2-102, and defines "goods" as:

[A]ll things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (article 8) and things in action. 'Goods' also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (section 336.2-107).

Minn.Stat. Sec. 336.2-105(1).

Valley first contends that Superwood and its progeny, Minneapolis Society of Fine Arts v. Parker-Klein Associates Architects Inc., 354 N.W.2d 816 (Minn.1984) and S.J. Groves & Sons Company v. Aerospatiale Helicopter Corp., 374 N.W.2d 431 (Minn.1985), are distinguishable not only because the defendants therein were manufacturers, not distributors--as it characterizes Lindsay--but also because those actions were not predicated upon allegations relating to the defendants' provision of services.

We reject the asserted manufacturer-distributor distinction, relying upon explicit language contained in Article 2 defining a "merchant", Minn.Stat. Sec. 336.2-104(1) (1984), and delineating a merchant's various rights and obligations. See, e.g., id. Sec. 336.2-314. In the doubtful event that the legislature had intended to except the class of "merchants" or distributors from the purview of Article 2 dealing with "transactions and goods," it would certainly not have comprehensively addressed that class' duties, rights, and remedies.

This court has not, however, specifically addressed the question of whether and under what circumstances a hybrid contract involving the sale of goods and the provision of services falls within the statutory scheme of the U.C.C. As early as 1967, in interpreting the Uniform Sales Act, we stated that the rule "seems to be that the warranty applies where the sale involves not only a transfer of a chattel but also some related service, such as construction." Kopet v. Klein, 275 Minn. 525, 530, 148 N.W.2d 385, 389-90 (1967). After the legislative adoption of the U.C.C., we cited Kopet as controlling of the decision that U.C.C. warranty provisions were applicable to the installation of a product. O'Laughlin v. Minnesota Natural Gas Company, 253 N.W.2d 826 (Minn.1977).

We are able to discern virtually no distinction between Valley's claims that Lindsay's failure to install an automatic shut-off device to stop the aeration fan once frost had accumulated was negligence and those advanced in O'Laughlin. In the latter case, the plaintiffs contended that installation of a gas floor furnace was faulty because a metal liner was not inserted in the chimney and a certain product designed to facilitate cleaning was not included.

It would now seem appropriate for this court to engage in a more detailed examination of such a hybrid contract in accordance with the guidelines discussed in Bonebrake v. Cox, 499 F.2d 951 (8th Cir.1974). Recognizing that the sale of goods is often accompanied by the rendition of services either incidental to or an integral part of that sale, the court cited with approval an analysis offered in R. Nordstrom, Handbook of the Law of Sales, 40, 44 (1970), to support its conclusion that the...