Wisconsin Elec. Power Co. v. Zallea Bros., Inc.

• Decision Date: 12 September 1979
• Docket Number: No. 78-2086,78-2086
• Parties: 27 UCC Rep.Serv. 923 WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin Corporation, Plaintiff-Appellant, v. ZALLEA BROTHERS, INC., a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 697

606 F.2d 697

27 UCC Rep.Serv. 923

WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin Corporation, Plaintiff-Appellant, v. ZALLEA BROTHERS, INC., a Delaware Corporation, Defendant-Appellee.

No. 78-2086.

United States Court of Appeals, Seventh Circuit.

Argued April 26, 1979.

Decided Sept. 7, 1979.

As Amended Sept. 12, 1979.

William P. Croke, Milwaukee, Wis., for plaintiff-appellant.

Gilbert W. Church and Richard H. Porter, Milwaukee, Wis., for defendant-appellee.

Before MOORE, Senior Circuit Judge, ^* PELL and WOOD, Circuit Judges.

MOORE, Circuit Judge.

This action, wherein federal jurisdiction is predicated on diversity of citizenship, 28 U.S.C. § 1332 (1976), was brought in the District Court for the Eastern District of Wisconsin, by Wisconsin Electric Power Company (hereinafter "WEPCO") a public utility that generates electricity and furnishes steam through underground tunnels for heating buildings in the downtown area of the City of Milwaukee. WEPCO sought to recover from Zallea Brothers, Inc. ("Zallea") approximately $800,000 in monetary damages sustained as a result of the failures of Zallea's product which was incorporated into WEPCO's steam line. After a lengthy and complex trial, the court (Judge John W. Reynolds) found for Zallea on all claims in a comprehensive opinion, reported in 443 F.Supp. 946 (E.D.Wis.1978). The court subsequently denied plaintiff's motion to amend the judgment and findings of fact and conclusions of law issued by the court. 454 F.Supp. 36 (E.D.Wis.1978). For the reasons given below, we affirm. Because of the previous consideration given by the trial court to the parties' contentions and the proof in support thereof, we will state only the essentials necessary for appellate review.

I.

In 1967, WEPCO was building a new combination electricity and steam plant in downtown Milwaukee and a new thirty-inch diameter pipeline to transmit the steam to various locations. The new pipeline required "expansion joints", devices attached between steam pipes to absorb the movement caused by the pipes' expansion and contraction with the flow of the steam. In April of 1967, WEPCO sent out specifications and requests for bids to numerous expansion joint manufacturers, including Zallea.

WEPCO received bids from seven different expansion joint manufacturers. Two different types of joints were actively considered: (1) "slip" joints and (2) "bellows" or "packless" type joints. Bellows joints contain corrugated metal walls that absorb pipe movement by flexing back and forth as the attached steam pipes expand or contract; slip joints do not have this feature of flexible metal corrugation. Although bellows joints have a lower initial cost than slip joints and require no maintenance, they are more susceptible to "stress corrosion cracking". Stress corrosion cracking occurs when metal that is in a stressed condition is attacked by a corrosive agent that eventually causes a crack to be forced through the entire thickness of the metal.

In submitting its bid, Zallea advised WEPCO that it strongly recommended the use of a metal alloy known as "Monel" for the bellows joints if chlorides were to be present in the steam. Subsequently, WEPCO made some changes in its specifications and incorporated Zallea's suggestion that Monel be used as the metal in the expansion joints. WEPCO then accepted Zallea's bid. Zallea supplied 170 thirty-inch joints as well as numerous twelve and fourteen-inch joints. By the end of 1968, WEPCO had properly installed the joints in its steam lines.

After the joints were placed into operation, seven of the joints developed cracks in their walls causing steam to escape. To prevent further failures, WEPCO removed and replaced the Zallea bellows joints with slip joints. Subsequent investigation revealed that the failures were caused by stress corrosion cracking. The stress arose from two sources: (1) a type of inherent stress known as residual stress; and (2) an operational stress that was imposed on the bellows metal as pressure was exerted on the walls by the expanding or contracting pipes. The corrosive agent was some chemical contaminant in WEPCO's steam, but neither party was able to identify the specific corrodent.

The central question which then arose was which party the manufacturer or the buyer should bear the loss caused by the failure of the Zallea bellows joints resulting from the presence of an unknown and unexpected corrodent in WEPCO's steam lines. The parties, having been unable to settle this question between themselves, entered the judicial arena for resolution of their controversy. Not too surprisingly, WEPCO asserted that Zallea, as the manufacturer, should bear the loss and brought suit under a variety of legal theories, including breach of express and implied warranties, negligence, and strict liability in tort. Zallea, in turn, claimed that WEPCO, as the producer of the steam, should have known of any corrosive contents therein and have revealed them if it desired the joints to be corrosion-proof. WEPCO claimed damages of $791,148 plus interest from the date of service of the complaint, representing the cost of purchase and installation of the slip joints that were substituted for the Zallea bellows joints, as well as several other items of expense. The district court found for Zallea on all claims presented, and WEPCO appeals.

On appeal, WEPCO challenges the district court's findings of fact and conclusions of law as to each of its various theories of liability raised at trial. WEPCO's asserted theories of recovery fall into two broad categories. First, WEPCO claims that, under contract law, Zallea expressly and impliedly warranted that its Monel bellows joints were fit for use in WEPCO's steam lines. Second, WEPCO claims that, as the manufacturer, Zallea had greater knowledge of how expansion joints would function in steam lines and of what chemicals or corrodents are reasonably likely to be present in such lines. WEPCO asserts that, in view of this knowledge, Zallea's failure to design its joints to withstand damage by such corrodents or to warn WEPCO of the possibility of damage renders Zallea liable under theories of warranty and strict liability in tort and negligence. The district court discussed each of these asserted bases of recovery in considerable detail; therefore we shall touch on the theories of recovery only briefly before considering WEPCO's specific allegations of error with respect to the court's decision.

II.

A. WARRANTY CLAIMS

The court found that Zallea's price quotation letters were the offers forming the basis of the 1967 contract and that WEPCO's June 15, 1967 purchase order was the acceptance of those offers, forming a binding contract. A 1969 contract was substantially the same.

1. Express Warranty

On appeal, WEPCO argues that Zallea expressly warranted that the bellows joints furnished were "fit for use" in WEPCO's steam line. WEPCO's express warranty claims fall into two broad categories: those based on statements in Zallea's catalogue and those based on statements in the contract documents.

First, although the district court did not consider the question, WEPCO now argues that statements in Zallea's catalogue expressly warranted that Zallea's bellows would operate properly and adequately in a steam heating system, including systems containing chemical elements which could reasonably be expected to be present. WEPCO also argues that Zallea warranted by its statements in the catalogue that it had the expertise to advise customers on All aspects of use of its bellows. In support of these propositions, WEPCO cites a number of excerpts from the catalogue. For example, the catalogue contains the following statement about the type of joint purchased by WEPCO:

"Zallea Self Equalizing Expansion Joints are ideal for application in long lines when there is considerable axial expansion and infrequent movement, such as district heating lines which seldom cool down completely during the heating season."

Under § 402.313, Wis.Stat. (1977), ¹ any affirmation of fact made by the seller relating to a particular item and which becomes a part of the basis of the bargain is an express warranty of fact. Statements contained in advertising and catalogues may create express or implied warranties. See Filler v. Rayex Corp., 435 F.2d 336 (7th Cir. 1970); Interco Inc. v. Randustrial Corp., 533 S.W.2d 257, 261 (Mo.App.1976).

However, the catalogue was not among the documents constituting the contract between WEPCO and Zallea; no evidence indicates that the catalogue statements were "part of the basis of the bargain". Wis.Stat. § 402.313 (1977). Moreover, excerpts from the catalogue not quoted by WEPCO expressly state that Zallea did not guarantee its joints against stress corrosion. For example, the catalogue states:

"Corrosion is another factor which affects the life of an expansion joint, but because the exact corrosive conditions which will exist during operation can seldom be duplicated in the laboratory, it is impractical to estimate the life under corrosive conditions. Furthermore, since all expansion joints operate at high stresses, corrosion will be accelerated by such stresses."

WEPCO also contends that language in several of the contract documents created an express warranty. First, WEPCO claims that an express warranty arose from a statement in one of Zallea's price quotation letters: "We strongly recommend that Monel Bellows be utilized should chlorides be present in the steam." However, Zallea did not recommend Monel as being safe from all contaminants in the steam, only chlorides. This recommendation is not tantamount to a warranty that Monel bellows would resist corrosion from all possible sources including the unexpected elements present in WEPCO's steam which eventually caused stress corrosion cracking in the joints.

Further WEPCO claims that an express warranty was created by Zallea's letter to WEPCO dated May 18, 1967...