798 N.E.2d 618 | Ohio Ct. App. | 2003
{¶ 2} Norcold engages in the production and sale of refrigerators to manufacturers of recreational vehicles and camping trailers. For several years, Gateway has acted as a distributor of pipes, fittings, and valves to Norcold for use in refrigerator assembly. In 1992, Norcold representatives approached Gateway to discuss combining two pre-existing parts used to power Norcold's refrigerators. This combined unit would become known as a "tap tee," which is used to carry flammable gas. Thereafter, Gateway consulted with Dayco to manufacture the part.
{¶ 3} Subsequently, Dayco delivered the parts to Gateway, who then distributed them to Norcold, pursuant to Norcold's purchase orders. The purchase orders afforded Norcold the ability to test each tap tee prior to final assembly, and each part was tested twice before being integrated into the refrigerators. In summer 1999, Norcold found that the tap tees were subject to stress corrosion cracking and, thus, potentially hazardous. Accordingly, Norcold issued a recall campaign of its mobile refrigerator units and allegedly suffered damages in excess of $25,000.
{¶ 4} As a result, Norcold initiated suit against Gateway, alleging breach of contract and breach of express and implied warranties. Gateway then filed a third-party complaint against Dayco, claiming it was entitled to indemnification *597 and damages for breach of contract and express and implied warranties. Thereafter, Norcold amended its complaint to include Dayco as a defendant, asserting breach of express and implied warranties. In response to the amended complaint, Gateway counter-claimed against Norcold for breach of contract, payment of an existing account, and unjust enrichment. Gateway also filed a cross-claim against Dayco, alleging breach of contract and unjust enrichment. Dayco responded to the amended complaint and cross-claim, maintaining that it was entitled to indemnification or contribution in the event it was liable to either Norcold or Gateway.
{¶ 5} After completing extensive discovery, Gateway moved for summary judgment against Norcold and Dayco, and Dayco moved for summary judgment against Norcold and Gateway. In a May 20, 2002 judgment entry, the trial court granted Gateway's motion for summary judgment in full, thus dismissing all claims of both Norcold and Dayco. In a separate judgment entry filed the same day, the trial court denied Dayco's motion for summary judgment against Norcold.
{¶ 6} Prior to the court's decisions on the summary judgment motions, Norcold moved for leave to file a second amended complaint, stating that it wanted to separate the claims against Gateway, "which are contractual in nature, from those against Dayco[,] * * * which are based in tort." The motion was initially denied; however, upon Norcold's motion to reconsider and after the claims against Gateway were dismissed, the trial court granted Norcold leave to amend its complaint for a second time. Therein, Norcold re-alleged claims against both Gateway and Dayco. Gateway and Dayco both responded with the same claims as argued in response to Norcold's first amended complaint.
{¶ 7} On September 4, 2002, pursuant to an agreed judgment entry, all claims asserted by Norcold against Gateway in the second amended complaint were dismissed in accordance with the trial court's prior grant of summary judgment. Thereafter, Dayco again moved for summary judgment against Norcold. The trial court granted the motion on December 13, 2002, finding that absent privity of contract, Ohio law does not provide a common law remedy in tort to a commercial purchaser of a defective product for purely economic loss. Following the court's entry, Norcold filed a Motion for Modification and/or Reconsideration of the court's grant of summary judgment, which was denied.
{¶ 8} From the trial court's May 20, 2002 grant of summary judgment to Gateway and December 13, 2002 grant of summary judgment to Dayco, Norcold appeals, asserting six assignments of error for our review. For purposes of brevity and clarity, we will combine our discussion of Norcold's third and fourth assignments of error. Because this appeal arises from summary judgment determinations, we will begin by setting forth our standard of review. *598
{¶ 10} In its first assignment of error, Norcold contends that the trial court made impermissible credibility determinations as to whether Norcold relied upon Gateway's express warranties concerning the tap tee. Neither party contests that affirmations of fact or promise were made by Gateway to Norcold within the purchase orders for the tap tees; therefore, the only issue to be *599 decided by this court is whether the trial court erred in finding that the language therein was not part of the basis of the bargain between the parties.
{¶ 11} In purchasing the tap tees from Gateway, Norcold furnished purchase orders containing the following applicable language:
1. ACCEPTANCE AGREEMENT. Seller's commencement of work on the goodssubject to this purchase order or shipment of such goods, whicheveroccurs first, shall be deemed an effective mode of acceptance of thispurchase order. Any acceptance of this purchase order is limited toacceptance of the express terms contained on the front and back hereof. * * * 1. WARRANTY. Seller expressly warrants that all goods or servicesfurnished under this agreement shall conform to all specifications andappropriate standards, will be new, and will be free from defects inmaterial or workmanship. * * * Seller warrants that all goods or servicesfurnished hereunder will be merchantable, and will be safe andappropriate for the purpose for which goods or services of that kind arenormally used. If seller knows or has reason to know the particularpurpose for which purchaser intends to use the goods or services, sellerwarrants that such goods or services will fit for such particularpurpose. Seller warrants that goods or services furnished will conform inall respects to samples, inspection, test, acceptance or use of the goodsor services furnished hereunder. Such warranties shall surviveinspections, tests, acceptance and use. Seller's warranty shall run topurchaser, its successors, assigns and customers, and users of productssold by purchaser. Seller agrees to replace or correct defects of anygoods or services not conforming to the foregoing warranty promptly,without expense to purchaser, when notified of such nonconformity bypurchaser, provided purchaser elects to provide seller with theopportunity to do so. In the event of failure of seller to correct defectsin or replace nonconforming goods or services promptly, purchaser, afterreasonable notice to seller, may make such corrections or replace suchgoods and services and charge seller for the cost by purchaser in doingso. * * * 17. ENTIRE AGREEMENT. This purchase order, and any documents referredto on the face hereof, constitute the entire agreement between theparties.
{¶ 12} With respect to express warranties, R.C.
(A) Express warranties by the seller are created as follows:
(1) 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.
* * * *600
(B) It is not necessary to the creation of an express warranty that the seller use formal words such as `warrant' or `guarantee' or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.
{¶ 13} The trial court herein determined that the written warranties by Gateway did not become part of the basis of the bargain between the parties because Norcold did not actually rely on Gateway's representations. In doing so, the trial court relied upon Price BrothersCo. v. Philadelphia Gear Corp., which mandated:
[i]n order to determine whether * * * pre-contract statements * * *were in fact a basis of the bargain and thus an express warranty, orwhether they were merely a seller's `puffing', the court should considerthe circumstances surrounding the transaction, the reasonableness of thebuyer in believing the seller, and the reliance placed on the seller'sstatements by the buyer.6
{¶ 14} The trial court's reliance thereon, however, is misplaced. PriceBrothers is distinguishable from the case at bar particularly because therein the court was determining whether pre-contract statements made by the seller, sales literature, and a journal article referring to the goods sold constituted affirmations of fact or promise. In other words, the court was merely "differentiating affirmations of fact from statements of opinion."7 In contrast, the statements in this case were not pre-contractual representations but were integrated terms within the parties' written agreement. The parties do not dispute whether the affirmations within the purchase orders constitute statements of fact or promise; their arguments entail whether the statements or affirmations were part of the basis of the bargain.
{¶ 15} Because "basis of the bargain" is not a defined term, the language has caused significant legal confusion with regard to whether a buyer's reliance upon express warranty language is a necessary part of determining the enforcement thereof. Prior to the adoption of the Uniform Commercial Code ("UCC") in Ohio, reliance was a key inquiry as to the enforceability of an express warranty: "[a]n express warranty is an affirmation of fact by the seller as to a product or commodity to induce the purchase thereof, on which affirmation the buyer relies in making the purchase."8 Notably, some Ohio Appellate Courts have continued to *601
evaluate the enforceability of express warranties by requiring the buyer's reliance thereon, despite the absence of such language in R.C.
{¶ 16} In order for this court to shed light on the meaning of "basis of the bargain," in the context of written affirmations of fact or promise in a valid contract, and any concomitant reliance requirement, we must turn to the Official Comments of the UCC for guidance. Although a review of UCC section 2-313's comments does not definitively answer whether reliance remains a necessary element for enforcement of an express warranty, the comments do seem to indicate that reliance is not required in the context of this case. Comment 3 states:
[t]he present section deals with affirmations of fact by the seller,descriptions of the goods or exhibitions of samples, exactly as any otherpart of a negotiation which ends in a contract is dealt with. No specificintention to make a warranty is necessary if any of these factors is madepart of the basis of the bargain. In actual practice affirmations of factmade by the seller about the goods during a bargain are regarded as partof the description of those goods; hence no particular reliance on suchstatements need be shown in order to weave them into the fabric of theagreement. Rather, any fact which is to take such affirmations, oncemade, out of the agreement requires clear affirmative proof. The issuenormally is one of fact.10
{¶ 17} Thus, comment 3 indicates that UCC section 2-313 is relevant to the question of whether an express warranty has been created, and the "basis of the bargain" rule is not applicable to situations where written warranties are clear and express. A decisive majority of courts that have considered this issue have reached the similar conclusion that reliance is not an element in a claim for breach of an express written warranty.11 *602
{¶ 18} Express warranties "are as much a part of the contract as any other term, and the right to damages on the breach depends on nothing more than the breach of warranty."12 In other words,
[a] warranty is an assurance by one party to a contract of theexistence of a fact upon which the other party may rely. It is intendedprecisely to relieve the promisee of any duty to ascertain the fact forhimself; it amounts to a promise to indemnify the promisee for any lossif the fact warranted proves untrue, for obviously the promisor cannotcontrol what is already in the past.13
{¶ 19} Accordingly, because the warranties in this case were part of a written contract, we find that enforcement thereof is not dependant upon any reliance by Norcold. As such, we must sustain Norcold's first assignment of error.
{¶ 20} Norcold alleges that Gateway breached the implied warranty of merchantability because the tap tee could not and did not pass without objection in the trade under the contract description and was not fit for its ordinary use. Norcold further argues that the trial court improperly considered that the tap tee was a newly constructed part in determining whether Gateway breached the implied warranty of merchantability
{¶ 21} R.C.
(A) Unless excluded or modified as provided in section
{¶ 22} In other words, this warranty is breached when goods are not of an acceptable quality when compared to that generally acceptable in the trade for goods of the kind.14
{¶ 23} The evidence in this case indicates that Norcold approached Gateway with a specific request to combine two pre-existing parts into a single component. Norcold negotiated with Gateway and provided sketches of the proposed part so that Gateway could then ascertain whether the part could be manufactured. The uncontroverted evidence reveals that the tap tee was a newly created component made especially for Norcold. Under these circumstances, "no average or usual standards for determining ordinary performance or quality for the components can be determined" because the parts had never previously been manufactured.15 Additionally, there was no showing that the parts were not "such as pass without objection in the trade under the contract description," for there was no trade in goods of the same kind.16
{¶ 24} Accordingly, we find that the trial court did not err in considering that the tap tee was a newly constructed part, as such is directly relevant to R.C.
{¶ 25} For its third and fourth assignments of error, Norcold claims that the trial court erred by using standards outside R.C.
{¶ 26} With respect to implied warranties of fitness for a particular purpose, R.C.
Where the seller at the time of contracting has reason to know anyparticular purpose for which the goods are required and that the buyer isrelying on the seller's skill or judgment to select or furnish suitablegoods, there is * * * an implied warranty that the goods shall be fit forsuch purpose.
{¶ 27} Thus, the test for finding an implied warranty of fitness for a particular purpose requires that 1) that the seller knew of the buyer's particular purpose; 2) that the seller had reason to know that the buyer is relying on the seller's skill or judgment to furnish or select the appropriate goods; and 3) the buyer must rely upon the seller's skill or judgment.17 Additionally, the buyer's expertise or potentially superior knowledge with regard to the goods sold is a relevant factor to weigh into the reliance analysis.18
{¶ 28} Herein, questions of material fact remain as to whether Norcold relied upon Gateway to furnish appropriate goods. Testimony indicates that Gateway was aware that the tap tees would be utilized in a propane gas line in Norcold's refrigerators. Gateway was approached by Norcold representatives who inquired as to whether a part could be manufactured for this specific application. Gateway then sought out a manufacturer, Dayco, to produce the part. Not until the tap tees began to malfunction did Norcold ever communicate with Dayco. Additionally, while Norcold did provide sketches of the proposed tap tee and the size necessary to accommodate their use, deposition testimony from Norcold employees and an affidavit from a former president of Norcold allege that they were relying on Gateway both to assure Norcold that the tap tees could be manufactured and to provide the requested component. In addition, the trial court precluded Norcold's claim for breach of the implied warranty for a particular purpose because of Norcold's alleged superior expertise and knowledge concerning the tap tee; however, in light of the evidence and in taking all reasonable inferences in Norcold's favor, we find that the trial court improperly weighed the evidence when making this determination. Thus, sufficient evidence establishes that material questions of fact remain and that reasonable minds *605 could come to different conclusions as to whether Norcold relied upon Gateway to furnish appropriate goods.
{¶ 29} For these reasons, we sustain Norcold's third and fourth assignments of error.
{¶ 30} Norcold asserts in its fifth assignment of error that the trial court erred in finding as a matter of law that absent privity of contract, a commercial purchaser of a defective product cannot maintain a claim for purely economic loss under common law tort theories of recovery. Based upon the following, however, we affirm the judgment of the trial court.
{¶ 31} In Iacono v. Anderson Concrete Corp., the Ohio Supreme Court held that a homeowner could sue in tort under implied warranty theories to recover property damages against the supplier of defective driveway material with whom the plaintiff was not in privity of contract.19Thereafter, in Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut.Ins. Co., the Court noted that "while the damages sustained in Iacono were described as `property' damage, they were in fact merely defects in the product itself which reduced the product's value, i.e., economic damages."20 Following these decisions, the Court, in La Puma v.Collinwood Concrete, reaffirmed the existence of a noncommercial consumer plaintiff's common-law products liability claim, based upon implied warranty theory, to recover purely economic damages from a product supplier with whom the plaintiff was not in privity.21
{¶ 32} The issue before this court, however, is whether the same cause of action should be available to commercial buyers of products who claim purely economic loss from product suppliers with whom they are not in privity. Both the Ninth and Tenth Appellate Districts in Ohio have reached contrary results in *606 deciding this precise issue.22 However, based upon the following, we find the Ninth District's rationale inMidwest Ford, Inc. v. C.T. Taylor Company, Inc. to be persuasive in this case.
{¶ 33} The Supreme Court, in Chemtrol, explained that an action in tort for breach of express or implied warranty is synonymous with strict liability.23 Typically, the rights and duties of a buyer and seller are determined by the law of sales, or the U.C.C.24 In contrast, "strict liability evolved as a judicial response to inadequacies in sales law with respect to consumers who sustained physical injuries from defective goods made or distributed by remote parties in the marketing chain."25 Thus, in order to determine whether a commercial buyer may recover economic loss, we must look to the policy considerations underlying strict liability and those underlying the U.C.C., which include, inter alia, the relative bargaining power of the parties and the allocation of loss to the better risk-bearer in a modern marketing system.26
{¶ 34} Herein, both Norcold and Dayco have, at the very least, comparable bargaining power as commercial entities.27 Furthermore, perfect parity is not necessary to a determination that parties have substantially equal bargaining positions.28 Additionally, Norcold is as well situated as Dayco to assess the impact of economic loss.29 Indeed, a commercial buyer, such as Norcold, may be better situated than the manufacturer to factor into its price the risk of loss caused by the purchase of a defective product.30 Permitting suit against Dayco for strict liability for purely economic damages potentially shifts costs to Dayco's other customers, be they noncommercial buyers or commercial buyers who manage contractual economic risks more conservatively than Norcold.31 *607
{¶ 35} Additionally, the policies of product liability law as articulated by Ohio courts would not be served by extending a strict-liability cause of action to commercial plaintiffs. The Ohio Supreme Court has explained the policy considerations for applying strict liability in cases of defective products, including that human life and safety are promoted by subjecting manufacturers of defective products to strict liability, that manufacturers are in a better position than those injured to internalize and redistribute the cost of injuries, and that strict liability relieves the "average consumer" of the burden of proving negligence.32 None of these policy considerations are applicable to a claim by a commercial buyer for purely economic losses.33
{¶ 36} Therefore, for the foregoing reasons, we hold that absent privity of contract, a commercial purchaser of a defective product cannot maintain a claim for purely economic loss under common law tort theories of recovery. Accordingly, Norcold's claim against Dayco under implied warranty theories in tort is barred as a matter of law, and Norcold's fifth assignment of error is hereby overruled.
{¶ 37} For its final assignment of error, Norcold maintains that the trial court erred in limiting its cause of action against Dayco to implied warranty theories in tort. Norcold claims that it sufficiently pled claims under both implied warranty in tort and contract. However, based upon the pleadings herein, we affirm the determination of the trial court.
{¶ 38} At the outset, we note that in order to maintain a contract-based claim for breach of implied warranties there must be a contractual relationship, or privity of contract, between the parties.34 There is no dispute that Norcold and Dayco did not have *608 a contractual relationship. However, courts have recognized that privity will lie between a manufacturer and an ultimate consumer if either the manufacturer is so involved in the sales transaction that the distributor merely becomes the manufacturer's agent or if the consumer is an intended third-party beneficiary to a contract.35
{¶ 39} Keeping these principles in mind, we now turn to discuss whether Norcold sufficiently pled a claim against Dayco for breach of implied warranty in contract. Civ.R. 8(A) requires "only that a pleading contain a short and plain statement of the circumstances entitling the party to relief. A party is not required to plead the legal theory of recovery or the consequences which naturally flow by operation of law from the legal relationships of the parties."36 In other words, it is sufficient if a plaintiff sets forth facts which, if proven, would establish their claim for relief.37 The purpose of including sufficient operative facts in a complaint is to provide fair notice to the defender of the claim.38
{¶ 40} Norcold's second amended complaint does not allege that it had a contractual relationship with Dayco. Additionally, the complaint fails to factually describe the requisite relationship between Norcold and Dayco to establish privity between them. We also find it noteworthy that in its motion to reconsider the trial court's denial of its request to amend its complaint, Norcold conceded that no privity existed between it and Dayco. Moreover, Norcold's motion for leave to file a second amended complaint stated that the purpose for amending the complaint was to "separate the claims against * * * Gateway * * *, which are contractual in nature, from those against Dayco * * *, which are based in tort." Accordingly, we find that the trial court did not err in limiting Norcold's cause of action to tort theories of recovery.
{¶ 41} Norcold's sixth assignment of error is overruled.
{¶ 42} Having found prejudicial error to Appellant herein, in the particulars assigned and argued, the judgment of the trial court is reversed insofar as it relates to *609 issues concerning express warranty and the implied warranty of fitness for a particular purpose, the matter is remanded for further proceedings in accordance with this opinion.
Judgment affirmed in part, reversed in part, and cause remanded.
SHAW and CUPP, JJ., concur.
