Title: WHITAKER v FARMHAND INC

State: montana

Issuer: Montana Supreme Court

Document:

No. 13228 I N T H E SUPREME COURT OF THE STATE O F MONTANA 1977 DONALD WHITAKER, D O U G L A S WHITAKER, and G R A C E M. WHITAKER, P l a i n t i f f s and Respondents, F A R M H A N D , INC., a corporation, and H A L W. BICK, Defendants and Appellants. Appeal from: D i s t r i c t Court of t h e Seventeenth J u d i c i a l D i s t r i c t , Honorable Thomas Dignan, Judge p r e s i d i n g . Counsel of Record: For Appellants: Moulton, Bellingham, Longo and Mather, B i l l i n g s , Montana Ward Swanser argued, B i l l i n g s , Montana L-L~ I-~ly _ _ I I bl For Respondents : Robert Hurly argued, Glasgow, Montana John M. Kline, M i l e s City, Montana Submitted: May 4 , 1977 Decided. Hon. Peter G. Meloy, D i s t r i c t Judge, s i t t i n g f o r M r . J u s t i c e Frank I. Haswell, delivered the Opinion of the Court. This i s an appeal by defendants from a judgment of the d i s t r i c t court, P h i l l i p s County, in favor of p l a i n t i f f s . The l i t i g a t i o n a r i s e s from the s a l e of a c i r c u l a r sprinkling i r r i g a t i o n system t o p l a i n t i f f s by defendants. The d i s t r i c t court found f o r p l a i n t i f f s . The issues presented f o r review are: A . Did the d i s t r i c t court e r r i n finding l i a b i l i t y on behalf of Bick and Farmhand, Inc. i n s t r i c t l i a b i l i t y , negligence i n design, manufacture and i n s t a l l a t i o n , breach of warranties, and the implied warranty of f i t n e s s ? B. Did the court e r r i n rejecting the disclaimer of warranty and damages provision of the warranty and contract. C. Did the d i s t r i c t court e r r i n not applying the proper measure of damages t o a commercial loss case? P l a i n t i f f s are Donald Whitaker, Douglas Whitaker and Grace Whitaker, farm owners i n P h i l l i p s County, Montana. Defendants a r e Farmhand, Inc., and Hal. W. Eick, Farmhand's exclusive dealer i n the area. I n May 1972 p l a i n t i f f s instigated t h i s s u i t against defendants f o r breach of warranties, negligence i n design and i n s t a l l a t i o n , and s t r i c t l i a b i l i t y , a l l having t o do with a Farmhand i r r i g a t i o n system which p l a i n t i f f s bought through Bick. Bick counterclaimed f o r an amount alleged due from p l a i n t i f f s and crossclaimed f o r indemnity from Farmhand. Prior t o t r i a l Bick and Farmhand stipulated t h a t i f l i a b i l i t y i s found, they would be l i a b l e i n the following manner: 25% Bick and 75% Farmhand, with a t o t a l maximum l i a b i l i t y against Bick of $20,000. A nonjury t r i a l was held commencing on February 17, 1975. A t the close of t r i a l the p a r t i e s submitted proposed findings of f a c t and conclusions of law t o the court. The court adopted t h e p l a i n t i f f s ' proposed findings and conclusions and entered judgment f o r p l a i n t i f f s . A motion f o r a new t r i a l made by defendants was denied. Bick and Farmhand stipulated t h a t armh hand's attorney would perfect t h i s appeal f o r both defendants. ~ l a i n t i f f s ' ranch consists of 6,280 acres of deeded land and 2,000 acres of leased land. Prior t o the purchase of the i r r i g a t i o n system, p l a i n t i f f s farmed 1,000 acres and another 1,000 acres was i r r i g a t e d by a flood and dike i r r i g a t i o n system. Before the purchase of the i r r i g a t i o n system the 1,000 acres t h a t was i r r i g a t e d was roughly divided---200 acres i r r i g a t e d pasture, 250 acres a l f a l f a , and 600 acres hay and a l f a l f a . Also p r i o r t o the system p l a i n t i f f s carried approximately 400 head of c a t t l e and 100 head of sheep. P l a i n t i f f s f i r s t became interested i n obtaining a sprinkler i r r i g a t i o n system i n about 1964. They wrote t o several companies and obtained l i t e r a t u r e about several brands. I n the spring of 1969 they f i r s t contacted Farmhand requesting information about i t s systems. Farmhand sent p l a i n t i f f s a brochure on i t s i r r i g a t i n g systems and arranged f o r Bick, i t s authorized dealer, t o contact them. The brochure represented and described the system as: (1) It has portable,(2) it would provide f a l l pasture, (3) l i t t l e o r no land preparation was necessary, (4) it was dependable, (5) it was s a f e , (6) it was trouble f r e e , and (7) it had a long l i f e . O n September 15, 1969, Bick came t o p l a i n t i f f s ' ranch t o t a l k about Farmhand's systems. A t t h i s time Bick made representations about the system, i . e . , how it was designed t o be portable, e t c . P l a i n t i f f s took Bick on a tour of t h e i r farm and t o l d Bick of t h e i r plans f o r two c i r c l e s of sprinkler i r r i g a t i o n . P l a i n t i f f s a l s o took Bick t o meet t h e i r banker t o discuss t h i s project. A t a l a t e r date Eick took p l a i n t i f f s and t h e i r banker on a t r i p t o see some Farmhand systems i n operation. They saw several Farmhand sys tems , but none had towing wheels. P l a i n t i f f s then hired Bick t o do survey work necessary f o r s e t t i n g up the two c i r c l e s - f o r i r r i g a t i o n . Bick was t o b i l l p l a i n t i f f s $500 f o r the survey work i n the event p l a i n t i f f s did not purchase the system. I f p l a i n t i f f s decided t o buy the system, the work was t o be free. O n October 15, 1969, p l a i n t i f f s contracted with Bick t o buy the Farmhand 18 tower towable i r r i g a t i o n system. There i s some c o n f l i c t a s t o whether t h i s was an o r a l o r written contract. P l a i n t i f f s a t t h a t time made a down payment of $11,715. The t o t a l amount of the contract was $45,800. The Farrrrhand system i t s e l f was $25,540. The balance was f o r pump, engine, pipe and i n s t a l l a - tion. Most of the i n s t a l l a t i o n work was t o be done by Bick and h i s crew but p l a i n t i f f s agreed t o do some of the work t o keep the cost down. Eick ordered the system from Farmhand, complete with towing wheels. The system arrived a t ~ l a i n t i f f s ' farm i n November 1969, without the towing wheels. Bick's crew, under Farmhand super- vision, finished the majority of the erection of the machine i n November 1969. Weather prevented finishing. The Farmhand warranty was contained i n the operator's manual which arrived a t the time the system arrived, subsequent t o the i n i t i a l contract. O n December 15, 1969, the original contract was replaced by a formal written contract. P l a i n t i f f s paid $43,272.52 on these contracts. Prior t o e i t h e r contract with Farmhand, p l a i n t i f f s contracted t o s e l l the a l f a l f a off of the proposed south c i r c l e , beginning in 1971 f o r $12 per ton i n 1971 and 1972, and $25 per ton i n 1973 and 1974. Bick' s crew and p l a i n t i f f s completed erection of the machine in the spring of 1970. The system, without the towing mechanism, was f i r s t s t a r t e d i n May 1970 on the north c i r c l e . Immediately it was discovered t h e Cummin's pump engine and impeller were too small, a s was the propelling engine. Bick replaced the propelling engine a t no cost t o p l a i n t i f f s and ordered a larger Cummin's pump engine and impeller. The impeller was t o be f r e e t o p l a i n t i f f s and the pump engine was t o be replaced f o r $880. A t t h i s time a dispute arose between p l a i n t i f f s and Bick. The dispute concerned the amount of work i n erecting the system contributed by p l a i n t i f f s and the amount done by Bick; it a l s o concerned $3,267 withheld by p l a i n t i f f s from the contract price. This was never res6lved and p l a i n t i f f s refused t o pay the additional $880 f o r the larger pump engine. Bick then sent the new pump engine and impeller back and refused any further service t o p l a i n t i f f s . P l a i n t i f f s thereafter did business d i r e c t l y with Farmhand. Throughout the summer of 1970, the system only made 5 rotations. During each of these rotations the system stuck i n the d i t c h which Bick designed. Farmhand personnel came t o a s s i s t p l a i n t i f f s on two occasions during t h a t summer. The towing system arrived i n the spring of 1971. The system was not complete and p l a i n t i f f s had t o manufacture some p a r t s on t h e i r own. A Farmhand crew came t o p l a i n t i f f s ' farm i n the spring of 1971 t o do some repair work on the system. P l a i n t i f f s planted the south c i r c l e i n a l f a l f a t h a t spring, a year l a t e r than originally planned. O n the f i r s t attempt t o move the system from the north c i r c l e , where it had been, t o t h e south c i r c l e , p l a i n t i f f s noticed substantial damage caused by the move. The machine was moved twice more during 1971, back t o the north c i r c l e and back again t o t h e south c i r c l e . The l a s t move was some time i n July. During each of these moves, the machine was damaged and needed substantial repair before it could be used. I n l a t e July 1971, p l a i n t i f f s attended a meeting i n Billings with Farmhand representatives and Bick. The meeting was t o work out problems with the system and a l s o the problems between Bick and p l a i n t i f f s . A t t h i s meeting Farmhand representatives t o l d p l a i n t i f f s the towing mechanism was not working properly and the machine should not be towed. To provide f o r p l a i n t i f f s ' need f o r i r r i g a t i o n on the second c i r c l e Farmhand a t t h i s meeting offered t o s e l l p l a i n t i f f s a new Farmhand system f o r t h e reduced cost of $26,500 complete. This o f f e r was rejected by p l a i n t i f f s and/or t h e i r banker. The system was used i n the south c i r c l e during the years 1972 and 1973, when it was towed out t o make room f o r a new Valley system. I n early 1972, Farmhand offered t o s e l l p l a i n t i f f s a used Farmhand system f o r t h e i r second c i r c l e f o r $10,000 on a 50% recourse basis. This o f f e r , too, was rejected by p l a i n t i f f s and/or t h e i r banker. From t h i s point on p l a i n t i f f s ' relation- ship with Farmhand disintegrated. They never contacted Farmhand for additional service, nor did Farmhand tender any service o r further proposals. - 6 - l i a b i l i t y , negligence i n design, aanufacture and i n s t a l l a t i o l ~ , breach of express warranties, and the implied warranty of f i t n e s s . dc w i l l discuss these i n order. Z. S t r i c t l i a b i l i t y . This theory f i r s t came i n t o being because of the problem sf i:he lack of p r i v i t y i n warranty cases. 2 Restatement of Torts %d accepted t h i s theory i n $ 402A which reads: "(1) One who s e l l s any product i n a defective condition unreasonably dangerous t o the user o r consumer or t o h i s property I s subject t o l i a b i l i t y for physical harm thereby caused t o t h e ultimate ~ i s e r o r consumer o r t o h i s property, i f "a) the s e l l e r i s engaged i n the business of .jeLLi~lg such a product, and "b) it i s expected t o and does reach the user . ~ r zoilsumer without substantial change i n the condition In which it i s sold. ( 2 ) The rule s t a t e d i n Subsection (1) applies d Lthough "a) the s e l l e r has exercised a l l possible L d i e i-n the preparation and s a l e of h i s product, and b The user or consumer has not bought the pioduct from o r entered i n t o any contractual r e l a t i o n d t h the s e l l e r . " vlo~ltana adopted the Restatement i n Brandenburger v. Toyota 3ocor Sales, 162 Mont. 506, 513 P.2d 268. This decision provided qzh*t although the burden t o prove the defect i s on the p l a i n t i f f , i h i s burden can be met by circumstantial evidence and inferences cheref rom. W e have b r i e f l y discussed the doctrine of s t r i c t l i a b i l i t y brcdase it was plead and considered by the t r i a l court. O n dppeal i t s application is claimed a s e r r o r by defendants. t~ i s not reversible error when considered i n l i g h t of the !:acts of t h i s case. A more precise l e g a l analysis of the case ac the inception would more correctly have confined the course of the l i t i g a t i o n within the bounds discussed hereafter, where it properly belongs and upon which t h i s Court w i l l r e s t i t s determination. 11. Negligence i n design, manufacture and i n s t a l l a t i o n . The d i s t r i c t court i n i t s finding of f a c t No. 35(1) found t h a t the system "was so negligently,carelessly and recklessly manufactured, designed and i n s t a l l e d by the defendants t h a t it never operated f o r the purpose for which it was sold.'' The theory of negligence has been applied against the rernote manufacturer i n several cases, the leading one MacPherson v . Buick Motor Co., 217 N.Y. 382, 1 1 1 N.E. 1050. This doctrine has been accepted i n 2 Restatement of Torts 2d, $395. Montana hds followed t h i s r u l e i n Knudson v. Edgewater Automotive Divi- jion, 157 Mont. 400, 486 P.2d 596 and Duchesneau v. Silver B o w County, 158 Mont. 369, 492 P.2d 926. The f a c t s here c l e a r l y show such negligence. !~1. Implied warranties of merchantability and f i t n e s s f o r s u d r ~ i c u l a r purpose. The Uniform Commercial Code provisions f o r these warranties are 5ection 87A-2-314, R.C.M. 1947, f o r merchantability and section 31~-2-315, R.C.M. 1947, f o r f i t n e s s for a p a r t i c u l a r purpose. hey 87A-2-314. "Unless excluded or modified f c 9 ; * a warranty t h a t the goods s h a l l be merchantable i s implied i n a ~ o n t r a c t for t h e i r s a l e i f the s e l l e r i s a merchant with respect t o goods of t h a t kind. ' k fc fc ( 2 Goods t o be merchantable must be a t l e a s t S U i i l d S "(c) are f i t f o r the ordinary purposes f o r which s ~ h 300ds a r e used + c * +. 87A-2-315. "Where the s e l l e r a t the time of con- t r a c t i n g has reason t o know any p a r t i c u l a r purpose f o r which the goods a r e required and t h a t the buyer is relying on the s e l l e r ' s s k i l l o r judgment t o s e l e c t o r furnish suitable goods, there is unless excluded o r modified under the next section an implied warranty t h a t the goods s h a l l be f i t f o r such purpose." Most courts now follow the r u l e s e t f o r t h i n Henningsen v. Bloomfield Motors, Inc., 32 N . J . 358, lGlA.2d 69, which holds the remote manufacturer l i a b l e f o r implied warranties. The evidence supports the d i s t r i c t c o u r t ' s findings t h a t such implied warranties did e x i s t and they were breached. I V . Express Warranties. The Uniform Commercial Code, section 87A-2-313, R.C.M. 1947, provides i n pertinent p a r t : "(1) Express warranties by the s e l l e r a r e created a s follows : "(a) Any affirmation of f a c t o r p r ~ m i s e made by the s e l l e r t o the buyer which r e l a t e s t o the goods and becomes p a r t of the basis f o r the bargain creates an express warranty t h a t the goods s h a l l conform t o the affirmation o r promise. "(b) Any description of the goods which i s made a p a r t of the basis of the bargain creates an express warranty t h a t the goods s h a l l conform t o the description. "(c) Any sample o r model which i s made p a r t of the basis of the bargain creates an express warranty t h a t the whole of the goods s h a l l conform t o the sample o r model. "(2) It i s not necessary t o the creation of an express warranty t h a t t h e s e l l e r use formal words such a s t warrant' o r 'guarantee' o r t h a t he have a specific intention t o make a warranty * ; k * Jc." Such affirmations, promises o r descriptions were made by Bick t o p l a i n t i f f s . Such affirmations, promises o r descrip- tions were a l s o s e t f o r t h i n the Farmhand brochure. The law appears t o be well s e t t l e d t h a t a remote manufacturer without p r i v i t y with the purchaser i s l i a b l e f o r breach of warranty by advertising on radio and television, i n newspapers and magazines, and i n brochures made available t o prospective purchasers, i f the purchaser r e l i e s on them t o h i s detriment. Rogers v. Toni Home Permanent Co., 167 Ohio St. 244, 147 N.E.2d 612; Baxter v. Ford Motor Co., 168 Wash. 456, 12 P.2d 409, 88 A.L.R. 521; Randy Knitwear, Inc., v. American Cyanamid Co., 1 1 N.Y.2d 5, 181 N.E.2d 399. The Montana case c i t e d by defendants, Jangula v. United States Rubber Co., 147 Mont. 98, 410 P.2d 462, did not speak t o the point. I n another case c i t e d by defendants, Jacobson v. Colorado Fuel and Iron Corp., 409 F.2d 1263, the court held t h a t a statement i n a brochure did not give r i s e t o an express warranty under every condition. The court, however, implied t h a t it might very well give r i s e t o such a warranty i n some cases. Lander v. Sheehan, 32 Mont. 25, 79 P. 406, held t h a t whether a statement i s t o be treated a s an express warranty i s a f a c t t o be determined by the t r i e r of f a c t . The evidence here supports the d i s t r i c t c o u r t ' s finding t h a t Bick and Farm- hand made express warranties t o p l a i n t i f f s , and t h a t they were breached. Defendants contend the court erred i n rejecting the disclaimer of warranty and damage provision of the warranty and the contract. Defendants claim t h a t even i f the court did find such implied and express warranties, they were effectively disclaimed by the Farmhand warranty contained i n the erection manual. They r e l y on several Montana cases which upheld such disclaimers. S t a t e ex r e l . Mountain States Tel. & Tel, Co. v. D i s t r i c t Court, 160 Mont. 443, 503 P.2d 526; Ryan v. Ald, Inc., 146 Mont. 299, 406 P.2d 373; Spurgeon v. Jamieson Motors, 164 Mont. 296, 521 P.2d 924; R i e f f l i n v. Hartford Ins. Co., 164 Mont. 287, 521 675. See also: Section 87A-2-719, R.C. M. 1947. - 10 - The question before t h i s Court i s not the v a l i d i t y and enforceability of such disclaimers, rather it i s the timeliness of the disclaimer. The express and implied warranties were made t o p l a i n t i f f % p r i o r t o the entering i n t o of the contract on October 15, 1969. P l a i n t i f f did not and could not know of the disclaimer u n t i l November 1969, v~hen the erection manual came with the machine. A disclaimer o r limitation of warranty contained i n a manufacturer's manual received by the purchasers subsequent t o the s a l e does not l i m i t recovery f o r implied o r express warranties made p r i o r t o o r a t t h e time of the sale. Marion Power Shovel Co. v. Huntsman, 246 Ark. 152, 437 S.W.2d 784; Cooper Paintings & Coatings, Inc., v. S C M Corp., 62 Tenn.App. J @ G 13, 457 S.W.2d 864; Rehurek v. Chrysler Credit Corp., Fla. 2 262 So.2d 452; Dougall v. Brown Bay Boat Works and Sales, Inc., 287 Minn. 290, I78 N.W.2d 217. Even i f the Farmhand disclaimer had been made p r i o r t o the s a l e , such disclaimer would not have been e f f e c t i v e t o destroy the express warranties made i n the brochure and by Bick. I n 1 Anderson Uniform Commercial Code, $ 2-316:28, p. 698, it is stated: "When there i s a c o n f l i c t between a specific express warranty and a clause which i n general language ex- cludes a l l warranties, the specific warranty provision prevails ." Nor w i l l a disclaimer of warranty stop a purchaser from recovering on s t r i c t l i a b i l i t y . 2 Restatement of Torts 2d, 5 402A, Comment m; Arrow Transportation Co. v. Fruehauf Corp., The d i s t r i c t court found the implied and express warranties made by Bick and Farmhand remained v a l i d and enforceable. W e agree. - I1 - Defendants contenj. i f there is l i a b i l i t y and daniages allos~ed for loss of production such a r e not proper a f t e r the year 1971, the time the defendants claim the system would not serve the purpose for which i t was purchased. It i s the law of Montana that consequential damages cannot accrue past the time the injured party has knowledge of the f a i l u r e of the equipment and a reasonable time thereafter within which t o make other arrangements. Such i s the e f f e c t of the decision of Bos v. Dolajak, 167 Mont. 1, 7 , 534 P.2d 1258. The reasonable man rule of damages i s applied i n Baden v. Curtiss Breeding Service, 380 F.Supp. 243. Spackman v. Ralph M. Parsons Co., 147 Mont. 500, 414 P. 2d 918, points out t h a t i n awarding compensatory damages ingenious methods have been propounded and: "a +f * while such methods serve a s useful guides, the f i n a l answer r e s t s i n good sense rather than mechanical application of formulas." 147 Mont . 506. I n t h i s respect the d i s t r i c t court made i t s finding of f a c t , No. 46: "That P l a i n t i f f s made reasonable e f f o r t t o get said Farmhand system t o i r r i g a t e both t h e i r f i e l d s and t o get the Defendants t o f i x said system SO it would i r r i g a t e both f i e l d s ; t h a t when they once deter- mined t h a t the Defendants would not f i x said machine LO i r r i g a t e both f i e l d s , they made reasonable e f f o r t s t o acquire other means of i r r i g a t i o n ; and they did acquire one other pivot i r r i g a t i o n system; t h a t t h e i r financial condition prevented them from acquiring t h a t i r r i g a t i o n system any sooner; and t h e i r finan- c i a l condition prevents them from acquiring a second i r r i g a t i o n system up t o and including the date of t r i a l ; t h a t P l a i n t i f f s have done everything reasonably required of them t o cover and t o mitigate t h e i r damages . ' I The instant case i s not unlike the f a c t u a l situation of Bos v. Doiajalc, supra, where the Court found t h a t the s i l o 'was a 1 1 i.tern of property with special characteristics. It could not be replaced the next day a t the local hardware s t o r e o r automobile dealership .!' Here, the p l a i n t i f f s were engaged i n a large a g r i c u l t u r a l business and wanting t o improve produc- tion contracted f o r a complete new method of production of hay. To accomodate the new method defendant Bick surveyed the premises and made the necessary recommendations which required the removal of the old dike and flood system and ditches. I n reliance on the contemplated increase i n hay production p l a i n t i f f s contracted t o s e l l the hay t o be produced. Concerning the date p l a i n t i f f s became aware the machine would not work, it appears t h a t u n t i l the f a l l of 1973 p l a i n t i f f s with the urging of defendants attempted t o make the machine serve the purpose f o r which it was designed and sold. There was no evidence produced by defendants a s t o the e f f o r t s upon the p a r t of p l a i n t i f f s t o mitigate. The burden of proof a s t o mitigation is upon the defendants. Klemens & Son v. Reber Plumbing & heating Co., 139 Mont. 115, 360 P.2d 1005. This burden includes establishing t h a t p l a i n t i f f s could have mitigated the damages but f a i l e d t o do so. See: LTV Aerospace Corp. v. Bateman, Tex.Am1973, 492 S.W.2d 703. There i s substantial evidence the p l a i n t i f f s did not have the financial capability t o acquire other satisfactory devices t o accomplish the purpose f o r which they arranged t h e i r operation a s designed by the defendants u n t i l a f t e r the 1974 season. The d i s t r i c t court so found. This Court i s an appellate court and i s confined t o the record made before the d i s t r i c t court. The findings of f a c t and conclusions of law of the d i s t r i c t judge who heard the witnesses t e s t i f y , a r e t o be sustained i f there i s substantial credible evi- dence t o support them. Bender v. Bender, 144 Mont. 470, 397 P.2d 957; Spencer v. Robertson, 151 Mont. 507, 445 P.2d 48; Cope v. Cope, 158 Mont. 388, 493 P.2d 336.. The record here discloses substantial evidence t o support the d i s t r i c t c o u r t ' s findings, conclusions and judgment. The judgment i s affirmed I. Haswell. W e Concur: . . Chief J u s t i c e I \