IN THE SUPREPIE COURT OF THE STATE OF MONTANA 

IOFJA MANUFACTURING COMPAPSJ , I 

%!?A24LL 

Plaintiff and &, 

JOY MANUFACTURING COMPANY, 

Defendant and 

I 

Appeal from: District Court of the Second Judicial ~istrict, 

In and for the County of Silver Bow 

Honorable Arnold Olsen, Judge presiding. 

Counsel of Record: 

For Appellant: 

Ilenningsen & Purcell, Butte, Montana 

Mark Vucwvich arqued, Butte, Montana 

For Respondent : 

Corette, Smith, Pohlman and Allen, Butte, Montana 

Gregory Black argued, Butte, Montana 

Filed : $%? %B 183 

Submitted: June 7, 1983 

Decided : September 19, 1983 

Clerk 
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of 

the Court. 

Joy ~anufacturing Company (Joy) appeals from a judgment 

entered on a $50,000 jury verdict in favor of Iowa 

Manufacturing Company (Iowa) in the District Court of the 

Second Judicial District, Silver Bow County. The judgment 

also awarded to Iowa $14,349.40 in attorneys' fees. 

We affirm. 

On February 3, 1971, Jim Gilman Excavating Company 

(Gilman) purchased from Iowa an asphalt mixing plant for its 

operation in Butte. The plant included pollution control 

equipment which was designed and/or manufactured by Joy. In 

connection with Gilman's order, Iowa guaranteed that the 

particulate emissions from the plant would not exceed the 

amount allowed by Montana law as of February 1971 (61 

bhr). Iowa's guarantee to Gilman was made in reliance 

upon Joy's guarantee to Iowa that the particulate emissions 

would not exceed 38 lbs./hr. 

The asphalt mixing plant was shipped to Gilman in June, 

and was operating by late August 1971. In 1973, a 

controversy arose between Gilman and Iowa which was based 

upon the late delivery of the plant. The controversy was 

resolved, and Gilman executed a release. Gilman testified in 

a deposition, however, that the release did not include any 

claims for air pollution problems. 

In 1975, the Montana Department of Health and 

Environmental Sciences (DHES) began questioning Gilman 

concerning pollution problems and complaints. On October 6, 

1975, the DHES served a "Notice of Violation" on Gilman. 

Thereafter, an independent testing firm conducted several 

tests to determine the particulate emissions from the Gilman 

plant. Based upon these tests, the DHES issued an "Order to 
Take Corrective Action" on November 22, 1976. Another test, 

conducted on October 19, 1977, showed that the average 

emissions from the Gilman plant were 62 lbs./hr. Following 

this test, the DHES wrote a letter to Gilman stating that he 

could start up his plant only to demonstrate compliance. 

Gilman then purchased different pollution control equipment 

and filed a complaint against Iowa to recover damages in 

excess of $71,000 for negligence, breach of warranty, and 

strict liability. 

In responding to the allegations of the complaint, Iowa 

raised the affirmative defenses of statute of limitations and 

release. Iowa then gave Joy the opportunity to defend and 

indemnify Iowa in the action. When Joy declined to do so, 

Iowa filed a third party complaint against Joy, alleging that 

Joy designed the pollution control equipment and guaranteed 

that the equipment would meet the Montana Air Pollution 

Standards. As a result of this alleged breach of warranty, 

Iowa sought to be indemnified by Joy. 

Iowa then filed a motion for summary judgment in the 

underlying Gilman action, seeking a ruling on the defenses of 

statute of limitations and release. Joy joined in Iowa's 

motion for summary judgment, which was denied by the District 

Court. 

Approximately one week prior to trial, Iowa settled the 

underlying Gilman action for $50,000. Joy was given the 

opportunity to participate in this settlement, but it 

declined to do so. 

Thereafter, the action proceeded to trial on the third 

party complaint. Before trial, Iowa filed a motion in limine 

asking that the District Court prohibit Joy from producing 

evidence of the release entered into between Iowa and Gilman 

in 1973; and also to prohibit any testimony relating to the 
defense of the statute of limitations as between Iowa and 

Gilman. The District Court granted Iowa's motion in limine 

with respect to the release. The District Court also ruled 

as a matter of law, that as between Gilman and Iowa the 

statute of limitations commenced from the date of discovery 

of the defect. 

During the trial, Ronald Dunmire, an Iowa employee, 

testified that Iowa had given Gilman a specific warranty that 

the plant would meet Montana's air pollution control 

standards. On cross-examination of Dunmire, Joy attempted to 

place into evidence a copy of Iowa's Standard Air Pollution 

Control Performance Warranty. Iowa objected to the 

admittance of this document because the standard warranty was 

not given to Gilman and therefore was not relevant. Iowa's 

objection was sustained. Thereafter, Joy made an offer of 

proof and attempted to show that Dunmire's testimony was 

contrary to Iowa's answer to interrogatory no. 34. In the 

interrogatory, Gilman asked Iowa to describe all 

conversations between Iowa and Gilman relating to the 

warranty. Iowa responded in the interrogatory tha.t in one 

conversation, an Iowa employee represented that "the Plant 

would meet the State of Montana Air Pollution Standards 

subject to certain limitations such as contained in Iowa 

Manufacturing's standard air pollution control performance 

warranty in effect at the time of sale." Joy argued in its 

offer of proof that the standard warranty should be admitted 

"for the purpose of consideration by the jury as to whether 

or not Mr. Dunmire's testimony indicated that the warranty 

given was in lieu of the standard warranty." Iowa responded 

to Joy's offer of proof by stating that interrogatory no. 34 

was in response to what conversations were held regarding the 

warranty. The ultimate warranty given to Gilman did not 
include the terms of the standard warranty. In this case, 

Iowa argued, the specific express warranty should displace 

any inconsistent implied warranties. The District Court 

agreed with Iowa, and again ruled that the standard warranty 

was irrelevant. 

The case was submitted to the jury on the question of 

whether the damages suffered by Gilman were caused by a 

breach of warranty of Joy entitling Iowa to indemnification 

for the sum paid to Gilman. Thereafter, a jury returned a 

verdict of $50,000 for Iowa. Joy's motion for new trial was 

denied, and the District Court awarded $14,349.40 in attorney 

fees to Iowa. 

Joy raises five issues on appeal: 

I. Had the statute of limitations for this action 

expired when Iowa filed its complaint against Joy? 

2. Did Iowa sustain its burden in proving that the 

settlement with Jim Gilman Excavating, Inc. (Gilman) was 

reasonable and that Iowa was liable to Gilman? 

3. Did the District Court err in refusing to admit into 

evidence Iowa's Standard Air Pollution Control Performance 

Warranty? 

4. Did the District Court err in granting Iowa's motion 

in limine with regard to a release and the statute of 

limitations? 

5. Did the District Court err in refusing to instruct 

the jury on active/passive negligence in this action? 

Joy argues that Iowa's cause of action was barred by the 

applicable statute of limitations for breach of warranty, 

section 30-2-725, MCA, since Iowa did not bring the action 

against Joy for more than four years after Joy tendered the 

air pollution equipment. Joy points out that a warrantor 

cannot be an indemnitor based on the warranty beyond the 
temporal scope of that warranty. This argument is well 

taken. To hold otherwise would allow a vendee to circumvent 

the warranty statute of limitations by retaining the goods 

beyond the term of the statute of limitations and then sell 

it with his own warranty and, having made good on his own 

warranty, hold his vendor upon a claim of indemnity. Acc. 

L.E. Talcott & Sons, Inc. v. Aurora Corp. (D. Del. 19591, 176 

F.Supp 783, 786. 

However, Joy fails to recognize that the trial court 

properly ruled that section 30-2-725, MCA, does not bar 

Iowa's claim on the warranty or on indemnity. That section 

provides in part: 

"(1) An action for breach of any contract for sale 

must be commenced within 4 years after the cause of 

action has accrued. * * * 

"(2) A cause of action accrues when the breach 

occurs, regardless of the aggrieved party's lack of 

knowledge of the breach. A breach of warranty 

occurs when tender of delivery is made, except that 

where a warranty explicitly extends to future 

performance of the goods and discovery of the 

breach must await the time of such performance the 

cause of action accrues when the breach is or 

should have been discovered." 

Where a vendor warrants the quality or specifications of 

goods, such warranty is breached when tender of delivery is 

made, absent explicit extension of the warranty to a future 

date. But, where a vendor warrants the performance of goods, 

that warranty necessarily contemplates a reasonable 

period of performance during which the defect or failure 

would manifest itself. By letter dated March 5, 1971, ,Soy 

warranted that the particulate ommissions from the Cedar 

Rapids plant would not exceed 38 pounds per hour (0.25 grams 

per standard cubic foot dry) when the equipment is operated 

in accordance with specified design conditions. Thus the 

warranty contemplates operation of the equipment for at least 
is long as would be necessary for the breach to be 

discovered. 

The trial court, in its ruling on the motion in limine, 

did not foreclose the statute of limitations defense. The 

court merely ruled that the statute ran from discovery and 

not from delivery. This ruling was correct. 

We are unable to rule, as a matter of law, that the 

defect was or should have been discovered more than 4 years 

before the initiation of this action. Joy's next substantive 

argument is that Iowa failed to prove that Iowa was liable to 

Gilman and that the settlement was reasonable. 

Since Iowa settled the underlying action with Gilman, it 

was required to prove that it was liable to Gilman and that 

the settlement was reasonable. 3A Frumer & Friedman, 

Products Liability 544.10 (2) . There is a divergence of 

authority on whether an indemnitee must prove actual or 

merely potential liability when it settles the underlying 

action with a third party. One solution was set forth in 

Morrisette v. Sears, Roebuck & Co. (N.H. 1974), 322 ~.2d 7, 

10, wherein the New Hampshire court stated: 

"'If the indemnitor approves the settlement or 

defends unsuccessfully against the original claim, 

he cannot later question the indemnitee's liability 

to the original claimant. If the indemnitor 

declines to take either course, then the indemnitee 

will only be required to show potential liability 

to the original plaintiff in order to support his 

claim over against the indemnitor. ' (citation) . . . In the event that no offer is made to the 

indemnitor to either approve or defend, then the 

indemnitee should have the burden of showing actual 

liability to the original plaintiff." (Emphasis 

added. ) 

To the extent that it applies to this case, we approve 

this language. Since Joy failed to approve the settlement or 

take the opportunity to defend against the original claim, 

all that was required of Iowa was that it demonstrate 

potential liability, i.e., exposure to liability under the 
facts of its case and the law of this state. The jury was so 

instructed. There is evidence in the record to support 

potential liability. 

Iowa proved that the settlement was reasonable. Ronald 

Dunmire testified that Gilman's complaint asked for 

approximately $88,000 in damages. Therefore, Dunmire felt a 

settlement of $50,000 was realistic. Joy failed to rebut 

Dunmire's testimony as to the reasonableness of the 

settlement. The evidence given supports the verdict. 

Joy next contends that Iowa Company's Standard Air 

Pollution Control Performance Warranty should have been 

admitted into evidence because it contained language which 

limited the operation of any warranty given to Gilman to the 

"initial operating period." Joy argues that the standard 

warranty is relevant because 1) it shows that Iowa's warranty 

was limited to the initial operating period of the plant, and 

2) it places the credibility of Ronald Dunmire at issue. 

Ronald Dunmire testified that the standard warranty was 

- not given because the invoice received from Gilman asked for 

a specific guarantee that the pollution equipment met certain 

Montana standards. Without foundation that the standard 

warranty was given, the text of the warranty is not relevant. 

It is true that Dunmire's testimony is contrary to the 

position taken by Iowa in interrogatory No. 34 and 

supplemental interrogatory No. 9, wherein Iowa stated that 

the specific warranty was "subject to certain limitations 

such as contained in Iowa Manufacturings' Standard Air 

Pollution Control Performance Warranty." Joy, however, did 

not use these interrogatories to impeach Dunmire's testimony. 

While the interrogatories may have had impeachment value the 

text of the warranty alone would not. 
Appellant, Joy, argues that the District Court erred in 

granting Iowa's motion in limine, because the existence of a 

release or running of the statute of limitations, - as between 

-- Iowa and Gilman, were relevant to demonstrate that Iowa was 

not actually liable to Gilman in the underlying cause of 

action. 

The evidence all indicates that the release executed by 

Gilman to Iowa in January of 1973 was for settlement of a 

claim for late delivery of the equipment and had nothing to 

do with the air pollution problems involved in Gilman's later 

suit against Iowa. The trial court correctly granted the 

motion in limine on the release question. The motion was 

granted on the statute of limitations question only to 

prohibit evidence proving the date of delivery as 

representing the starting time. The trial court correctly 

ruled that date of discovery governed running of the statute 

and left the question of when discovery was or should have 

been, open to proof. Appellant did not seek to show that the 

statute had run since discovery, nor did appellant offer any 

instruction covering the subject. 

Finally, Joy contends that the jury should have been 

instructed on active and passive fault because Iowa's conduct 

proximately caused injury to Gilman. Where a warrantee is 

supplied defective goods which constitutes a breach of 

warranty on the part of the supplier, but the warrantee's 

subsequent conduct proximately causes the injury to the third 

party, then the warrantee is not merely passively at fault 

and loses his right to indemnity. Town Pump, Inc. v. 

Diteman (1981), Mont . , 622 P.2d 212, 38 St.Rep. 

54. 

Were there evidence that Iowa was more than passively at 

fault because its conduct was a proximate cause of the injury 
to Gilman, Joy's instruction would be proper. However, in 

this case, no evidence was presented to show that Iowa was 

actively responsible for the defects in the pollution control 

equipment. Although there was evidence that Iowa made 

adjustments to the equipment in 1975, no evidence was 

presented to show that this was a proximate cause of the 

pollution control problem. Therefore, a jury instruction on 

active/passive negligence would not have been proper. 

The judgment of the District Court is affirmed. 

We concur: 

Chief Justice 
Mr. Chief Justice Haswell, specially concurring: 

I concur with the foregoing opinion on all issues 

excepting the issue concerning the statute of limitations. I 

concur in the result of that issue but not in its rationale. 

My quarrel is with the application of the four-year 

statute of limitations on sales in the Uniform Commercial 

Code, section 30-2-725, MCA. In my view the a.pplica.ble 

statute of limitations is the five-year statute of 

limitations on implied contracts. 

This case is an action for indemnity based on breach of 

an express written warranty. An action for common-law 

indemnity is based on a theory of implied contract or quasi 

contract, and thus is very generally held to be governed by 

the statute of limitations applicable to actions on implied 

contracts. Annot., Limitation Applicable - to Indemnity 

Action, 57 ALR3d 833, 838, and copious case authority cited 

therein from numerous jurisdictions. An action on an implied 

contract of indemnity is wholly independent as a cause of 

action from the transaction or situation which gives rise to 

the right of indemnity. Annot., Limitation Applicable - to 

Indemnity Action, supra, at 839-840; Rieger et al. v. 

Frankstram Realties, Inc. (1946), 57 A.D. 411, 68 N.Y.S.2d 

243. 

This distinction is illustrated and explained in a 

federal case similar to the one involved here. Stephenson v. 

Duriron (D.C. Ohio 1968), 292 F.Supp. 66, aff 'd., (6th Cir. 

1970), 428 F.2d 387, cert. denied, 400 U.S. 943, 91 S.Ct. 

245, 27 L.Ed.2d 247. In that case plaintiffs were injured 

and their property was damaged due to gas seepage and a 

resulting explosion caused by a fracture in a metal valve in 

the gas distribution system of a utility. The defective 
valve had been purchased by the utility from a supplier who 

warranted the valve to conform to certain specifications 

based on the same warranty given to it by the manufacturer of 

the valve. The supplier assigned its right of 

indemnification against the manufacturer to the plaintiffs. 

In an action in an Alaska state court, plaintiffs recovered 

judgment against the supplier who was held to be only 

secondarily liable with primary liability on the 

manufacturer. Plaintiffs then brought an action in federalcourt in Ohio to enforce the Alaska judgment against the 

supplier and also sought judgment against the manufacturer as 

assignee of the supplier's right of indemnity against the 

manufacturer. The federal court applied the Ohio statute of 

limitations on oral contracts to the indemnity action 

rejecting the contention of the manufacturer that the action 

was barred by the statute of limitations governing actions 

for personal injuries and property damage. The court 

reasoned that plaintiffs were not seeking recovery for their 

personal injuries and property damage against the 

manufacturer, but on the contrary were seeking to enforce the 

implied contract for indemnification in favor of the supplier 

against the manufacturer that plaintiffs held by virtue of 

the assignment. 

The rationale of the majority in the instant case is 

bottomed on the proposition that the warranty given by Joy to 

Iowa is limited in time and that to hold otherwise would 

allow Iowa to destroy the protection afforded to Joy by the 

statute of limitations applicable to warranties. This 

contention is specious under the facts of this case. The 

warrantor can protect itself by inserting a time limitation 

in the warranty. But where, as here, the warrantor gives an 
express written warranty without a time limitation, the 

warrantor is bound by it. The express written warranty given 

by Joy to Iowa is set forth verbatim as follows: 

"Western Precipitation Division of Joy 

Manufacturing Company guarantees not to 

exceed the outlet dust loading when the 

equipment is operated in accordance with 

the design conditions as specified below: 

"I. SOURCE OF DUST ---------- Rock Dryer 

"11. TYPE OF PRECLEANER ------ 9VGR 

Multiclone 

"111. SCRUBBER INLET CONDITIONS 

"A. Estimated Dust Loading - gr/acf ..................... 6 to 10 

"D. Moisture Content % by Wt.--- 27.2 

"IV. WATER RATE - GPM ----------- 53 to 76 

"V. SCRUBBER PF.ESSURE DROP - "Vh7C@ Oper. Condm ---------- 6 

"VI. SCRUBBER OUTLET CONDITIONS 

"A. Volume - acfm -------------- 35,200 

"C. Moisture Content - Saturated 

I'D. Dust Loading 0.25 gr/scf dry" 

The right of indemnity accrued here when payment was 

made by Iowa to the Gilman Excavating Company under the terms 

of the compromise settlement. St. Paul Fire & Marine 

Insurance Co. v. Thompson (19691, 152 Mont. 396, 451 P.2d 98. 

Approximately one week prior to trial, Iowa settled the 

underlying Gilman action for $50,000 and the trial proceeded 

on the third party complaint for indemnity by Iowa against 

Joy. The statute of limitations for an implied or quasi 
contract in Montana is five years. Section 27-2-202(2), MCA. 

Accordingly, Iowa's action for indemnity is not barred. 

The result is the same in this case whether this Court 

applies the four-year statute of limitation on sales under 

the Uniform Commercial Code or the five-year statute on 

implied contracts of indemnity. However, considerable 

mischief can result in future cases from the holding of the 

majority. Since the right of indemnity does not accrue until 

payment is made or judgment secured in the underlying action, 

that right may be rendered meaningless and illusory to the 

indemnitee in some situations. For example, the statute of 

limitations in the underlying action may well have run before 

the right of indemnity accrues to the indemnitee. If the 

statute of limitations in the underlying action is applied to 

the indemnity action, the indemnitee's remedy may be barred 

before his claim for relief accrues unless he has filed a 

permissive but not mandatory third party complaint prior to 

accrual of his substantive right of indemnity. St. Paul Fire 

& Marine Insurance Co. v. Thompson, supra, where the 

indemnity action was not filed until approximately one year 

after final judgment in the underlying action was entered, is 

an example of a situation where the right of indemnity would 

be barred if the statute of limitations in the underlying 

action were applied. Hence, this special concurring opinion. 

s;-a,J,pL&&,&QQ Chief Justice 

I concur in the foregoing opinion of Mr. Chief,,,Justice Haswell. 

-- - 

Justice