Title: Utility Equipment v. Morbark Industries
Citation: 308 Or. 209, 779 P.2d 139
Docket Number: N/A
State: Oregon
Issuer: Oregon Supreme Court
Date: August 8, 1989

779 P.2d 139 (1989)
308 Or. 209
UTILITY EQUIPMENT, Inc., an Oregon Corporation, Petitioner On Review,
v.
MORBARK INDUSTRIES, Inc., a Michigan Corporation, Respondent On Review.
TC A8411-06465; CA A41674; SC S35745.

Supreme Court of Oregon, In Banc.
Argued and Submitted April 6, 1989.
Decided August 8, 1989.
Christopher James, Portland, argued the cause for petitioner on review. With him on the petition were Christopher James, P.C., and Richard A. Weill, Portland.
Linda M. Seluzicki, Portland, argued the cause for respondent on review. With her on the response to the petition were Glen McClendon and Rick T. Haselton, Lindsay, Hart, Neil, Weigler, Portland.
VAN HOOMISSEN, Justice.
We granted review in this contract case to determine whether a manufacturer's warranty to "replace" a defective part of its product necessarily includes labor costs incurred in replacing the defective part. We conclude that where, as here, the warranty is silent as to who pays labor costs, the question is for the trier of fact to determine.
Plaintiff, Utility Equipment, Inc. (Utility), is an Oregon company that buys heavy equipment from manufacturers and leases or sells that equipment to others. Defendant, Morbark Industries, Inc. (Morbark), is a Michigan-based company which manufactures and sells a variety of forest product related equipment. Among its products is the Eeger Beever Chipper, a portable machine that grinds and mulches trees and brush.
Utility brought this action to recover labor costs it incurred in replacing parts in a number of chippers sold to it by Morbark. The trial court granted Morbark partial summary judgment on Utility's claims for breach of implied warranties of merchantability and of fitness for a particular purpose, negligence, and statutory damages under the National Traffic and Motor Vehicle Safety Act, 15 U.S.C. § 1381 et seq. After trial on Utility's remaining claims, the jury found against Utility on its claims for breach of express warranty and quantum meruit, and in favor of Utility on its claim for indemnity.
Utility appealed, contending that the trial court erred in granting Morbark's motion for partial summary judgment as to Utility's implied warranty, negligence, and motor vehicle safety act claims, in denying Utility's motion for a directed verdict on Utility's breach of express warranty claim, and in instructing the jury. The Court of Appeals affirmed the trial court's judgment. Utility Equipment v. Morbark Industries, 93 Or. App. 489, 763 P.2d 164 (1988). We affirm.
In November 1981, the parties agreed orally that Utility would act as a distributor for Morbark's chippers. There was no blanket dealer agreement between Morbark and Utility. A written agreement submitted to Utility by Morbark was not signed by Utility. Utility purchased each chipper from Morbark under a separate written contract for each purchase. Utility was under no obligation to buy any chippers. Between November 1981 and February 1982, Utility purchased two chippers. During this time, the parties communicated with each other about the scope of Morbark's chipper warranty.
On November 10, 1981, Morbark sent Utility a packet of information including warranty forms and an explanation of Morbark's warranty policies and procedures. Included was a document entitled "Morbark Eeger Beever Warranty," which stated in part:
This warranty also was provided to Utility and to its retail customers with each individual chipper sale.
In February 1982, Morbark wrote to Utility explaining Morbark's warranty coverage. Enclosed was a copy of Morbark's April 1981 service bulletin regarding warranty regulations, which stated in part:
At trial, Utility's president testified that he was aware in early 1982 that Morbark took the position that labor costs were not included in its chipper warranty. Also, Morbark offered evidence that its exclusion of labor costs was consistent with standard industry practice. Knowing that Morbark interpreted its chipper warranty as not covering labor, Utility continued to buy chippers from Morbark. In 1982 and 1983, Utility purchased 38 chippers. Utility ordered all but two of the 38 chippers after having received Morbark's explanatory materials.
In April 1983, Morbark issued an "Urgent Safety Alert" to its customers and dealers advising them that a small number of chippers had developed stress cracking in the fan blades or chipper disc[1] and that once this cracking had occurred, operation of the chipper was extremely dangerous. The "Urgent Safety Alert" stated in part:
In May 1983, Morbark issued a "Safety Alert Update" to its customers and dealers, stating in part:
At the same time, Morbark sent the following instructions to its chipper dealers:
Needless to say, most of Utility's chipper customers were unhappy about the prospect of having to pay the labor costs incident to Morbark's disc replacement program. Utility therefore replaced some of its customers' discs free and then submitted claims to Morbark for reimbursement for labor. Utility also submitted claims for reimbursement for labor on Utility's own chippers and for labor costs incurred by Utility's customers who had fixed their own chippers. When Morbark rejected all claims for labor, Utility initiated *143 this action. Utility's claim for $23,447 in labor costs incurred in repairing chippers included labor costs for work on its customers chippers, on Utility's own chippers, and for labor performed by Utility's customers for which Utility had not paid. The jury awarded Utility $2,219.89 on its indemnity claim.
Utility first contends that the trial court erred in granting Morbark's motion for partial summary judgment as to Utility's implied warranty and negligence claims. Utility argues that the pleadings raised questions of fact as to whether the warranty applies to Utility at all and, if so, as to whether Utility may avoid the warranty's limitations on the ground of unconscionability or failure of essential purpose. See ORS 72.7190.[2]
Morbark's warranty expressly barred Utility's implied warranty and negligence claims:
Utility offers no persuasive explanation as to why it is not bound by the warranty's limitations or why it may avoid them on the grounds of unconscionability or failure of essential purpose. Therefore, the trial court did not err in granting Morbark's motion for partial summary judgment as to Utility's implied warranty and negligence claims.
Utility next argues that granting of partial summary judgment was error because the issue of the warranty's applicability to a "product recall" was a question of fact for the jury. Even assuming that Morbark's offer was a product recall, the Court of Appeals found nothing in the warranty language to indicate that the warranty would not apply to a product recall. The Court of Appeals stated that Utility had offered no evidence of any other agreement that the warranty's express exclusions would not apply to a product recall. Utility Equipment v. Morbark Industries, supra, 93 Or. App. at 494, 763 P.2d 164. We agree. Further, Utility does not explain how Morbark's offer to provide new discs for all chippers, including undamaged and out-of-warranty chippers, could expand Morbark's liability beyond what it otherwise would have been, nor why labeling Morbark's action a "product recall" would impose a new duty on Morbark independent of contract or statute. We adopt the Court of Appeals' analysis on these points and find no error.
Utility also argues that the trial court erred in granting Morbark summary judgment on Utility's motor vehicle safety act claim. That act, which provides a statutory remedy for motor vehicle defects relating to motor vehicle safety, defines "motor vehicle" as:
Our review of the act and its legislative history compels us to agree with the trial court that the act is not applicable because Morbark's chipper is not a vehicle "manufactured primarily for use on the public streets, roads, and highways." Therefore, the trial court did not err in granting summary judgment on Utility's motor vehicle safety act claim.
Utility next contends that the trial court erred in denying its motion for a directed verdict on its breach of express warranty claim and in refusing to give its requested jury instruction that Morbark's express warranty included labor. Utility argues that Morbark's warranty to replace a defective part is unambiguous in that it necessarily includes the cost of labor. Utility argues further that where, as here, a part cannot be easily and cheaply replaced, merely supplying a new part for a defective part does not constitute "replacement." Stated differently, a defective part is not "replaced" if it is still in the machine, even if the customer is in possession of a new part. Utility predicts that under the Court of Appeals' holding, all "repair and replace" warranties will require resort to judicial intervention to determine whether labor is included.
A directed verdict for Utility would have been proper only if Morbark's warranty unambiguously provided that it covers the labor costs. It does not unambiguously so provide.[3] Morbark's warranty does not mention warranty labor. The warranty states in part:
That language could be interpreted as encompassing labor costs involved in replacing a defective part; on the other hand, it also could be interpreted as covering only "at the counter" replacement of defective parts, with labor costs to be borne by the chipper owner. The warranty's meaning, therefore, was a question of fact which was properly given to the jury. See May v. Chicago Insurance Co., 260 Or. 285, 292-94, 490 P.2d 150 (1971); see also 3 Corbin On Contracts 26-28, § 536 (2d ed 1960).[4]
Alternatively, Utility argues that the trial court should have directed a verdict for it because Morbark's warranty provides for the costs of labor involved in manufacturing defects and because Morbark admitted that the disc problem was a manufacturing defect. We disagree. Morbark's warranty does not mention warranty labor. Further, in its April 1981 service bulletin, Morbark specifically advised its dealers, including Utility, that:
Morbark repeated substantially the same advice in its February 1982 letter to Utility. At most, this was Morbark's offer to indemnify its dealers, but only in the event that dealers incur "excessive" costs, and only when those costs result from a "major" manufacturing defect. Further, the requirement for Morbark's written approval *145 prior to submission of a claim indicates that the decision as to whether costs are "excessive," whether a manufacturing defect is "major," and whether reimbursement will be full or partial falls within Morbark's discretion, subject, perhaps, only to Morbark's obligation to act in good faith. See ORS 71.2030.
We have examined Utility's other assignments of error and concur in the disposition of those assignments by the Court of Appeals.
The decision of the Court of Appeals is affirmed. The judgment of the circuit court is affirmed.
[1]  Morbark's witness described the chipper disc as "a flywheel design, 37-and-a-half inches diameter, weighs about 400 pounds with the hardware and knives and shaft and hub."
[2]  ORS 72.7190 provides:

"(1) Subject to the provision of subsections (2) and (3) of this section and of ORS 72.7180 on liquidation and limitations of damages:
"(a) The agreement may provide for remedies in addition to or in substitution for those provided in ORS 72.1010 to 72.7250 and may limit or alter the measure of damages recoverable under ORS 72.1010 to 72.7250, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and
"(b) Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
"(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in the Uniform Commercial Code.
"(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not."
[3]  Each party moved for directed verdict on the express warranty claim, asserting that the language "unambiguously" supported its version.
[4]  Utility did not request a jury instruction that the warranty should be construed against Morbark, as the drafting party. See Busto v. Manufacturers Life Ins. Co., 276 Or. 707, 713, 556 P.2d 96 (1976).