Opinion ID: 746293
Heading Depth: 2
Heading Rank: 2

Heading: Failure to Comply with Drawings and Specifications

Text: 32 McDonnell Douglas also contends that Thiokol warranted that all Star 48 motors delivered under the contract would comply with any drawings or specifications incorporated [into] or referenced by the 7047 contract. The Specification Control Drawing was attached to the 7047 contract. Section 3.0 of the statement of work, which was attached to the Specification Control Drawing, stated that [a]ll rocket motor components shall be suitable for the purpose for which they are intended. Additionally, section 3.5.4 of the statement of work stated that [t]he nozzle [which includes the exit cone] shall be capable of withstanding the thermal mechanical loads during motor burn without any detrimental structural failure. McDonnell Douglas argues that these provisions were incorporated into and referenced by the 7047 contract, and that Thiokol breached those provisions. 33 The essential inquiry is whether these statements in a drawing attached to the contract constitute additional express warranties that were understood and bargained for by the parties. These provisions would constitute performance warranties with serious financial risks involved and it would be very unusual to find the parties intended to tuck them away in drawings attached to the contract. The determinative question is whether the parties intended the warranties to be confined to those expressed in the body of the contract (products free from defects in labor, material, and manufacture) or expanded to performance warranties by drawings attached to the contract. 34 The district court determined that it was the true understanding of the parties that a performance warranty ... was not part of the agreement or a basis of [McDonnell Douglas'] bargain. The facts and circumstances surrounding the making of the contract, the testimony of McDonnell Douglas agents, understandings prevalent throughout the aerospace industry, and McDonnell Douglas' own conduct all support the conclusion that McDonnell Douglas did not bargain for a performance warranty. Accordingly, we conclude that the statements in the Specification Control Drawing were not intended to be additional warranties forming a part of the bargain of the parties. 35 The state-of-the-art of carbon-carbon technology, which is one of the facts and circumstances surrounding the formation of the contract, indicates that a performance warranty was not technically feasible. McDonnell Douglas was aware, at the time it prepared the Specification Control Drawing, of the state-of-the-art of carbon-carbon exit cones. Additionally, McDonnell Douglas knew that the NASA/Air Force investigation of the test failures concluded that a meaningful margin of safety could not be maintained. Finally, McDonnell Douglas knew that the carbon-vapor densification process did not yield uniform density throughout the exit cone. McDonnell Douglas could not have bargained for a performance warranty because it knew that, given the state-of-the-art of carbon-carbon technology, such a promise was impossible to fulfill. See Royal Business Machines, 633 F.2d at 44 (An affirmation of fact which the buyer from [its] experience knows to be untrue cannot form a part of the basis of the bargain.). 36 Moreover, juxtaposing the costs of a satellite with the costs of the Star 48 motor, indicates that a performance warranty was economically unfeasible. In an internal memorandum commenting on a NASA inquiry, a McDonnell Douglas employee stated that McDonnell Douglas decided early on in the PAM program that the financial risks associated with performance warranties were too high considering the price of the satellite compared to the price of the PAM. McDonnell Douglas accordingly wrote its sales contracts in terms of what the product is, not what it does because [t]o prepare a contract in terms of what the hardware does would indeed be a performance warranty. McDonnell Douglas did not include the cost of a performance warranty in the price of its product. Because McDonnell Douglas knew that its profit margin was greater than Thiokol's and it knew what it paid Thiokol for the Star 48 motors, McDonnell Douglas knew that it was not being charged for a performance warranty. 37 The testimony of John Willacker, the McDonnell Douglas employee who drafted the specification control drawing, also supports the district court's conclusion that the parties did not bargain for a performance warranty. He testified at trial that in 1977 it was McDonnell Douglas' practice to set forth only technical requirements in specification control drawings. Willacker was asked if it was a standard industry practice that a specification, like a specification control drawing, was not to be used to contain warranty provisions? Willacker answered, That's correct. More importantly, Willacker also testified that he intended only to set forth technical requirements in the document. Willacker's testimony further supports the district court's conclusion that the parties did not intend to create a performance warranty by incorporating the drawings and specifications of the Specification Control Drawing. 38 Finally, McDonnell Douglas' post-failure conduct is inconsistent with the understanding of the contract that it now advances. On February 20, 1984, D.H. Hauver, a negotiator/administrator for McDonnell Douglas, wrote to Thiokol, Should this investigation determine that the PAM-D (STAR 48) rocket motors failed to achieve specified performance levels due to defects in their manufacture, we will expect you to comply with the warranty provisions of our subcontract. (emphasis added). Had McDonnell Douglas understood Thiokol to have provided a performance warranty, it would not have included the limiting language due to defects in their manufacture in the letter. This subsequent practical construction of the warranty provisions further supports the district court's conclusion that the affirmations in sections 3.0 and 3.5.4 were not a basis of the parties' bargain. 39 In sum, McDonnell Douglas did not bargain for a warranty of performance, knew that it was not paying for such a warranty, and acted as if it understood the contract not to include such a warranty. To create a performance warranty under the circumstances of this case, the contract would have to be much more specific. Accordingly, the district court correctly concluded that statements in the Specification Control Drawings were not intended by the parties to be additional performance warranties.