Opinion ID: 398657
Heading Depth: 1
Heading Rank: 1

Heading: Dismissal of the Warranty and Strict Liability Actions

Text: Against Eastco The appellants argue that the court below erred in dismissing the warranty and strict liability actions against Eastco on the grounds that the transaction with Eastco was predominately a service contract, not a sale of goods such as is required to sustain such an action. They contend that the district court erred in its finding of fact concerning the character of the transaction, not that the court made any mistake in the legal standards it applied. The court below clearly applied the proper rules of law in its analysis of the warranty and strict liability actions against Eastco. Judge Mishler held that both New York and Pennsylvania will not sustain a claim founded in implied warranty or strict liability if the transaction was predominately a service contract with only an incidental transfer of goods. The law of New York on the question of whether a strict products liability action can be sustained in the case of a hybrid sales and service contract is well established. The leading case of Perlmutter v. Beth David Hospital, 308 N.Y. 100, 123 N.E.2d 792 (1954), established the principle that strict liability actions cannot be maintained where the transaction is predominately a service contract despite the existence of elements of a sale. Id. The appellants argue that the Perlmutter rationale is limited to the facts of that case which involved the sale of blood as part of the provision of health services by a hospital. However, Perlmutter has been extended by the New York courts to all transactions where service predominates. See Milau Associates v. North Ave. Development Corp., 42 N.Y.2d 482, 398 N.Y.S.2d 882, 368 N.E.2d 1247 (1977). Although (i)n a proper case, a hybrid service-sale transaction can give rise to a cause of action for breach of warranty or strict products liability if the sales aspect of the transaction predominates and the service aspect is merely incidental, Nickel v. Hyster Company, 97 Misc.2d 770, 773, 412 N.Y.S.2d 273, 276 (Sup.Ct., Suffolk Co. 1978), such a result has only been seen in cases where a retail seller provided some incidental services in connection with the sale, Jackson v. Melvey, 56 A.D.2d 836, 392 N.Y.S.2d 312, 314 (2d Dept. 1977). Judicial consideration of this issue has been analyzed in the same manner in Pennsylvania. See Berkebile v. Brantly Helicopter Corp., 462 Pa. 83, 337 A.2d 893, 898 (1975) (doctrine of strict liability applies only to sellers of defective products); DeMatteo v. White, 233 Pa.Super. 339, 336 A.2d 355, 358 (1975) (contract for construction of home does not constitute a sale of goods despite incidental furnishing of materials); York Heating & Ventilating Co. v. Flannery, 87 Pa.Super. 19 (1926). In the instant case, the district court found the contract for the repair of the truck to be a service contract despite the incidental transfer of property used in rendering the service. The appellants contend that this finding is in error because the facts and proofs set forth in the record establish that the transaction was predominately a sales contract. They cite three factors to support their position that the contract between Edward Stafford and Eastco was predominately one for the sale of goods: (1) the charge for labor was less than the charge for parts; (2) the purpose of the transaction was to replace the steering mechanism under the recall program instituted by the manufacturer; and (3) Eastco had the status of a franchisee of the manufacturer and was acting as the manufacturer's agent when installing the new steering mechanism. This court, in reviewing a finding of fact made by the court below, is bound by the rule that (f)indings of fact shall not be set aside unless clearly erroneous. Fed.R.Civ.P. 52(a). The burden is upon the appellants to demonstrate that the district court's finding is clearly wrong. Zovluck v. United States, 448 F.2d 339 (2d Cir. 1971), cert. denied, 405 U.S. 1043, 92 S.Ct. 1327, 31 L.Ed.2d 585 (1972). The district court's finding that the transaction between Edward Stafford and Eastco was predominately a service contract is amply supported by the evidence in the record. Mr. Stafford himself described his arrangement with Eastco as having the purpose of repairing the truck. At the time he arranged to have the truck towed to Eastco he had no knowledge that the steering mechanism may have been under recall by International Harvester, the manufacturer, and, therefore, could not have gone to Eastco with the purpose of having the recall replacement made by an agent of the manufacturer. As explained by the New York Court of Appeals, the underlying nature of a hybrid transaction is determined by reference to the purpose with which the customer contracted with the defendant: Viewed in its entirety, we held in Perlmutter that the transaction could not be characterized in part or in its underlying nature as one for the sale of goods, for Mrs. Perlmutter had checked into the hospital to restore her health, not to purchase blood. Milau Associates v. North Ave. Development Corp., 398 N.Y.S.2d 882, 368 N.E.2d at 1249. In this case Mr. Stafford had his truck towed to Eastco in order to repair the damage caused by the accident which occurred on November 5, 1974 in New York. The underlying nature of the transaction was therefore that of a contract for repairs and no error can be found in the district court's finding to that effect. The dismissal of the appellants' warranty and strict liability causes of action against Eastco is therefore affirmed.