Court Opinion

ID: 9475587
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:31:48.68465+00
Date Added: 2024-06-11T17:44:47.808658
License: Public Domain

HEANEY, Circuit Judge,
dissenting.
I respectfully dissent. In denying Gold’n Plump a remedy for Simmons’s breach of the express warranty, the majority unnecessarily reduces the protections afforded by the warranty provisions of the U.C.C.
Minnesota’s version of U.C.C. Section 2-313(1) states that an express warranty includes, “any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain.” Minn.Stat. § 336.2-313(l)(a) (1986). Thus, to assert rights under an express warranty one must first show 1) an affirmation of fact or promise; 2) made by the seller to the buyer; 3) relating to the goods; and 4) that is the basis of the bargain between the parties.
After Simmons delivered the machines to Armour, the rights of the parties were not at all certain. The machines were not functioning properly, and Armour indicated it would refuse to pay for them until the problems were corrected. At this point, instead of risking ill feelings in what appeared to be a beneficial ongoing business relationship, Simmons sent Armour the February 14, 1983, letter proposing to modify the parties’ contract. The letter stated:
This is to certify that in the event our venter openers do not function within reasonable tolerances; we will refund all monies paid to us for the equipment.
We reserve the right to make such modifications as we deem proper in an attempt to attain a satisfactory machine.
In return for the modification, Armour paid the purchase price of the machines to Simmons. In this context, Simmons’s letter clearly constitutes an express warranty. The letter contains a promise by the seller (Simmons) relating to the goods that was a basis of the bargain between the parties.
The majority argues that the letter cannot constitute an express warranty because it did not arise from the bargain of the parties at the time of the sale. Such a requirement, however, is not found in Minn.Stat. § 336.2-313 (covering warranty creation), in any other section of Minnesota’s version of the U.C.C., or in the case law. The reason for the lack of authority supporting the majority’s position is clear. Although a warranty must arise out of a sale, there is no requirement that it arise at the same time as the sale.1
Despite the statutory gloss of the U.C.C., warranties remain essentially contract items to be agreed upon by the parties. There is no reason a contract may not be modified to include a warranty term in accordance with applicable law governing contract modification. See Minn.Stat. § 336.2-209 (modification of a contract binding without consideration provided it is in good faith and the contract, as modified, meets the requirements of the statute of frauds).
*1321The district court recognized this point in its findings. It stated: “The agreed upon terms of purchase were established at trial to include Simmons’s promised six months of free parts and labor and its guaranteed refund in the event the machines failed to work satisfactorily.” (Emphasis added.) Thus, the effect of Simmons’s letter of February 14, was to modify the existing contract to include an express warranty in favor of Armour. The issue presented by this appeal is whether Gold’n Plump, as successor to Armour, can hold Simmons to the express warranty it created.
Simmons argues that it is not liable to Gold’n Plump on the express warranty because there is no privity of contract between Gold’n Plump and Simmons. Lack of privity, however, does not bar Gold’n Plump from enforcing the express warranty. As the majority recognizes, “the Minnesota U.C.C. creates a broad exception to the privity requirement.” Minn.Stat. § 336.2-318 (1986) provides:
A seller’s warranty whether express or implied extends to any person who may reasonably be expected to use, consume or be affected by the goods and who is injured by breach of the warranty. A seller may not exclude or limit the operation of this section.

Id.

Section 336.2-318 allows Gold’n Plump to assert Armour’s rights under the express warranty because it may have been reasonably expected to use, consume, or be affected by the machines. Although a seller of an item may not always be reasonably expected to foresee the use to which it will be put on resale or the exact party to whom it may be resold, it is foreseeable that, at some point, the item may be resold and used by a different party. There is no sound policy basis for releasing the seller from its warranty obligations on account of the resale. Indeed, to do so, absent a clear intent of the parties to the contrary, is to create a windfall for a seller who has breached its warranty at the expense of an innocent subsequent purchaser.2
In Industrial Graphics, Inc. v. Asahi Corp., 485 F.Supp. 793 (D.Minn.1980), Judge Harry MacLaughlin recognized the strong considerations in favor of allowing a subsequent purchaser to bring an action based upon an original seller’s warranty. He stated:
Third, not allowing such recovery could theoretically encourage manufacturers to utilize thinly capitalized intermediary corporations to sell defective products, thereby escaping liability. Fourth, the rule barring such recovery from non-privity defendants plainly encourages multiple litigation, thereby undermining judicial resources. Fifth, and perhaps most important, is that the fears underlying the decisions barring such recovery about unforeseen and unlimited liability are illusory, as the Uniform Commercial Code offers ample protection to manufacturers and other sellers. * * * In this regard, the UCC allows manufacturers to restrict their liability by exclusion and modification of implied warranties, and the provisions creating implied warranties are carefully tailored. Also, and quite importantly, with respect to the *1322recovery of lost profits, the Code allows recovery only if the loss was foreseeable by the seller. See Minn.Stat. § 336.2-715(2)(a). Finally, the Minnesota cases, while they have not addressed the precise issue presented here, have continually rejected the artificial notion that privity of contract should bar recovery.
Id. 485 F.Supp. 793, 804 (citations omitted).
This Court should not create a situation in which sellers could so easily defeat warranty provisions they have voluntarily created. Thus, I would hold that Gold’n Plump may maintain an action based upon the express warranty Simmons voluntarily created in its February 14, 1983, letter to Armour.3
Finally, with respect to remedy, the district court found that even if Gold’n Plump could enforce the express warranty against Simmons, recovery should be denied because Gold’n Plump failed to properly establish damages for breach of warranty. Minn.Stat. § 336.2-714(2) (1966) provides:
The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted unless special circumstances show proximate damages of a different amount.
Since Gold’n Plump failed to introduce any evidence at trial as to the difference in value of the machines as accepted and as warranted, the court found that even if Gold’n Plump could have enforced the warranty, recovery was properly denied due to a failure of proof.
Although Minn.Stat. § 336.2-714(2) provides the usual measure of damages, it is not the sole remedy available for breach of warranty. Minn.Stat. § 336.2-719(l)(a) allows parties to “provide for remedies in addition to or in substitution for those provided in this article.” Thus, if the parties agree to a measure of damages for breach of warranty different from that provided by Minn.Stat. § 336.2-714(2), courts should enforce the measure in the same manner as any other contract term, provided there is no showing that it represents a penalty or is unconscionable. See Minn.Stat. § 336.2-719 comment 1 (“Under this section parties are free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect.”). Cf. Minn.Stat. § 336.2-718 (1966) (liquidated damages provision); Minn.Stat. § 336.2-719(2) and (3) (1966) (limitations on modification of remedy).
In this case, the express warranty created by Simmons in the letter of February 14, 1983, contained two terms. The first was that the machines would function within reasonable tolerances. The second was that if the machines did not so function, Simmons would return all monies paid for the equipment. The second term represents an agreement to substitute a refund of all monies paid for the usual remedy provided by Minn.Stat. § 336.2-714(2). The district court failed to give effect to the agreed term by applying the remedy provided in Minn.Stat. § 336.2-714(2). Thus, the court significantly altered the contract by ignoring a mutually agreed upon and bargained for term.
*1323In this light, Gold’n Plump’s failure to offer evidence as to the difference in value of the goods as warranted and the goods as accepted is entirely reasonable. The warranty under which Gold’n Plump asserts its rights contains its own bargained for remedy. To require Gold’n Plump to introduce evidence relevant to the remedy provided in Minn.Stat. § 336.2-714(2) would be to allow Simmons to walk away from the bargain it made. This we should not do. I would instead hold Simmons to its bargain by allowing Gold’n Plump to enforce the express warranty according to its terms, and award Gold’n Plump a refund of the $113,-400 purchase price.

. The cases cited by the majority in support of its view are inapposite. BarclaysAmerican/Business Credit, Inc. v. Cargill, Inc., 380 N.W.2d 590, 591 (Minn.Ct.App.1986), prohibited exclusion of certain warranties after a sale. Exclusion or modification of warranty is specifically covered by Minn.Stat. § 336.2-316. The section does not, however, address or place any limitation on creation of warranties. O’Laughlin v. Minnesota Natural Gas Co., 253 N.W.2d 826, 830 (Minn.1977), is simply a case in which the applicability of Article 2 of the U.C.C. was in question for the purpose of determining whether the warranty sections of the article applied to a contract to sell and install a furnace. The court held that the contract involved a "sale of goods" to which U.C.C. Article 2 applied. The instant case involves no such issue. Neither party seriously contests that the instant contract involves a sale of goods to which U.C.C. Article 2 and its warranty provisions apply. In any event, neither case supports the proposition that a warranty must arise at the time of sale in order to be enforceable.

. This case presents a clear example of the inequity created by releasing the seller from its warranty obligations on account of the resale. The majority points out:
Gold’n Plump did not purchase the disputed machines unwittingly. Theis, the plant manager, who had negotiated the machine purchase from Simmons in December, transferred to the same position with Gold’n Plump.
From this, one may infer that Gold’n Plump knew the machines were not functioning properly at the time it purchased them from Armour. Yet, the majority also states:
Under the plant sale agreement, Gold’n Plump paid Armour “net book value” for the two Simmons machines. This was $113,400 or the full purchase price which Armour had paid Simmons, despite testimony of Theis and other Gold’n Plump witnesses that the machines were worthless.
Thus, Gold'n Plump paid full price for machines it knew were worthless. The only rational explanation for this is that Gold’n Plump believed Simmons would keep its promise to make the machines function within reasonable tolerances or refund the purchase price. That Simmons continued to attempt to repair the machines also indicates that it believed it had a continuing obligation with respect to the machines.

. By so holding, it would be unnecessary to reach the issues addressed by the majority concerning Armour's assignment of its contract rights against Simmons to Gold’n Plump and Gold’n Plump's ability to enforce any implied warranty of fitness for a particular purpose as the alter ego of Armour. I note, however, that the majority opinion analyzes both of these issues as raising the question whether Gold’n Plump can assert warranty rights arising out of the original contract of sale between Armour and Simmons before it was modified by Simmons’s letter of February 14, 1983. The analysis, however, fails to explain why Minn.Stat. § 336.2-318 is not applicable to any warranties that may have been included in the original contract. Since Minn.Stat. § 336.2-318, by its terms applies to "[a] seller’s warranty whether express or implied," I can see nothing preventing Gold’n Plump from enforcing the original contract warranties except insofar as they may have been modified by the February 14, 1983, letter. In this light, the assignment and alter ego issues are unimportant because Minn.Stat. § 336.2-318 abolishes privity requirements for recovery under any warranties that may have been included in the original contract as well as the express warranty in the February 14 letter.