Court Opinion

ID: 8726530
Source: CourtListenerOpinion
Date Created: 2022-11-26 09:16:11.947567+00
Date Added: 2024-06-11T16:59:21.255436
License: Public Domain

WHITAKER, Judge
(dissenting).
In my opinion, the result now reached by the majority is inconsistent with the court’s opinion delivered on January 16, 1957. In that opinion we held that the $5 charge made by plaintiff for an agreement to maintain the freezing units in its refrigerators for a period of four years, in addition to the customary one-year manufacturer’s warranty, was not a part of the sales price.
*858The ease was then referred to Commissioner Akers to take proof on two things: first, whether the charge for the agreement to keep the freezing unit in repair for four years, in addition to the usual one-year warranty, was reasonable; and, second, whether in the taxable years in question it had become the custom of the trade for the manufacturer to agree to keep the freezing unit in repair for five years.
On the first question he found the charges were reasonable, and on the second he found that this was the custom of the trade. It is this latter finding that has led astray at least some of by brethren.
Notwithstanding this finding, I still think the agreement to keep the freezing units in repair for four years, in addition to the usual one-year warranty, was no part of the sales price of the refrigerator, but was something the manufacturer agreed to give the purchaser, in addition to a refrigerator free of defects from workmanship and material.
The purchaser of an article from a manufacturer is entitled to no more than a warranty that the thing sold is free of defects .in material and workmanship.
In the various trades the manufacturer is accustomed to fix a limited period within which such defects are supposed to appear, which varies with the article sold. In the case of electric refrigerators, the proof in the General Motors case clearly shows that the customary period from the time electric refrigerators were put on the market in 1920 until 1936 was one year. The proof also shows that if something went wrong with the freezing unit after the one-year warranty period, it had to be repaired at the customer’s expense. Because such repairs were frequently unsatisfactory, the General Motors in 1933 offered to its customers an agreement to make necessary repairs after the one year period for a charge of $6 per year.
Two years later, in 1935, General Motors offered its customers an agreement to keep the freezing unit in repair for a period of four years. Under the 1933 agreement this would have cost the customer $24, but General Motors reduced its price for this to $10. The following year General Motors further reduced its price to $5, for the agreement to keep the machine in repair for four years after the expiration of the one-year warranty ; but, while the former agreements were optional with the purchaser, the new plan, called the “Protection Plan”, was obligatory.
But, even though the purchaser was required to take and pay for this “Protection Plan”, there can be no doubt that it gave the purchaser something in addition to the obligation of the manufacturer to remedy defects in material and, workmanship, which had to appear within the one-year warranty period, in order-to hold the manufacturer liable to make, them without expense to the customer. .
General Motors, being perhaps the-largest manufacturer of electrical refrigerators, set the pattern for the industry, and when General Motors put into effect its “Protection Plan”, agreeing to keep the machine in repair for four additional years, whether the defects occurred from wear and tear or from any other cause, other manufacturers felt obliged to follow its example. The result was that today all manufacturers of electric refrigerators sell their machines with the agreement to keep them in repair for a period of four years, in addition to the customary one-year warranty.
But, notwithstanding the fact that this has become the custom of the trade, it is nevertheless true that this “Protection Plan”, under which the'manufacturer agrees to keep the machine in repair for four years in addition to the usual one-year warranty, is an agreement over and above the obligation of the manufacturer to make repairs appearing within the usual one-year warranty period, that is, repairs necessitated by defects in material and workmanship.
The usual one-year warranty was given to discharge the manufacturer’s obligation to sell a sound article, free from *859defects in material and workmanship. He could not make a charge therefor and claim that it was not a part of the sales price, because the sales price was for a sound machine — all as more fully explained in our prior opinion. But, the manufacturer could properly malee a charge for a. maintenance contract, beginning after the end of the warranty period, because this was a contract to make repairs not required under its warranty that the machine it had sold was free from defects.
I think this is a proper analysis of the transaction. If it is, the $5 charge is no part of the sales price of the refrigerator, and, thus, is not subject to the excise tax.
For this reason, I dissent.