Court Opinion

ID: 30692
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:57:50+00
Date Added: 2024-06-11T14:56:26.893709
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                              FOR THE FIFTH CIRCUIT

                                 __________________________

                                        No. 02-40530
                                 __________________________

PETROCON ENGINEERING, INC.,

                                                                                Plaintiff-Appellant,

v.

MAC EQUIPMENT, INC., d/b/a/ MAC FLOTRONICS,

                                                                              Defendant-Appellee.

                 ___________________________________________________

                         Appeal from the United States District Court
                              for the Eastern District of Texas
                                     (No. 1:00-CV-203)
                 ___________________________________________________
                                       March 6, 2003

Before BENAVIDES, STEWART, and CLEMENT, Circuit Judges.

PER CURIAM:*

       Mobil Chemical Company (“Mobil”) hired Petrocon Engineering (“Petrocon”) to re-work and

expand Mobil’s facilities at its plant in Beaumont, Texas. Petrocon decided to out-source the

manufacture and supply of a Product Purge Vessel Extension with Bag House (“pressure vessel”) and

       *
           Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.

                                                1
submitted a request for quotation to MAC Equipment (“MAC”).

        Following an exchange of documents, Petrocon contracted with MAC to provide a pressure

vessel in accordance with an engineering drawing that contained the following specifications:

        Radiography required                    None
        Joint efficiency (shell/head)           .70
        Shop hydro test pressure                60 Psig

        MAC fabricated the vessel and the vessel passed the hydrostatic test in the presence of

Petrocon’s authorized inspector. After the vessel was delivered to Mobil, Mobil criticized Petrocon

for agreeing to a 70% joint efficiency standard instead of an 85% standard. While connecting MAC’s

pressure vessel to the existing pressure vessel it was designed to extend, Mobil allegedly discovered

welding defects. On its own initiative, Mobil x-rayed all the welds and, based on the results of the

x-rays, paid roughly $225,000 to have the vessel re-welded. In part because of the cost involved in

re-welding, Mobil withheld a payment to Petrocon of approximately $168,000.

        Petrocon sued MAC for breach of contract, negligence, breach of implied warranties, and

constructive fraud.    MAC moved for summary judgment, which the district court granted,

characterizing the dispute as concerning whether the contract documents specified a 70% or 85%

joint efficiency standard and concluding the vessel satisfied the terms of the contract by passing the

hydrostatic test associated with the 70% joint efficiency standard.

        This Court reviews a motion for summary judgment de novo. St. Paul Guardian Ins. Co. v.

Centrum GS Ltd., 283 F.3d 709, 712-13 (5th Cir. 2002). We review the construction of an

unambiguous contract de novo. Clardy Mfg. Co. v. Marine Midland Bus. Loan, 88 F.3d 347, 352

(5th Cir. 1996). The initial determination that a contract is ambiguous is itself a legal conclusion also

subject to de novo review. Id. When a contract is ambiguous and its construction turns on the

                                                   2
consideration of extrinsic evidence, we review the district court’s interpretation for clear error. Id.

         Petrocon’s arguments largely rest on the premise that the joint efficiency standard does not

address weld quality, or in Petrocon’s words: “joint efficiency means only the amount of welds

subject to x-rays, but it has absolutely nothing to do with the substantive quality of the welds.” This

position is not supported by the guidelines from the American Society of Mechanical Engineers

(“ASME”) relating to pressure vessels, even though they do not mention porosity, incomplete

penetration, excessive slag, non-fusion, or burn-through. In fact, joint efficiency has everything to

do with weld quality: the only factor affecting joint efficiency is the expected quality of a weld.1

Every joint efficiency below 100% is an express indication that a weld must be assumed to be less

than perfect.

         Petrocon argues MAC breached an express contract provision warranting the vessel would

be “free from defects in material or workmanship.” By agreeing to the 70% joint efficiency standard,

the parties agreed to a test for what constitutes a “defect.” MAC satisfied the contract’s express

warranty because the vessel passed the applicable test. This interpretation of the warranty does not

make it duplicative of the contract provision requiring the hydrostatic test for several reasons,

including the warranty’s longer temporal duration. Given the parties’ careful negotiations over joint

         1
            When two steel plates are welded together, the joint between the plates is not as strong as the parent
plates unless the weld is perfect. The reduction in strength is labeled “joint efficiency”, which is measured as the
ratio of the joint strength to the parent strength. A joint efficiency of 50% indicates the joint is half as strong as
the parent plates; a joint efficiency of 100% indicates the joint is as strong as the parent plates. When designing a
pressure vessel, an engineer must anticipate the efficiency of a joint in order to calculate other measurements. The
actual efficiency of the joint, which will vary with the actual weld, is unknown. The ASME guidelines provide
standards that allow engineers to assume maximum joint efficiencies depending on what test the vessel will be
required to pass upon completion. If the vessel will be required to pass a given test ex post then the engineer can
assume a joint efficiency of up to a given level ex ante. For the type of pressure vessel at issue, the ASME
guidelines provide that if the vessel will be required to pass a hydrostatic test, then the engineer can assume a joint
efficiency of up to 70%.

                                                           3
efficiency, it is not possible to conclude that the express warranty adopts, through the back door, the

more stringent definition of defect associated with the 100% joint efficiency standard.

        Petrocon claims MAC was negligent in its construction of the vessel. The district court dealt

with this claim on the same basis it disposed of Petrocon’s breach of express warranty claim: MAC

fulfilled its duties to provide a vessel pursuant to the 70% joint efficiency standard. We affirm the

district court’s opinion on this issue.

        Petrocon complains that MAC breached the implied warranties of merchantability and fitness.

Texas law provides that goods are merchantable if they are “fit for the ordinary purposes for which

such goods are used . . . .” TEX. BUS. & COMM. CODE § 2.314(b) (1994). Proof of breach of an

implied warranty of merchantability can consist of demonstrating the product has a defect. See Gen’l

Motors Corp. v. Brewer, 966 S.W.2d 56 (Tex. 1998). An implied warranty of fitness for a particular

purpose occurs when the contracting party “has reason to know any particular purpose for which the

goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish

suitable goods . . . .” TEX. BUS. & COMM. CODE § 2.315 (1994). MAC responds that it disclaimed

any implied warranties of fitness and merchantability, which is permissible under Texas law. See TEX.

BUS. & COM. CODE ANN. § 2.316 (Vernon 1994). The contract provides ample language to disclaim

the implied warranties of fitness and merchantability:

        The foregoing warranties are in lieu of all other warranties, express or implied,
        including but not limited to the warranties of merchantability and fitness for a
        particular purpose.

For this reason, Petrocon’s arguments lack merit.

        Petrocon argues MAC perpetrated a constructive fraud. Constructive fraud results from a

defendant’s “breach of some legal or equitable duty which, irrespective of moral guilt, the law

                                                  4
declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure the

public interest.” Archer v. Griffiths, 390 S.W.2d 735, 740 (Tex. 1964). In the course of constructing

the vessel, MAC took t wo x-rays of welds. Petrocon contends the uncontroverted summary

judgment evidence shows these x-rays were of a different vessel and that MAC actively hid evidence

of defective workmanship and materials. Constructive fraud can only occur upon the breach of a

duty. Thompson v. Vinson & Elkins, 859 S.W.2d 617 (Tex. App. 1993). The district court found

MAC did not have a contractual duty to provide any x-rays. We agree.

         In an apparent attempt to foreclose all of Petrocon’s arguments against summary judgment,

MAC attacks the admissibility and, in some instances, the relevance of most of Petrocon’s evidence

regarding alleged defects. Because the trial court did not disqualify or exclude any of the evidence

to which MAC now objects, these issues are not before this Court.

         Although the district court intimates that Petrocon’s damages are too remote to be

recoverable and cites Hadley v. Baxendale, 9 Exch. 341, 354 (1854), this Court need not reach this

issue.

         Because MAC delivered a pressure vessel which conformed to the requirements of its contract

with Petrocon, and for the other reasons stated, we affirm the judgment of the district court.

         AFFIRMED.

                                                  5