Court Opinion

ID: 8959988
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:36:55.567361+00
Date Added: 2024-06-11T17:10:10.940607
License: Public Domain

LOGAN, Circuit Judge,
concurring in part and dissenting in part:
There is no dispute that the disclaimer of implied warranties by the manufacturer of the component parts, General Electric Company (G.E.), was effective against Brown & Sharpe Manufacturing Company, the first buyer, which incorporated the components into machines it fabricated and sold. The case against G.E. turns on whether the disclaimer was effective to protect G.E. from an implied warranty claim for economic loss by Patty Precision Products Company, a buyer from Brown & Sharpe unaware of the disclaimer. The majority holds that the disclaimer cannot be effective under Oklahoma law because it was not communicated to Patty Precision. Under the particular facts of this case I agree, but I have serious doubts that Oklahoma courts would deny validity to the disclaimer absent the extensive dealings between G.E. and Patty Precision. Also, I would not remand for a new trial against Brown & Sharpe. Therefore, I write separately.
The majority correctly identifies Old Albany Estates, Ltd. v. Highland Carpet Mills, Inc., 604 P.2d 849 (Okla.1979), and Elden v. Simmons, 631 P.2d 739 (Okla. 1981), as the Oklahoma cases most closely on point. But neither involved the effect of a valid disclaimer not disclosed to a subsequent purchaser.
In Old Albany, the ultimate purchaser, a real estate developer, contracted for the purchase of carpet from an interior decorator; the decorator then purchased the carpet from a manufacturer. The ultimate purchaser and the manufacturer never communicated until after both contracts— the contract between the purchaser and the decorator, and the one between the decorator and the manufacturer — had become binding. The manufacturer did not disclaim any warranties in its contract with the decorator. However, the manufacturer did include written and conspicuous disclaimers in its invoices sent to the decorator, who in turn forwarded the invoices to the ultimate purchaser. The Oklahoma court held that because “[tjhere existed a contract for sale of carpet prior to delivery or receipt of the invoices,” 604 P.2d at 852, the disclaimers in the invoice constituted merely an offer of additional terms that did not become part of any contract. The court did hold clearly that privity between the ultimate purchaser and the manufacturer was not necessary to permit suit on implied warranties.
In contrast to Old Albany, the disclaimer in the case before us between G.E., a manufacturer, and the first buyer, Brown & Sharpe, was part of their contract. I think the proper reading of Old Albany is that it leaves open the issue whether disclaimers of warranties and limitations of remedies effective between the manufacturer and the first purchaser also may be effective against the second and successive purchasers.1
Elden applied the Old Albany “no privity” rule to a case involving a subsequent purchaser of a home, allowing that purchaser to sue the builder on an implied warranty of habitability and a manufacturer of bricks used in the home on an implied warranty of merchantability and fitness. As to the manufacturer the court said, “If a jury finds that a particular defective component is still under warranty, the ultimate *1257consumer (the present owner) may recover against the builder and/or manufacturer of the component, if a breach of warranty is found to exist.” 631 P.2d at 742. There was no disclaimer in Elden, but if the decision says anything about whether a disclaimer between the manufacturer and the builder would be effective against the purchaser, it implies that it might be valid.
Looking to other jurisdictions for guidance, the cases I found hold that limitations of remedies and disclaimers of warranty are binding on subsequent buyers when the first buyer adds, assembles or incorporates the manufacturer’s product into another item or when the first buyer modifies or uses the manufacturer’s product before resale. See Datamatic v. International Business Machines Corp., 795 F.2d 458, 464-66 (5th Cir.1986) (Louisiana law); Wood Products, Inc. v. CMI Corp., 651 F.Supp. 641, 651 (D.Md.1986) (dictum); R & L Grain Co. v. Chicago Eastern Corp., 531 F.Supp. 201, 209 (N.D.Ill.1981); American Electric Power Co. v. Westinghouse Electric Corp., 418 F.Supp. 435, 450 (S.D.N.Y.1976); Western Equipment Co. v. Sheridan Iron Works, Inc., 605 P.2d 806, 810 (Wyo.1980); Flintkote Co. v. W.W. Wilkinson, Inc., 220 Va. 564, 260 S.E.2d 229, 232 (1979) (dictum); General Motors Corp. v. Halco Instruments Inc., 124 Ga.App. 630, 185 S.E.2d 619, 622 (1971).
Conversely, when the first purchaser was a dealer or retailer who merely held the manufacturer’s product for resale, without changing its form, several courts have held that, to be effective, a disclaimer must be communicated to the ultimate purchaser. See Pennington Grain and Seed, Inc. v. Tuten, 422 So.2d 948 (Fla.Ct.App.1982); Groppel Co. v. U.S. Gypsum Co., 616 S.W. 2d 49, 60-61 (Mo.Ct.App.1981); Peterson v. North American Plant Breeders, 218 Neb. 258, 354 N.W.2d 625, 632 (1984) (dictum); Nakanishi v. Foster, 64 Wash.2d 647, 393 P.2d 635, 640 (1964). Cf. Ford Motor Co. v. Pittman, 227 So.2d 246 (Fla.Ct.App.1969), cert. denied, 237 So.2d 177 (1970) (holding that, under Florida law, automobile manufacturer who sells to retailer for resale may not disclaim warranties to ultimate purchaser).
This distinction makes sense in commercial transactions of the sort before us. As noted by one court:
“A manufacturer who wishes to exclude warranties (to the extent permitted by the commercial law) can do so only by placing disclaiming language in the contract documents with his immediate buyer; it is commercially unreasonable to expect him to notify each ultimate purchaser (whose very identity is frequently unknown to him) of his disclaimers.”
Wood Products, 651 F.Supp. at 651. The difficulty of notifying ultimate purchasers is exacerbated if the manufacturer has produced a component rather than a finished product. Components are often hidden within the finished product, making it difficult or impossible for the manufacturer to notify ultimate purchasers by posting disclaimers on the product itself. Further, while the manufacturer before us, G.E., may be economically powerful enough to require someone like Brown & Sharpe to notify all purchasers of the warranty limitation, the typical component part manufacturer will be selling to a larger entity which it cannot reasonably be expected to control. In contrast, the problem of notice is less severe with a finished product which the middleman holds only for resale; the manufacturer frequently can notify the ultimate purchaser simply by affixing a copy of the disclaimer to the product. See Groppel Co., 616 S.W.2d at 60-61.
I can see how a court might invalidate a manufacturer’s warranty or remedy limitations for a product that is dangerous and causes personal injury. But for ordinary transactions in the stream of commerce, where failure of the product causes only economic loss, the policy objectives of protecting the ultimate purchaser are not as compelling. In most cases the ultimate purchaser’s cause of action against his immediate seller should be sufficient protection. The U.C.C. recognizes that disclaimers can be effective between contracting parties. See Okla.Stat.Ann. tit. 12A, § 2-316. If the benefits of warranties pass without regard to privity, as Old Albany and Elden hold, it seems reasonable — at *1258least in cases involving only economic loss and not involving consumer goods — that disclaimers which are effective between the original parties should also bind “anyone asserting the liability of a defendant on a warranty that would exist but for the disclaimer.” 3 R. Anderson, Anderson on the Uniform Commercial Code § 2-316:54, at 361-62 (3d ed. 1983).
Having said this, I nevertheless agree with the majority that under the particular circumstances of the instant case G.E.’s disclaimer should not be valid against Patty Precision because G.E. did not communicate the disclaimer to Patty Precision. As the majority opinion recites, the contract for the first machine was executed before G.E. commenced dealing directly with Patty Precision. But G.E. had extensive dealings with Patty Precision in the installation of that machine and before subsequent purchase orders were executed. It had a service engineer on the premises almost full time, and it extended express warranties to Patty Precision. Its participation, I believe, induced Patty Precision’s reliance on warranties and went beyond mere aid in making adjustments to satisfy its customer, Brown & Sharpe. See Nakanishi, 393 P.2d at 640. Under these circumstances, it is not commercially unreasonable to expect G.E. to communicate in clear and conspicuous language its disclaimer of implied warranties to Patty Precision. See Wood Products, 651 F.Supp. at 651. I agree that by failing to communicate the disclaimer during all of these dealings with Patty Precision G.E. waived the disclaimer defense or is estopped from raising it.
Nevertheless, I must dissent from the majority’s order of a new trial on Patty Precision’s claims against Brown & Sharpe. The jury found that Brown & Sharpe breached express and implied warranties to Patty Precision with respect to two of the machines. I cannot understand how the admission of evidence about General Electric’s disclaimer of warranties to Brown & Sharpe possibly could have prejudiced Brown & Sharpe in its defense against Patty Precision. That Patty Precision requests a new trial as to all claims in the case is no ground for directing a new trial for the claims against Brown & Sharpe.
I agree with the reversal as to G.E., but would affirm the district court on the judgment against Brown & Sharpe.

. To the extent that Old Albany says anything about the nondisclosure problem present in this case, it implies that the ultimate purchaser could have been bound by disclaimers which were disclosed to either the ultimate purchaser or the first buyer: "[T]he attempted disclaimer, certainly never agreed to by Lehman [the first intermediate purchaser] or plaintiff, is not a part of the contract.” 604 P.2d at 853.