Transamerica Oil Corporation v.

Lynes

Procedural history: Purchaser Transamerica Oil Company brought an action to recover damages resulting from what was believed to be a breach of an express warranty by Lynes Inc. under the Kansas Uniform Commercial Code (UCC). The United States District Court for the District of Kansas awarded damages to the purchaser. Lynes appealed.

Facts:

Transamerica's president, Harold Brown, saw a Lynes Inc. advertisement for "production injection packers" in a trade journal.

Frequently, packers are employed for temporary use in holes that have been cased and cemented. Lynes' advertisement stated that its production injection packer was suitable for permanent use in open holes. Brown also testified that Spencer (employee of Lynes) "assured" him that the packers would work as advertised.

y y

Under Kansas law, advertising may form a part of an express warranty. Transamerica purchased ten packers which came in six shipments. Invoices came with each shipment and each invoice contained language on its reverse side disclaiming any express or implied warranties other than that the products were free from defects in materials and workmanship. Each invoice also purported to limit the purchaser's remedy to replacement of or credit for defective equipment or parts.

Transamerica brought an action to recover damages resulting from what they thought was Lynes breach of an express warranty under the Kansas Uniform Commercial Code (UCC). Brown argued that the injection packers that were purchased from Lynes failed to perform as advertised.

Lynes claimed that the action was barred by the statute of limitations and that Brown expressly agreed to a limitation of liability and a limitation of remedies based on the information printed on the invoices

The trial court refused to allow any evidence of the limitation on the invoices to go to the jury. The court also found that the limitation of remedies was unconscionable and that the invoice language was an attempt to alter a contract the parties had previously entered into.

Transamerica Oil Corporation prevailed in a jury trial against Baker International Corporation and its subsidiary, Lynes Inc., for damages resulting from the breach of an express warranty.

Lynes appealed the case to the United States Court of Appeals for the tenth circuit.

Issue: Was the language creating the warranty oral and made prior in time to a written disclaimer?

What were the appropriate statute of limitations and the effect and validity of disclaimers of warranties and limitations of remedies in invoices accompanying shipments of equipment?

Did the parties intended that a document (the invoices) constitute the final expression of their agreement is one of fact?

Did the advertisements or Brown's testimony directly addressed damages for breach of warranty?

Were the sellers entitled to present evidence that the purchaser expressly agreed to a limitation of liability?

Was the jury was entitled to see the invoice that was signed by the purchaser to fairly assess the purchaser's credibility in stating that he was unaware of the limitations on the invoices?

y y

Were the other invoices were admissible as course-of-dealing evidence? Were the sellers entitled to present evidence of trade usage as it pertained to the limitation of remedies?

y y

Did the district court properly submitt the issue of liability to the jury? Were the appropriate instructions on damages given?

Answer/Holding:

Defendants assert that plaintiff's claims are barred by the statute of limitations. The trial court ruled that damages were to be paid to the plaintiff precluding that the sellers were not entitled to present evidence that the purchaser expressly agreed to a limitation of liability. The jury was not entitled to see the invoice that was signed by the owner of the purchaser to assess the owner's credibility in stating that he was unaware of the limitations on the invoices. The appellate court ruled the case be reversed and remanded and only limited Lynes to damages, not liability.

Reasoning: The appellate court believed that neither defendants' advertisements nor Brown's testimony directly addressed damages for breach of warranty. Further, damages limitations are controlled by different UCC sections and different policy considerations which warrantys cover. The invoices that were sent with the packers contained a clause purporting to limit remedies for breach of warranty to replacement of or credit for defective equipment or parts. The trial court refused to allow any evidence of the limitation on the invoices to go to the jury. The appellate court used the standard of Willie and could not conclude that a clause excluding a seller's liability for consequential commercial damages is unconscionable on its face. The language limiting remedies is on the back of the invoice form, but language on the front, in red print, refers to the terms and conditions of sale on the reverse side. The limitation of remedies appears in the first paragraph on the reverse of each invoice and is written in fairly large, legible print and stated in clear, concise language. They also could not agree with the trial courts conclusion that the parties entered into a complete oral contract before delivery of the invoices.

Disposition: The case was to be reversed and remanded.