Statute of Limitations Ohio Cspa Claims

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Statute of Limitations Ohio Cspa Claims Powered By Docstoc
					                                                                          David L. Simiele, Esq. (dsimiele@kwgd.com)
                                                                     Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.
                                                                                                     September 15, 2001


                       SUMMARIES OF RECENTLY REPORTED OHIO COURT DECISIONS
                           INTERPRETING THE UNIFORM COMMERCIAL CODE

                                  1, General Provisions, 2, Sales & Documents of Title


CASE NAME AND CITE                                                       UCC SECTION

Boyas Excavating, Inc., Appellant vs.
Powerscreen of Ohio, Inc., et al., Appellees                             R.C. 1302.26
139 Ohio App.3d 201(2000) 8th District

DISCUSSION

Boyas sued Powerscreen, the seller and manufacturer of customized machine design to sort rock at quarry
into four discreet sizes. The Plaintiff sought damages for the time period prior to machine‟s repair during
which it failed to perform properly. The matter was decided on summary judgment in the lower court and was
on appeal. At issue was whether the limited repair and replacement warranty in the sales agreement failed of
its essential purpose, express warranty issues, and whether seller could recover on implied warranty theory
against the manufacturers with whom the buyer was not in privity, where buyer did not allege property
damage or personal injury, but only consequential loss.

The seller visited the buyer‟s rock quarry, received explicit instructions as to the type of work that the machine
had to be designed to do. Buyer visited a seller‟s site in Michigan where a similar machine was utilized for a
similar purpose. Buyer suggested specific modifications to be made to the proposed machine which should
render it better suited for buyer‟s specific job.

Buyer signed a sales order to purchase a $160,000 machine from seller. The sales order had a one-year
warranty and a specific delivery date. There were numerous printed terms and conditions of sale on the
reverse side of the sales order, including warranties, disclaimers, and limitation-of-damage provisions which
came into issue in this case. The seller subcontracted out to two different subcontractors various parts of the
manufacturing. Buyer claims machine failed to work properly from first date of operation. Weeks went by
while the machine was attempted to be repaired by seller and its agents. Buyer, in the meantime, had to
proceed to prepare and provide the specific rock that it had to provide under other contracts. Inventory piled
up waiting for the machine to be repaired for sorting. The machine was delivered March 4, 1997. It was
finally operational after repair September 11, 1997. Buyer claimed additional cost of labor and equipment for
material handling as damages for the period of machine down time. Buyer used the machine from
September 11, 1997 to May 1999, when it was sold. Buyer sued Defendant for breach of warranty and for
other damages. Defendants filed motions for summary judgment claiming they had honored their limited
warranty to repair and replace, and that buyer could not recover indirect economic loss in tort, and that the
sales order contract limited such remedies by excluding consequential damages of the kind claimed by buyer.

Buyer claimed that due to the express requests for specially designed equipment, acknowledgment and
agreement to provide it, consequently ended in an express warranty being made by seller to buyer. The
lower court issued a ruling on summary judgment in favor of the Defendant without an opinion.

The Court of Appeals found that alleged direct statements by seller with respect to design, production ability,
fitness to perform the specific job requested, was sufficient to establish express warranties made by seller.
The court found that from the reading of the statements of representations made in the affidavit clearly
supported an express warranty although the words “express warranty” were not pled. The court cited R.C.
1302.26:
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                    (A) Express warranties by seller are created as follows: (1) 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 creates an express warranty that the
                    goods shall conform to the affirmation of promise. (2) A description of the
                    goods which is made part of the basis of the bargain creates an express
                    warranty that the goods shall conform to the description. P. 209

The court held that in evaluating an alleged breach of express warranty, the court must also address the
limited warranties and damage exclusions contained on the reverse side of the sales order that formed the
contract between the parties. The sales order contains standard limitations of damages, particularly no
consequential loss or the like. The seller also pointed to its subcontract in which there was a sole and
exclusive warranty of repair and replace, and excluded all warranties of merchantability or fitness for purpose.
 Seller pointed to the subcontractors‟ limitation of damages as further basis for it not being liable for any
consequential loss suffered by buyer.

The court found that when there is privity of contract between the parties such as this buyer and seller,
consequential damages cannot be excluded by a limited repair and replacement warranty if that warranty fails
of its essential purpose. The Court of Appeals relied on the Ohio Supreme Court case, Chemtrol Adhesives,
Inc. v. Am. Manufacturer‟s Mut. Ins. Co., 42 Ohio St.3d 40 (1989) for the authority that limitation of remedy to
repair and replacement was designed to give the seller an opportunity to make the goods conforming while
limiting the risk to which the seller is subject by excluding direct and consequential damages that might
otherwise arise. The court cited with approval Clark v. Internat. Harvester Co., 99 Idaho 326 (1978) which
detailed the purpose of exclusive repair replacement remedy. But that court had a caveat to upholding the
repair and replacement warranty that where the seller is subsequently unable or unwilling to repair or replace
a defective part within a reasonable time, the buyer is left with a defective product – not conforming to the
warranty – and the limited remedy has not achieved its purpose. P. 212

In the present case, the buyers did state in their affidavits that the problem was immediately called to the
attention of seller, but the seller failed to respond timely, even performed repairs on the wrong machine, and
otherwise caused resulting damages to buyer.

The court found that the buyer‟s claims against the subcontractors fail for lack of privity.

On that issue, the court found that the only way the buyer could proceed against a sub-seller would be based
on tort theories such as negligence or breach of implied warranty. The court held that in order to recover
under those theories, the court needed to look as to whether or not there was direct or indirect economic loss.
 Direct economic loss included the loss attributable to the consequential losses sustained which may include
the value of production time lost and the resulting lost profits. In the case of indirect economic loss in a
negligence action, buyer must prove that the indirect economic damage arose from tangible physical injury to
persons or from tangible property damage. Id., 213. The court observed that the damages claimed by buyer
in this case were consequential rather than diminished value of the machine. As such, these damages were
indirect economic loss. In order for buyer to recover on a tort theory from the sub-manufacturers, buyer would
have to show that the indirect economic damages arose from property damage or personal injury. The court
noted this the buyer could not do under the facts alleged.


CASE NAME AND CITE                                                   UCC SECTION

Vincent v, Neyer.                                                    R.C. 2711.02,
139 Ohio App.3d 848 (2000) 10th District

DISCUSSION

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This case arose when certain consumers sued their dance studio owner for a breach of written contracts for
dance lessons, unjust enrichment, promissory estoppel, and violations of “Prepaid Entertainment Contract
Act.” The Prepaid Entertainment Contract contained an arbitration clause. The Trial Court entertained an
R.C. 2711.02 motion to stay the case pending arbitration. The consumers claimed that the Consumer Sales
Practices Act (“CSPA”) overrode any arbitration provision and conferred jurisdiction solely to Courts of
Common Pleas and Municipal Courts.

In this case, the Court of Appeals sustained the R.C. 2711.02 motion to stay proceedings until arbitration was
complete. The Court of Appeals decided that there were basically two contracts, the contract in general, and
the arbitration agreement which was a contract within a contract. As to the arbitration clause the court
referred to the Supreme Court ruling in ABM Farms, Inc. v. Woods, 81 Ohio St.3d 498 (1998) in which the
Supreme Court noted that the arbitration clause is the vehicle by which the legitimacy of the remainder of the
contract is decided once the issue of the validity and enforceability of the arbitration clause is first decided.
The Court of Appeals noted that there was nothing inherent in CSPA to preclude arbitration and have all the
disputes resolved thereunder in court. The Court of Appeals further noted that the first issue to determine is
whether there is a claim of fraudulent inducement to the contract clause containing the arbitration provision.
If the court does not find that there was a specific inducement with regard to the arbitration clause, it shall
stand. In the present case, the consumers did not claim they were fraudulently induced to sign the arbitration
clause; they had not objected to it; and in most cases, had not read it. The court also noted that the Supreme
Court has accepted the proposition that if the inclusion of the arbitration clause constitutes adhesion or
unconscionable, then arbitration would not be allowed. Each case has to be looked at on its own facts to
determine the specific allegations as they pertain to the arbitration clause and the claim of fraud and
inducement. Specifically, given the present state of the Supreme Court case law, trial courts apparently must
conduct a case-by-case review of the facts to see if enforcement of an arbitration provision would be
unconscionable. The court did reflect on the idea that if an arbitration provision related to property, goods, or
services that could be deemed necessaries, such as shelter or motor vehicles, an arbitration clause might be
deemed unconscionable on its face, it did not find that contracts for dance classes was in that category.



CASE NAME AND CITE                                                   UCC SECTION

Royster v. Toyota Motor Sales, U.S.A., Inc.                          R.C. 1345.72, 1345.73


ISSUE:

“A consumer enjoys a presumption of recovery under R.C. § 1345.73(B) if his or her vehicle is out of service
by reason of repair for a cumulative total of 30 or more calendar days in the first year of ownership regardless
of whether the vehicle is successfully repaired at some point beyond that 30-day period.” Syllabus.

DISCUSSION

The majority opinion written by Judge Pfeifer is a strong opinion supporting the rights of a consumer under
Ohio Lemon Law. The court found the facts not to be in dispute. A Toyota vehicle was purchased by the
Plaintiff. It was warranted by Toyota Motor Sales U.S.A., Inc. It had issued a three-year/36,000-mile
warranty. Nine months after possession, the vehicle was leaking red fluid. It was promptly towed to the
dealership. It was determined that it had a leaking head gasket that needed to be replaced. The dealership
had difficulty locating the correct part. The vehicle was not repaired for 55 days. The local dealership
provided the consumer with a used Toyota Camry automobile as a loaner at no charge.

The consumer/plaintiff filed a Lemon Law claim against Toyota. Both parties filed motions for summary
judgment. The trial court granted consumer motion. The trial court found the consumer prevailed because
the vehicle was “out of service by reason of repair for a cumulative total of 30 or more calendar days” in the

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first year of ownership. The court awarded her and her lien holder $38,565.54 and entered an additional
$7,649 judgment against Toyota for attorneys fees. Toyota appealed.

The Eighth District Court of Appeals overturned the trial court‟s decision. The Court of Appeals held the lower
court erred in finding that the car‟s 55 days out of service created a presumption of recovery for
consumer/plaintiff under the Lemon Law. The Appellate Court held that the dealership had made a
reasonable number of attempts to repair and was ultimately successful in conforming the car to its warranty.
The court reasoned the consumer/plaintiff would have had a valid Lemon Law claim only if the vehicle had
not conformed to its warranty after the dealership‟s “reasonable number of repair attempts.” The case was
allowed by the Supreme Court on discretionary appeal.

The Supreme Court found this to be a cut and dried case. The court observed that the Lemon Law
R.C. § 1345.72(A) attaches a clear duty on sellers and gives them the opportunity to preclude recovery by
making prompt repairs. Section (B) provides consumers a swift and simple remedy should the car not be
made right within a reasonable number of attempts. To quote the court “lest there be a doubt, and
subsequent exhaustive litigation, as to what constitutes „a reasonable number of repair attempts,‟
R.C. § 1345.73 sets limits.” The Supreme Court wrote:

                “The Lemon Law recognizes that occasionally new cars do have problems,
                but if those problems keep happening, or cannot be repaired in a
                reasonable amount of time, then the consumer did not get what he or she
                bargained for. R.C. § 1345.73 is the „enough is enough‟ portion of the
                statute. That section makes the amount of repair activity on the vehicle
                define whether or not the vehicle is a lemon. R.C. § 1345.73 is a kind of
                statute of limitations – it sets in well-defined terms the limit of frustration the
                consumer must endure.”
The court further went on to observe, R.C. § 1345.73 sets the cut-off point of reasonableness. The
manufacturer gets three tries to repair a particular non-conformity, eight tries to correct any combination of
non-conformities that substantially impair the use or value of the vehicle, and one try to repair a non-
conformity that results in a condition that makes the vehicle extremely dangerous to drive. p. 330. The
statute does its best to avoid leaving reasonableness open to interpretation, instead defining what is
reasonable in strict terms. (Emphasis added.) The court held that “the unavailability of the new car is the key
element to the statute. If it‟s unavailable it‟s definitely out of service. The fact that a consumer cannot drive a
newly purchased vehicle for a full month in the first year of ownership defines the vehicle as a lemon.” p. 331.
 “Nothing beyond 30 days is statutorily reasonable.” p. 331. The court opines that “eliminating interpretation
of what is a lemon, leaves little room for litigation.” p. 331. “The law is designed for self-help without
protractive litigation. To work well, the statute needs a harsh remedy at a time certain period. Ohio‟s Lemon
Law does that better than most states‟ laws.” . . . p. 331.

The court did note that the Ohio Lemon Law is strict and harsh by saying, “despite its pucker-inducing remedy
. . .” p. 331.

Lastly, the court noted that the Court of Appeals was persuaded equitably to relieve the dealer by the dealer
having provided a loaner vehicle at no expense to the consumer. The Supreme Court found that that had
absolutely nothing to do with the enforcement of the Lemon Law. “In enacting the Lemon Law, the General
Assembly defines for consumers when an automobile becomes a lemon, not when a dealer is not being
considerate enough.” p. 332. The court reinstated the trial court‟s judgment and remanded the case for
further determination of additional attorneys‟ fees incurred on appeal.

There were two dissenting opinions. One by Cook, J., and concurred by Chief Justice Moyer, and Lundberg
Stratton by separate opinion. Essentially, the dissents objected to the presumption language in the syllabus.
They felt that the implementation of the presumption is always rebuttable, not conclusively presumed. Judge
Stratton wrote that he did believe the presumption under R.C. § 1345.73(B) that the manufacturer has
undertaken a “reasonable number of attempts to repair,” is rebutted where the sole reason for the delay was
a back-ordered part. This judge believed that Toyota had rebutted the presumption that it had undertaken a
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reasonable number of attempts to repair the vehicle. Id. p. 335. It would appear that the judge has a valid
point to be made when one reads the following quote:

                    R.C. § 1345.73(B) states that if a vehicle is out of service due to repair for a
                    cumulative total of 30 days or more, then a presumption arises that the
                    manufacturer has had a reasonable number of attempts to repair the
                    defect. The presumption in R.C. § 1345.73(B) is essentially an evidentiary
                    tool to aid consumers in proving that a manufacturer has exhausted its
                    reasonable number of attempts to repair the defect for purposes of filing a
                    Lemon Law complaint. However, a presumption may be rebutted. See
                    Evid. R. 301. Id. p. 335.

This a tough case for an auto dealer. This dealer was between a rock and a hard place in the road. The
dealer identified the problem as being a defective head gasket, but couldn‟t get a replacement from the
factory or other sources within the time frame allowed by the Lemon Law presumption. The dealer did the
next best thing by giving the aggrieved purchaser a free loaner to drive during the period of time that the car
was out of service. IN AN ECONOMY SUCH AS IS OCCURRING IN THE SUMMER OF 2001, WHICH IS
SLOWING DOWN, IT IS NOT UNCOMMON FOR MANUFACTURERS TO MAINTAIN SUPPLIES OF
INVENTORY AT MINIMUM NUMBERS, AND MANY SEEMINGLY NON-CRITICAL PARTS ARE ON BACK-
ORDER. IF THE CAR IS FOREIGN MADE, OR OF AN EXOTIC MANUFACTURER, IT COULD BE WELL
MORE THAN 30 DAYS TO GET A PART TO REPAIR A VEHICLE. THIS IS DEFINITELY A HARD CASE,
BUT IT MAY BE GOOD LAW.



CASE NAME AND CITE                                                   UCC SECTION

Intrastate Piping & Controls, Inc., v.
Robert-James Sales, Inc.                                             RC 1301.11, 1302(B)(2), 1302.92-93
315 Ill. App.3d 248, 733 N.E.2d 718,
Ill. App. Ct. 1st Dist., 3rd Div., (June 28, 2000)

DISCUSSION

The central issue of this case relates to the Repair and Replacement or Return of the Goods for the Price
principle. The idea for this report comes from the Uniform Commercial Code Law Letter, Volume 35, No. 3
written by Thomas Quinn, Fordham Law School. With a strong downturn in the manufacturing economy in
2001, more companies are seeking redress for defectively manufactured parts, and there are more requests
made of their attorneys for language that will protect and limit the exposure of a manufacturer to incidental
and consequential damages resulting from breaches of contract and failure to produce items that meet
contract specifications, warranties, or other quality factors. Further, we practitioners are faced most often with
factual situations that are very difficult. Perhaps the most difficult comes where the cases are presented to us
as verbal contracts. We would much prefer they had been in writing. We are faced with issues of statute of
frauds limitations, what provisions are in the contract by virtue of the law, Trade Usage, Course of Dealing,
Course of Performance, and other rules of law that come into play. Additional terms that are not specifically
expressed are Trade Usage RC 1301.11, Course of Dealing with regard to a particular trade background
characterizing the buyer-seller relationship – RC 1301.11, Course of Performance to the way things have
actually been done under a continuing contract as a guide to its actual content. RC 1301.11.

The common practice in today‟s manufacturing environment is to put a restriction on buyer‟s remedies and
limit them to Repair and Replacement or to Return of the Goods for the Price. If the seller‟s interpretation of
the contract is accepted, these remedies are usually the direct and immediate consequence of a seller‟s
breach. However, if, as a consequence of the oral discussions and the exchange of letters rather than a

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written contract, a buyer‟s version of the contract is found to be the interpretation, the seller can be in serious
trouble with respect to his limitation of remedy claim.

The purpose of this writing is to explore the situation where the buyer‟s contract is accepted by the court, and
what a seller‟s lawyer can do to retain the seller‟s claimed remedy limitation of Repair and Replacement or
Return of the Goods for the Price. More concisely: The seller‟s lawyer has to convince the court that the term
is really so minor that it does not “materially alter” the arrangements and, as such, merits automatic inclusion
by operation of law – RC 1302(B)(2). This can be accomplished if it is a term that is found to be minor and
where there is no evidence of any objection by the buyer to the inclusion of the term. In the Intrastate Piping
case, the defendant seller had sold 900 feet of new pipe to the plaintiff which developed leakage and proved
to be defective in manufacture. Seller agreed to repair and replace, which it did. Buyer was not satisfied with
simply a replacement, and sued to recover $200,000 for removing and reinstalling the new pipe. In this case,
there was no purchase order, no written contract, simply exchange of letters, and conversations. The seller in
the case was very fortunate as its counsel was able to successfully argue that the inclusion of Repair and
Replacement was a minor aspect of the contract, and automatically became a term of the contract. The
buyer had not objected to this term. Comment 5 to UCC 2-207 (1302) provided “a remedy limitation which
provokes no objection, becomes a part of the contract because a clause “limiting remedy in a reasonable
manner” does not involve “unreasonable surprise” or materially alter a contract.” This must have been a
difficult loss for the plaintiff‟s counsel.

Perhaps a more probing question is what are examples of clauses which involve no element of unreasonable
surprise and which, therefore, are to be incorporated in a contract unless objected to. The author, Thomas
Quinn, suggests the following: (1) A clause setting forth and perhaps enlarging slightly upon the seller‟s
exemption due to supervening causes beyond his control, similar to those covered by the (2) provision of this
article on merchant‟s excuse by failure of presupposed conditions, (3) a clause fixing in advance any
reasonable formula of proration under such circumstances, (4) a clause fixing a reasonable time for
complaints within customary limits, (5) in the case of a purchase for a sub-sale, providing for inspection by
sub-purchaser, (6) a clause providing for interest on overdue invoices or fixing the seller‟s standard credit
terms where they are within the range of trade practice and do not limit any credit bargained for, (7) a clause
limiting the right of rejection for defects which fall within the customary trade tolerances for acceptance “with
adjustment,” or otherwise limiting remedy in a reasonable manner. This is specifically permissible under RC
1302.92-93.

In the event a reader thinks that an unconscionable defense to this decision might apply, in the Intrastate
Piping case, all parties were sophisticated businesses capable of protecting their own interests, and in
appropriately allocating risks, as a part of the bargaining process. The court specifically found that this is
exactly what they did do in their negotiations.

This writer would not want to represent that Ohio courts would find that a limitation of remedy to Repair and
Replacement or Return of the Goods for the Price would be found to be minor and, therefore, automatically a
part of the contract unless specifically objected to by the other contracting party. Certainly, it is not going to
work in a consumer situation. It is reasonable for a court to conclude that if the parties themselves do not
deem the transaction sufficiently important to put it in writing such as a common purchase order and
acceptance, that terms of limitation and warranty are minor unless specifically objected to.




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