Opinion
No. 2-240 / 01-0843
Filed October 16, 2002
Appeal from the District Court for Monroe County, Annette J. Scieszinski, Judge.
Cargill, Inc. appeals a district court ruling dismissing its breach of warranty claims against the defendants. AFFIRMED.
Robert D. Houghton and Nancy J. Penner of Shuttleworth Ingersoll, P.L.C., Cedar Rapids, for appellant.
Guy R. Cook, J. Michael Weston and Andrew D. Hall of Grefe Sidney, P.L.C., Des Moines, for appellee.
Heard by Hecht, P.J., and Vaitheswaran and Eisenhauer, JJ.
Cargill, Inc. appeals a district court ruling dismissing its breach of warranty claims against the defendants, P.E.S., Inc. and B H Tank Corp. Cargill contends the district court erred when it (1) concluded the parties' contract contained no warranties and (2) excluded certain expert testimony. Cargill also challenges the sufficiency of the evidence supporting some of the court's fact findings. We affirm.
I. Background Facts and Proceedings
In 1991, Cargill agreed to purchase two double-walled carbon steel underground storage tanks from P.E.S., Inc. to store hexane, a flammable material used to process corn oil. One tank could hold 30,000 gallons and the other 15,000 gallons.
In 1996, Cargill employees discovered that the tanks had corroded from the inside. A Cargill engineer met with a P.E.S. representative regarding replacement of the tanks. Additionally, a P.E.S. sales manager provided Cargill with a booklet explaining the services of P.E.S. and its related companies. The booklet stated P.E.S. specially designed, manufactured, and installed steel tanks.
Cargill decided to purchase the replacement tanks from P.E.S. To avoid corrosion, Cargill specified that the tanks should be made of stainless steel instead of carbon steel. The stainless steel tanks were installed and became operational in October 1997.
Two months after the installation, Cargill employees noticed cracks in the concrete slab surrounding the 30,000 gallon tank. The system was ultimately shut down and P.E.S. was notified.
Cargill sued P.E.S. and the manufacturer, B H Tank Corporation, for breach of implied warranty of fitness, breach of implied warranty of merchantability, breach of express warranties, product liability, and negligent design and/or manufacture. Cargill also alleged that the defendants engaged in product misrepresentation as well as negligent and fraudulent misrepresentation.
The appeal deals only with its claims relating to the 1997 tanks. Its claims with respect to the 1991 tanks were dismissed and are not a subject of this appeal.
The case was tried to the court. Cargill called a number of witnesses, including experts Paul Hume and Jeffrey Brunson. The district court excluded portions of these experts' testimony.
Following trial, the district court dismissed all of Cargill's claims. On Cargill's Rule 1.904 motion for enlarged findings and conclusions, the court corrected certain portions of its initial ruling but reaffirmed its dismissal of the claims. This appeal followed.
II. Warranties
A. Existence of Warranties. In its findings of fact and conclusions of law, the district court concluded, "[n]o expressed or implied warranties actually existed to bind P.E.S. or B H (as the case may be). . . ." Cargill takes issue with this conclusion, contending that the parties' contract explicitly recognized the existence of express and implied warranties. Our review of this issue is on error. Fausel v. JRJ Enterprises, Inc., 603 N.W.2d 612, 617 (Iowa 1999).
On examination of the contract, we must agree with Cargill. The contract by its terms warranted that P.E.S.'s work would be free from defects and would conform to the requirements in the contract documents. The contract also warranted that the supplied materials would conform to contract specifications, would be fit for the intended purpose and would be merchantable. Although the bid proposal proffered by P.E.S. purported to exclude all express and implied warranties, the subsequently executed contract expressly stated, "[a]ny inconsistent terms and conditions of the Contractor's Proposal are hereby superseded by the terms and conditions of other Contract Documents enumerated in this Article." In light of this language, we conclude that the contract contained and authorized warranties.
B. Sufficiency of Evidence Supporting Breach of Warranty Claim. The district court determined that, even if the contract recognized certain warranties, "no evidence demonstrates that these defendants violated any such assurances." Cargill claims that, to the contrary, there is substantial evidence to establish a breach of the warranties. See Fausel, 603 N.W.2d at 617.
1. Implied Warranty of Fitness for a Particular Purpose. Iowa Code section 554.2315 (2001) of the Uniform Commercial Code states:
Where the seller at the time of contracting 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, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.
A party seeking recovery under this section 554.2315 must prove:
(1) the seller had reason to know of the buyer's particular purpose; (2) the seller had reason to know the buyer was relying on the seller's skill or judgment to furnish suitable goods; and (3) the buyer in fact relied on the seller's skill or judgment to furnish suitable goods.Renze Hybrids, Inc. v. Shell Oil Co., 418 N.W.2d 634, 637 (Iowa 1988). A "particular purpose" contemplates "a specific use by the buyer which is peculiar to the nature of his business." Farm Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d 104, 111-12 (Iowa 1981) (quoting 1 U.L.A. Uniform Commercial Codes 2-315, at 483, Official Comment (1976)). A particular use must be a use not normally expected to be made of the goods. Van Wyk v. Norden Labs., Inc., 345 N.W.2d 81, 85 (Iowa 1981).
We believe Cargill did not satisfy the "particular purpose" requirement of this claim. Cargill's particular purpose was to have underground storage tanks constructed to safely store hexane. P.E.S.' s brochure stated the tanks it would provide were "[s]uitable for the containment of all types of liquids, new and used oils, reprocessed greases, waste solvents, antifreeze, industrial processing fluids, as well as products requiring the tank to have an interior coating." The brochure even included a picture of a hexane storage tank at another Cargill plant. Cargill's stated purpose for the tank, therefore, was encompassed within the general purpose articulated by P.E.S. As Cargill failed to establish a particular purpose for the tanks as opposed to the general purpose for which it was manufactured, it could not recover for breach of an implied warranty of fitness for a particular purpose. See Van Vyk, 345 N.W.2d at 85.
2. Implied Warranty of Merchantability. Iowa Code section 554.2314(1) states in pertinent part:
Unless excluded or modified (section 554.2316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.
The warranty relates only to the quality of the goods at the time they are delivered. Williston on Contracts § 52:67 page 383 (Fourth Edition 2001). Defects that appear later do not fall within the scope of the warranty. Id.
A party seeking to recover under this warranty must prove:
(1) a merchant sold the goods, (2) the goods were not "merchantable" at the time of sale, (3) injury or damage occurred to the plaintiff's property, (4) the defective nature of the goods caused the damage "proximately and in fact," and (5) notice was given to the seller of the damage.Id. The parties do not dispute the first, third, and fifth elements: P.E.S. sold Cargill the tanks in question, Cargill was injured when the 30,000 gallon tank developed cracks, and Cargill notified P.E.S. of the problem. The parties do dispute the second and fourth elements: whether the tanks were "merchantable" at the time of sale and whether the defective nature of the goods caused the damage "proximately and in fact." We find it unnecessary to address the causation issue because we conclude Cargill failed to prove the tanks were not "merchantable" at the time of sale.
To be "merchantable" goods must satisfy six criteria. See Iowa Code § 554.2314(2). Only one is at issue here: whether the replacement tanks were "fit for the ordinary purposes for which such goods are used." Iowa Code § 554.2314(2)(c).
There is substantial evidence to establish that they were. Bernard Cooper, president of B H, stated the company manufactured its tanks to Steel Tank Institute specifications. Additionally, the defendants' expert testified the tanks satisfied the then-existing Underwriters Laboratory 58 (UL-58) standard. He further testified that, of the underground storage tanks his company had manufactured over the previous twenty years pursuant to the UL-58 standard, there had "never been a failure" due to collapse. Although one of Cargill's experts, Don Wandling, gave a contrary opinion, it was the fact finder's prerogative to weigh this conflicting evidence. EnviroGas, L.P. v. Cedar Rapids/Linn County Solid Waste Agency, 641 N.W.2d 776, 785-86 (Iowa 2002). The existence of this contrary opinion does not preclude a determination that there was substantial evidence of merchantability. Id.
As there was substantial evidence to establish the tanks were fit for the ordinary purpose for which they were used, the tanks were merchantable, and Cargill's claim for breach of an implied warranty of merchantability must fail.
3. Express Warranty. An express warranty is created when a seller affirms a fact or makes a promise, or provides a description or sample relating to the goods to be sold which becomes a part of "the basis of the bargain." Iowa Code § 554.2313(1)(a). A statement "purporting to be merely the seller's opinion or commendation of the goods does not create a warranty." Id., § 554.2323(2).
Cargill seeks to enforce language contained in a promotional brochure issued by P.E.S., apparently contending that this language became part of the express warranties set forth in the contract. See Select Pork, Inc. v. Babcock Swine, Inc., 640 F.2d 147, 149 (8th Cir. 1981) (holding that representations in brochure became part of the warranty of description contained in the contract). The brochure states in pertinent part that "P.E.S., Inc. provides special design and engineering to accommodate our customers needs." The brochure also states "recommendations are provided in design and planning." Cargill contends that these statements amounted to an express warranty that P.E.S. would design tanks specifically tailored to its needs. We agree.
We do not, however, find substantial evidence of Cargill's reliance on the brochure in purchasing the 1997 tank. Cf. Dailey v. Holiday Distributing Corp., 260 Iowa 859, 869, 151 N.W.2d 477, 484 (1967). Mike Beaver, manager of technology development for Cargill's, elected P.E.S. as the vendor of the original 1991 tanks. He stated he was pleased with the services P.E.S. provided. When Cargill began having problems with the tanks in 1996, P.E.S. was again contacted to provide new tanks. There is no evidence Cargill consulted any other vendor. Although Cargill employees Ron Ward and Pat Gathman stated they reviewed the P.E.S. sales brochure provided to them in 1997 prior to selecting P.E.S. as the vendor of the 1997 tanks, the record reveals Cargill selected P.E.S. based on its past experiences with the company rather than the representations contained in the brochure. Gathman testified by deposition that he knew Cargill had worked with P.E.S. in connection with the leak in the 1991 tank and knew P.E.S. installed the tanks in 1991. In light of this knowledge, he said his "first order of business" was to call P.E.S. and obtain a quotation for two underground hexane storage tanks to be installed in the same location.
This evidence is sufficient to support the district court's implicit finding that Cargill did not specifically rely on the representations in the brochure to select P.E.S. for the 1997 job. See Hubby v. State, 331 N.W.2d 690, 695 (Iowa 1983) (we assume as fact unstated findings necessary to support judgment). Accordingly, its express warranty claim must fail. Cf. Dailey 260 Iowa at 869, 151 N.W.2d at 484 (finding purchase would not have been made but for representation).
III. Expert Witnesses
Cargill next contends the district court abused its discretion in excluding portions of the expert testimony of Paul Hume and Jeffrey Brunson. See Carolan v. Hill, 553 N.W.2d 882, 889 (Iowa 1996) (applying abuse of discretion standard to exclusion of expert testimony). Hume was a national sales manager at the company that designed and built Cargill's post-1997 replacement tanks. Brunson was a staff engineer at the same company. Neither had dealt with underground storage tanks before they were hired to work on Cargill's replacement tanks. At trial, Cargill attempted to offer their testimony on several issues, including industry standards concerning underground storage tanks. The district court sustained defense counsel's objections to some of their testimony based on their limited experience with underground tanks.
Iowa Rule of Evidence 5.702 provides that if scientific or other specialized knowledge will assist the fact finder to understand the evidence or determine a fact in question, a witness qualified as an expert may testify regarding that question. Iowa R. Evid. 5.702. Additionally,our supreme court has ruled that a proffered expert witness need not have any specific education; experience is sufficient to qualify a witness as an expert. Leaf v. Goodyear Tire Rubber Co., 590 N.W.2d 525, 535 (Iowa 1999). The court has also recognized that while the level of an expert's experience may affect his or her credibility, it does not render such testimony inadmissible. Id. An expert need not be a specialist in a particular area of testimony so long as the testimony falls within the witness's general area of expertise. Hunter v. Board of Trustees of Broadlawns Medical Center, 481 N.W.2d 510, 520 (Iowa 1992).
Applying these standards, we believe both Hume and Brunson were qualified to testify concerning the industry standards applicable to underground storage tanks. Both worked for a company that manufactured storage tanks. Brunson testified that, in terms of engineering principles, it made little difference whether the tank was above ground or below ground. One of the defense's own witnesses seconded this opinion, stating whether a tank was above ground or below ground made no difference in the manufacturing process, as all were manufactured pursuant to the Steel Tank Institute's UL specifications. Under these circumstances, we would have not have excluded any of Hume's or Brunson's testimony based on their qualifications.
Despite this conclusion, we believe reversal is not mandated because the substance of these witnesses' excluded testimony came into the record in some fashion See Carolan, 553 N.W.2d at 889 (noting exclusion of evidence must be prejudicial). Although Hume was not allowed to testify about the industry standards applicable to underground storage tanks or whether P.E.S. breached applicable standards of care, he was allowed to testify that the P.E.S. purchase order did not contain "enough information between parties to effectively design this type of equipment or any equipment" he would be selling. He further was allowed to state that the manufactured tank "would not have performed for its application" had it been manufactured by his staff pursuant to the specifications in the P.E.S. purchase order.
Similarly, Brunson was allowed to testify to the type of information Hume received from Cargill concerning the tank it wished to purchase. He also was allowed to testify about what he did with that information, allowing the fact-finder to compare his process with that which defense witnesses said they employed. Brunson also was allowed to testify that, in his view, B H had performed no assessment of Cargill's specific needs. With reference to the P.E.S. purchase order he stated, "[i]f this came through in my company, I would — I'd be at my salesman's doorstep in a minute demanding more information. You simply can't design a tank from this little information." Brunson additionally was allowed to testify about the old UL 58 standard and the new one, which utilized what Cargill witnesses characterized as the more reliable "Roark formula" for calculation of tank wall thickness. He stated, "I designed this, the Cargill tank, using Roark with the assurance to myself that it would not fail. So I believe that the Roark formula was appropriate to use and that the tank will not fail, and it has not failed."
Finally, Cargill called a third expert witness, Don Wandling, who testified that the tank failed "because it was specified and manufactured from materials simply not thick enough to withstand the expected loads." In light of all this testimony, we conclude Cargill was not prejudiced by the district court's partial exclusion of Hume's and Brunson's testimony.
IV. Disposition
We affirm the district court's dismissal of Cargill's claims against the defendants.