Marion Power Shovel Co. v. Huntsman

Citations: 437 S.W.2d 784; 246 Ark. 152; 6 U.C.C. Rep. Serv. (West) 100; 1969 Ark. LEXIS 1222Docket: 5-4749

Court: Supreme Court of Arkansas; February 17, 1969; Arkansas; State Supreme Court

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Marion Power Shovel Co. appealed a judgment from the Supreme Court of Arkansas, where Harold Huntsman, the defendant and counterclaimant, had successfully argued a breach of warranty concerning a power shovel and its attachments manufactured by Marion. Huntsman, a farmer needing equipment for land development, engaged with Marion's representative R. A. Strickland to specify the necessary machinery. The sale involved three written documents, none of which included a warranty. Upon delivery, a maintenance manual was provided, which contained a standard warranty stating that parts would be free from defects for six months after delivery, limiting Marion's liability to repairs of defective parts.

Huntsman reported immediate operational issues with the equipment, including overheating swing clutches, broken drive chains, and a malfunctioning transmission, which prevented him from planting a soybean crop and resulted in $25,000 in consequential damages due to lost rental income. Additionally, he claimed a loss of $40,000 representing the difference between the machine's cost and its market value. Huntsman's cross-appeal challenged the sufficiency of the damages awarded. The court's decision and the various appeal points raised by both parties are set to be further evaluated.

Marion Power Shovel presented two main witnesses: R. A. Strickland and an engineer from the factory. Strickland claimed he did not visit the Huntsman farm before the sale and met Huntsman only at the Standard Equipment office, where they reviewed specifications. He indicated that Huntsman independently determined the final specifications, notably ordering an eighty-foot boom contrary to the standard forty-foot boom for the machine. Strickland acknowledged that the machine was not designed for such a configuration and that it operated with a dragline bucket of one and a half yards capacity. The factory engineer examined returned broken parts and observed the machine's operation, concluding the breakdowns resulted from overloading and improper maintenance.

Marion Power Shovel's first argument for reversal is the lack of privity of contract with Harold Huntsman, asserting that Huntsman purchased the equipment from Standard Equipment Supply Company rather than directly from them. Marion contends that Huntsman cannot invoke Ark.Stat. Ann. 85-2-318.1 since the suit was filed before the statute’s effective date, which removes the privity defense under certain conditions. However, the trial court concluded that the transaction was indeed between Huntsman and Marion Power Shovel. Huntsman initially contacted Standard Equipment and later worked directly with Strickland on the project. The final payment of $40,000 was made to Marion Power Shovel, and the equipment was shipped directly from Marion, Ohio, to Huntsman. Marion Power Shovel's involvement, including sending personnel to oversee assembly, further supports the trial court's finding of a direct relationship. Legal precedents indicate that privity of contract is a factual question, with courts often looking beyond formal agreements to the substance of the transaction, as illustrated in cases like Hewitt-Robins v. Lea County and United States Pipe, etc. v. City of Waco.

The trial court did not explicitly determine privity but implicitly recognized it by denying damages based on the difference in market values of the machine due to a lack of proof. The standard warranty in question, which served as a disclaimer, was found to violate the Uniform Commercial Code (UCC) as it did not address merchantability nor was it conspicuously presented, a determination that rests with the court. None of the sales documents mentioned a warranty, as it only appeared in the operation and maintenance manual delivered after the purchase price was paid, rendering the warranty defective. 

The court improperly awarded $9,000 in consequential damages for lost crops, as there was insufficient evidence to show that the seller, Marion Power Shovel, was aware of the buyer's reliance on the machine for the 1965 soybean crop. The machine was not operational until May 1, 1965, and the buyer had not secured an operator by that time, making claims of reliance unreasonable. Evidence suggested that the damages incurred could have been caused by the buyer's misuse of the machine, but this point was not addressed due to the remand. The buyer's request for damages based on the machine's market value was deemed unsupported, although further evidence could be presented upon retrial. The trial court’s reliance on a defective warranty necessitated a trial under the implied warranty doctrine, leading to a reversal and remand for further proceedings.