Tex Enterprises v. Brockway Standard

Citations: 39 P.3d 362; 110 Wash. App. 197; 2002 Wash. App. LEXIS 177Docket: 47784-6-I

Court: Court of Appeals of Washington; February 3, 2002; Washington; State Appellate Court

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Tex Enterprises, Inc. (Tex), a Washington corporation, entered into a contract with J.F. Shelton Company (Shelton), a distributor, to purchase containers for its deck coating product. Tex alleges it was influenced to switch to Brockway Standard, Inc. (Brockway) containers based on representations made by Brockway's representative, who claimed the containers were as effective as those from a previous supplier, Norton. Following the purchase, Tex experienced issues with the containers, leading to customer complaints and significant product loss.

The trial court dismissed Tex's breach of warranty claims against Brockway, citing disclaimers and a choice of law provision included on invoices sent to Shelton, which had not been communicated to Tex. The court ruled that these terms were binding and applied Georgia law, leading to the dismissal of Tex's claims due to lack of privity. Tex appealed the dismissal of both express and implied warranty claims, as well as the denial of a motion to add a promissory estoppel claim.

The appellate court reversed the trial court’s decision, asserting that direct representations from a manufacturer to a purchaser can create warranties independent of the relationship between the manufacturer and distributor. The case emphasizes the importance of direct communications between manufacturers and purchasers in establishing warranties and the potential inapplicability of certain legal disclaimers when a manufacturer directly engages with a buyer.

Tex's claims against Brockway are not strictly derivative, as they arise from Brockway's active role in persuading Tex to purchase its products, rather than solely from a contractual relationship between Brockway and Shelton. A representative from Brockway met personally with Tex's president, during which express and implied warranties were made, leading to Tex’s purchase of allegedly defective containers. Consequently, the contractual terms between Brockway and Shelton do not apply to Tex's claim.

The legal question at hand is whether Tex can pursue claims directly against Brockway under Washington law, focusing on vertical versus horizontal privity. Vertical privity involves the contract relationship among parties in the distribution chain, while horizontal privity pertains to the relationship of non-buyers to the seller or manufacturer. Historically, Washington courts required privity of contract for warranty claims, but this strict requirement has softened, allowing for a "sum of the circumstances" test for cases involving vertical privity. This test assesses whether the ultimate purchaser is an intended beneficiary of warranties made by parties higher up in the distribution chain.

Both parties reference Touchet Valley Grain Growers, Inc. v. Opp. Seibold General Construction, Inc. to support their arguments regarding privity; however, Touchet is not applicable since it addressed warranties between a manufacturer and intermediary, whereas Brockway disclaimed all warranties to Shelton. Therefore, a third-party beneficiary analysis is irrelevant. The conclusion drawn is that a manufacturer's statements and actions can create express and implied warranties directly to the purchaser, independent of any intermediary contracts.

Supporting this conclusion, Dobias v. Western Farmers Association illustrates that a manufacturer can be held liable for breach of warranties despite disclaimers if the end user relied on the manufacturer's representations. In Tex's case, unlike the end user in Dobias, Tex was unaware of any disclaimers, and Brockway's representations were made directly to Tex. This is further exemplified by Cedars of Lebanon Hospital Corp. v. European X-Ray Distributors of America, Inc., where direct representations from a manufacturer influenced the plaintiff's purchasing decision.

Cedars filed a lawsuit against the manufacturer for breach of express and implied warranties after the x-ray equipment failed. The manufacturer argued there was no privity between them and Cedars. The court ruled that the manufacturer's representations created warranties that extended to the purchaser regardless of the contractual relationship with the distributor. It noted that if no direct contact existed between the manufacturer and the end user, a lack of privity would typically negate liability. The ruling emphasized that manufacturers should not evade responsibility for products they directly marketed to purchasers. 

Additionally, Tex's appeal regarding the trial court's denial of its motion to add an estoppel claim was examined. The court stated that such denials are reviewed for abuse of discretion and can only be reversed if unreasonable. Tex's motion was denied due to being filed late, as it was submitted less than two weeks before trial after discovery closed. The trial court's decision to deny the amendment due to undue delay was upheld, resulting in a reversal and remand of the case. Shelton, previously involved, had settled with Tex and was not part of the appeal.