Idacon, Inc. v. Arnold Construction Co.

Citations: 537 So. 2d 1290; 1989 La. App. LEXIS 82; 1989 WL 4336Docket: No. 20243-CA

Court: Louisiana Court of Appeal; January 17, 1989; Louisiana; State Appellate Court

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A seller, Idacon Inc., which produces wood-treating chemicals, filed a lawsuit against a buyer, Arnold Construction, for a past due open account of $21,742.38. Arnold counterclaimed for past and future repair costs due to alleged failures of Idacon's product, Dura-Treet II, which replaced their previous product, P-9. Idacon argued that Arnold's counterclaim was a redhibition claim that had prescribed. The trial court agreed that past repair claims were indeed in redhibition and had prescribed, but allowed Arnold to pursue future claims against Idacon based on warranty obligations. Arnold appealed the judgment regarding past repairs, while Idacon appealed the ruling on future claims.

Dura-Treet II, developed in the late 1970s as a water-based alternative to P-9, was marketed by Idacon with assurances of quality despite lacking independent testing at the time. Arnold began using this product in 1979 under a licensing agreement and faced customer complaints about its performance starting in 1984, including a significant complaint from the Texas Highway Commission. Idacon assured Arnold that Dura-Treet II met all relevant standards, supported by findings from an industrial association. Despite ongoing complaints, Arnold continued to fall behind on payments to Idacon.

Idacon's exception of prescription was filed in March 1988, claiming Arnold's reconventional demand was for a defective product and thus subject to a one-year prescriptive period. Arnold countered that Idacon’s warranties extended the prescriptive period to ten years. Testimony during the hearing primarily revolved around Idacon's alleged guarantees regarding testing and withheld unfavorable results.

Mr. Hatcher, president of Idacon, testified that Arnold consistently delayed payments and only raised quality concerns after Idacon threatened legal action, leading him to believe Arnold was employing delay tactics. Hatcher stated that Arnold never formally requested product replacements and acknowledged that while some tests indicated Dura-Treet II underperformed compared to other products, he deemed those tests unscientific and did not share the results with Arnold. Hatcher noted that of the seven to nine users of Dura-Treet II, only Arnold and one other customer complained, and those issues were attributed to improper application by the treaters. 

Mr. Arnold testified that he did not have issues with the original product, P-9, and was assured by Idacon that Dura-Treet II was comparable and validated by independent labs. After purchasing the new product, Arnold received complaints starting in May 1984, with photographic evidence of rotted fence posts sent in October 1984. He argued that if Idacon had inspected the rotted wood as requested, he would have settled his account.

The trial court determined Arnold's claim was not for merely a lower-quality product but for one unfit for its intended purpose, thus falling under redhibition laws. Under LSA-C.C. articles 2534 and 2546, redhibitory actions have a one-year prescriptive period, which the court found applicable, concluding that Arnold was aware of the potential defect by May 1984, making his March 21, 1986, reconventional demand time-barred. The court also ruled that Arnold's customers' claims for future losses would depend on warranties from Idacon, allowing Arnold to seek indemnity from Idacon if sued.

In Arnold's appeal, he argued that the trial court incorrectly applied the one-year prescription instead of the ten-year contractual period outlined in LSA-C.C. art. 3499. He contended that if the one-year period were correct, it should have been suspended due to Idacon's alleged fraud or bad faith, or that a procedural extension made his action timely. The court clarified that breach of contract actions typically prescribe in ten years unless specified otherwise, while redhibitory actions allow for cancellation of sales due to defects that substantially impair product use.

A redhibitory action must be filed within one year from the sale date if the seller was in good faith or from the date the defect was discovered if the seller was in bad faith, or from the last attempt to repair the defect. This principle is governed by LSA-C.C. arts. 2534, 2546. Unlike other contractual breaches, damages for breach of warranty in sales contracts are based on redhibition, thus adhering to the shorter prescriptive period. The nature of a claim as a breach of warranty does not change the prescriptive period for redhibitory actions.

In Arnold’s case, the allegations centered on breach of warranty rather than defect, with Arnold’s evidence primarily highlighting promises and warranties regarding the product, Dura-Treet II. The court determined that the nature of the action remained rooted in redhibition despite Arnold’s claim of breach of contract due to receiving a product of lesser quality. Arnold argued that Idacon failed to deliver a product as contracted, yet the court found that the product received was indeed defective, as evidenced by rotting and warping in treated fence posts within two years. Arnold's inability to specify the contract's grade and the delivered product's grade further supported the conclusion that the issue was fundamentally about the product's defectiveness rather than a mere quality discrepancy.

Arnold received the product he contracted for, with no evidence of receiving a lower grade product. The court referenced cases such as Walton v. Katz, Besthoff and Crowley Grain Drier Inc. v. Fontenot to support this conclusion. Arnold argued for a ten-year prescription based on Delta Refrigeration Co. v. Upjohn Co., but the court declined to follow this precedent, citing a lack of Louisiana authority and contradictory jurisprudence. The court noted that Arnold's reconventional demand was subject to a one-year prescription, as he had received complaints about the product starting in May 1984, and decided to stop purchasing it by August 1984. Thus, he was deemed to have sufficient notice of potential defects by early 1985. The court affirmed that Arnold's claim filed in March 1986 was untimely. Idacon, as a good faith seller, was not found liable for repair efforts that could suspend prescription. Arnold's claim of Idacon's failure to disclose test results as fraudulent was dismissed due to insufficient pleading of fraud specifics. Although courts may overlook technical failures in fraud allegations, Arnold’s petition did not adequately assert that Idacon knowingly misrepresented facts to gain an unfair advantage or that the product was defective. Consequently, the court concluded that Arnold failed to plead or prove fraud.

The reconventional demand made by Arnold is classified as redhibition and has prescribed, meaning it is no longer valid. Arnold contends that a procedural extension should render the claim timely, referencing LSA-C.C.P. art. 1067, which states that an incidental demand is not barred if it was not prescribed at the time the main demand was filed and is made within ninety days of service. Arnold asserts that having received service of the main demand on February 26, 1986, it had until May 13 or May 25 to file its reconventional demand, which it did on March 21, 1986. However, the trial court determined that Arnold had prior notice of the defect by early 1985, thus the main demand, filed on February 21, 1986, was beyond the one-year prescription period. The trial court found no reversible error in dismissing Arnold's claims for past damages.

Regarding Idacon’s appeal, the trial court ruled that while Arnold's redhibitory action for past damages has prescribed, future claims from Arnold’s customers are governed by Idacon’s warranties. Idacon argues that these claims should not be seen in the context of warranties between Arnold and Idacon, as the warranty exists only between Idacon and the ultimate purchasers. Nonetheless, LSA-C.C. art. 2531 allows Arnold to pursue a claim against Idacon if held liable to its customers due to redhibitory defects. This right can persist despite Arnold's own action being prescribed. The judgment's characterization of customer claims is problematic; it could imply Idacon's liability as res judicata without acknowledging its potential defenses, and it may overstate Arnold's rights beyond what the civil code allows. Future litigation will involve various uncertainties that are not currently before the court.

Arnold has not demonstrated liability for redhibitory defects, which is necessary for recovery against the manufacturer. The judgment in question resembles an advisory opinion on abstract rights, which is disfavored under the law. Arnold's vendees are essential parties for any future litigation, and the current judgment does not resolve the uncertainties involving all parties, including the vendees. Therefore, the judgment improperly held Idacon liable ex contractu. The court affirmed the dismissal of Arnold’s reconventional claim for past damages and amended the judgment to remove references to future damages ex contractu, with appeal costs assigned to Arnold Construction Company.