Datamatic, Inc. v. International Business Machines Corp.
Datamatic, Inc. v. International Business Machines Corp.
Opinion of the Court
Invoking the Louisiana civil-law doctrine of redhibition, La.Civ.Code art. 2520, a purchaser of second-hand computer equipment sued the computer manufacturer to recover purely economic losses resulting from alleged defects in the equipment. The manufacturer defended on the ground that its
I.
In the late 1960s, IBM manufactured certain computer components. It initially sold these components to four different corporations under contracts of sale that expressly limited IBM’s warranty liability. The contracts stated:
For one year from the date of installation, IBM warrants the machines ... to be free from defects in material and workmanship.
IBM will not be liable for personal injury or property damages except personal injury or property damage caused by IBM’s negligence. IBM shall in no event have obligations or liabilities for consequential damages.
The foregoing Warranties and Limitations are exclusive remedies and are in lieu of all other warranties express or implied, including but not limited to the implied warranty of merchantability. (Emphasis in original.)
ITEL, a Dallas-based computer leasing company, subsequently acquired the IBM components and assembled them into a tape system, which it sold to Datamatic, a Louisiana corporation, in 1974 and 1975 for $75,000. In the contract of sale, ITEL excluded all implied warranties but assigned to Datamatic any rights that ITEL still had against IBM.
Datamatic then made a computer service agreement with IBM. Datamatic contends that, despite regular service by IBM, one of the tape systems continuously malfunctioned from the date it was installed until June 1982, when, six or seven years after Datamatic had purchased the equipment and almost fifteen years after IBM had originally sold it, an IBM engineer discovered a defect in the “terminator,” a part incorporated in one of the tape drives. The engineer found that some of the pins or terminals in the terminator had been “wire-wrapped” rather than soldered. Datamatic contends that, once the pins were soldered, the equipment functioned properly.
A few days after this 1982 equipment repair, Datamatic demanded a refund from IBM for all of the maintenance charges attributable to the allegedly defective terminator. When negotiations proved unsuccessful, Datamatic sued IBM in June 1983 in Louisiana state court, alleging that the unsoldered pins constituted a redhibitory defect as defined in La.Civ.Code art. 2520. Datamatic claimed that it was entitled to rescind its purchase of the tape system and to recover these damages: the purchase price, of the defective equipment;. lost profits; damage to its business reputation; costs of rerunning work; costs incurred as a result of computer “down time”; and maintenance fees paid to IBM. These claims totalled over $960,000.
IBM removed the suit to federal court, and afterwards moved for summary judgment. The district court applied Louisiana law and held that Datamatic did have a claim in redhibition against IBM. The court concluded, however, that the basis of Datamatic’s right to recover against IBM was its subrogation to any rights against IBM that ITEL, Datamatic’s seller, may have had under the contracts it or its predecessors had with IBM. Finding that the warranty limitations contained in these contracts would have precluded ITEL’s re
II.
IBM contends that New York law applies to Datamatic’s claim because the original contracts of sale for the computer equipment provided that the agreement would be governed by New York law. Datamatic argues that it cannot be bound to a choice-of-law provision in a contract to which it was not a party, and contends that application of Louisiana choice-of-law principles requires that the court apply Louisiana law. The district court agreed, deciding that redhibition cases have been treated like tort actions for purposes of conflicts analysis.
III.
Sales of goods in Louisiana carry an implied warranty that the goods are free of hidden defects (“redhibitory vices”) and are reasonably fit for their intended use.
Datamatic’s claim against IBM is unusual because it involves factors that are not typically found together in a redhibition suit: a claim against a nonseller manufacturer of allegedly defective equipment purchased second-hand from an intermediate owner who was not a dealer in the manufacturer’s products. Therefore, the issue is whether a buyer in Datamatic’s situation
Privity of contract is no longer a prerequisite to a redhibitory action under the Civil Code. The Louisiana Supreme Court abolished that requirement in Media Production Consultants, Inc. v. Mercedes-Benz of North America.
IV.
The action in redhibition is inherently contract-based. Both the theory of the action and the relief available differ from those applicable to a suit in tort. Datamatic, however, asserts only a claim in redhibition, perhaps because of statute of limitations problems or perhaps because of differences in allowable remedies. We must, therefore, determine the extent of Data-matic’s contractual (redhibitory) rights against IBM. IBM argues that Datamatic can recover only so much as its predecessors in title could have recovered. IBM’s thesis is that a buyer proceeding “in contract” against a seller with whom it is not in privity has no rights of its own but is merely subrogated to the rights of its seller. It contends that, in consequence, the warranty-limitation provisions in the contracts it executed with the original buyers are, assuming their validity, equally operative against Datamatic. Datamatic, relying on Media, contends that its rights are not restricted to those of ITEL, its seller, but arise independently from those of intervening buyers and, for this reason, the provisions in the IBM sales contracts have no effect against it.
Media was a suit by the buyer of a defective automobile to rescind the sale of the automobile and to recover the purchase price from the manufacturer. The buyer had purchased the car from a dealer franchised by the manufacturer who, at the time of suit, was defunct. With its purchase the buyer had received a manufacturer’s express warranty containing a clause stating that it superseded all other warranties, express or implied. Nevertheless, the Louisiana Supreme Court permitted the buyer to seek rescission directly from the manufacturer for breach of implied warranty. The dealer too had waived the benefit of all implied warranties against the manufacturer, but the court did not discuss whether those warranty-limitation provisions were valid and the effect, if any, this had on the buyer. Instead, the court referred only to the warranty-limitation provisions that the manufacturer had sought
The theoretical basis for the Media decision, however, is unclear.
The uncertainty as to the theoretical foundation of the Media opinion is heightened by Justice Dixon’s concurrence. Justice Dixon found that the plaintiff could have recovered under what he characterized as another theory: it was subrogated, pursuant to La.Civ.Code art. 2503,
Whatever be the basis of the Media opinion, we do not think that the decision accords a pure tort action but with redhibition remedies. It would be anomalous if Louisiana law permitted a buyer of used goods from a casual seller to obtain greater rights in redhibition than the original purchasers of the equipment who bought it new from the manufacturer or the manufacturer’s franchised dealer. Even though rights of action in Louisiana are grounded in the Civil Code, Louisiana is not unlike other states in providing both tortious
Subsequent Louisiana Supreme Court cases “made it clear that the consumer’s cause of action [under Media ] is for the most part governed by Civil Code principles pertaining to the redhibitory action.”
The interpretation of Media as adopting a subrogation theory does not fully consider the conflicting parts of that opinion. However, both the structure of the Civil Code and the interpretive decisions of the Louisiana intermediate appellate courts persuade us that Media can best be explained by that conception. Whether or not we are correct in this conclusion, we do not think that Media implies that the ultimate buyer has a sui generis action against the manufacturer that springs full blown from the last act of sale like some goddess-like creation from the brow of Zeus. When an informed buyer purchases used equipment from a seller who is not a dealer of the manufacturer, his claim against the manufacturer, whether based on subrogation to his seller’s rights in redhibition against the manufacturer of the equipment or on some other theory, is no greater than the rights of the original buyer.
V.
Louisiana law permits a seller to limit or exclude the implied warranty against redhibitory defects.
In California Union Insurance Company v. Bechtel Corporation,
The contract under consideration was a commercial undertaking between two highly sophisticated parties. While courts are reluctant to enforce warranty limitations on consumers they recognize that parties such as Bechtel ... and Westinghouse are free to bargain as they see fit and are bound by their contracts.34
Under the circumstances of this case, there is no reason why the warranty limitations cannot and should not now be upheld.
Datamatic constructs an inventive argument to support its contention that manufacturers are not permitted to limit the implied warranty against redhibitory defects. Because knowledge of the defects in its product is imputed to the manufacturer, who is hence considered to be a “bad faith” seller, Datamatic contends that this imputed knowledge is the equivalent of fraud for purposes of La.Ciy.Code art. 2548. That article provides that a seller who has committed fraud may not benefit from the renunciation of the warranty against redhibitory defects. This equivalence, however, is suggested only in one commentary,
Datamatic also contends that La. Civ.Code art. 2531 supports its position. Article 2531 allows a seller who has been held liable for redhibitory defects in goods he has sold to recover from the manufacturer despite warranty limitations in the contract made with the manufacturer.
In sum, IBM’s warranty limitations were effective against the original buyers of the computer equipment. Because Datamatic derivatively obtained title to the equipment from the original sales contracts, its cause of action against IBM is limited by the terms of those contracts. The warranty limitations therefore are effective against Datamatic as well.
VI.
Datamatic, seeking its last resort short of defeat, urges that, if we do not agree with its position, we certify the choice-of-law and redhibition questions to the Louisiana Supreme Court. Such certification would extend to that court an invitation to clarify its prior decision but we are convinced it would not affect the result. We therefore do not impose on that court.
VII.
We hold that Datamatic may recover against IBM only what its predecessors in title could have recovered. Although it need not be in privity to recover its economic losses under Louisiana law, that law is not infinitely generous. The legally enforceable warranty provisions duly executed by the parties to the original transaction are binding on Datamatic because it derives its rights against IBM only from its subrogation to the rights of its sellers who were not dealers of IBM equipment and were not placed by IBM in a position to represent the qualities of its products.
We therefore AFFIRM the judgment of the district court. We express no opinion whether Datamatic might have maintained a delictual action against IBM for products liability under article 2315,
. Datamatic, Inc. v. International Business Mach. Corp., 613 F.Supp. 715 (W.D.La. 1985).
. But cf. Alexander v. Burroughs Corp., 359 So.2d 607 (La. 1978) (warranty against redhibi-tory vices is implied in the contract of sale).
. See United States v. Automobile Club Ins. Co., 522 F.2d 1, 2 (5th Cir. 1975); Evra Corp. v. Swiss Bank Corp., 673 F.2d 951, 954-55 (7th Cir.), cert. denied, 459 U.S. 1017, 103 S.Ct. 377, 74 L.Ed.2d 511 (1982).
. La.Civ.Code arts. 2476, 2520; Hob’s Refrigeration & Air Conditioning, Inc. v. Poche, 304 So.2d 326, 327 (La. 1974). La.Civ.Code art. 2520 reads as follows:
Redhibition is the avoidance of a sale on account of some vice or defect in the thing sold, which renders it either absolutely useless, or its use so inconvenient and imperfect, that it must be supposed that the buyer would not have purchased it, had he known of the vice.
. La.Civ.Code arts. 1764(A)(2), 2520. The articles dealing with redhibition appear in section 3 of Chapter 6, Title VII, Book III of the Civil Code in a chapter entitled "Of the Obligations of the Seller."
. La.Civ.Code art. 2541; Sanders v. Sanders Tractor Co., Inc. 480 So.2d 913, 915 (La.App. 1985).
. La.Civ.Code art. 2531; Rey v. Cuccia, 298 So.2d 840, 842-43 (La. 1974). The seller, however, is entitled to a credit to compensate him for the buyer's use of the goods. See Womack & Adcock v. 3M Business Products Sales, 316 So.2d 795, 797 (La.App. 1975); Dunlap v. Chrysler Motors Corp., 299 So.2d 495, 498 (La.App.), writ denied, 302 So.2d 38 (La. 1974). But see Alexander v. Burroughs Corp., 359 So.2d 607, 610-12 (La. 1978).
. La.Civ.Code art. 2545. See Hersbergen, Unconscionability: The Approach of the Louisiana Civil Code, 43 La.L.Rev. 1315, 1354 (1983); Breaux v. Winnebago Indus., Inc., 282 So.2d 763, 770 (La.App. 1973).
. Alexander v. Burroughs Corp., 359 So.2d 607, 609 (La. 1978). See also Moreno’s Inc. v. Lake Charles Catholic High Schools, Inc., 315 So.2d 660, 663-64 (La. 1975); Newman v. Dixie Sales and Serv., 387 So.2d 1333, 1336 (La.App. 1980).
. 262 La. 80, 262 So.2d 377 (1972).
. Sanders v. Sanders Tractor Co., Inc., 480 So.2d 913, 915 (La.App. 1985); Gisclair v. Cajun Trucking, Inc., 421 So.2d 339, 341 (La.App. 1982).
. Huffman-Euro Motors, Inc. v. Physical Therapy Serv., Ltd., 373 So.2d 565 (La.App. 1979).
. See Smith v. Max Thieme Chevrolet Co., 315 So.2d 82, 86 (La.App. 1975); Barham, Redhibition: A Comparative Comment, 49 Tul.L.Rev. 376, 381-82 (1975); Redmann, Redhibition in Louisiana: Its Uses and Its Problems Today, 50 Tul.L.Rev. 530, 541-43 (1976); Robertson, Manufacturers' Liability for Defective Products in Louisiana Law, 50 Tul.L.Rev. 50, 86-88 (1975); Note, Wholesale Distributor Liable for Retail Price of Defective Foreign Automobile, 47 Tul.L. Rev. 473, 473-79 (1973).
. See Media Production Consultants, Inc. v. Mercedes-Benz of N. Am., Inc., 247 So.2d 266, 268 (La.App. 1971) (original court of appeal decision), and 264 So.2d 686, 687 (La.App. 1972) (court of appeal decision on remand).
. Media, 262 So.2d at 381.
. Article' 2503 reads in part:
But whether warranty be excluded or not the buyer shall become subrogated to the seller’s rights and actions in warranty against all others.
Although found in the section of the Civil Code dealing with eviction, article 2503 has been applied to actions in redhibition. McEachern v. Plauche Lumber & Constr. Co., 220 La. 696, 57 So.2d 405 (1952); DeSoto v. Ellis, 393 So.2d 847, 849-50 (La.App. 1981).
. Media, 262 So.2d at 382.
. La.Civ.Code art. 2315; Weber v. Fidelity & Cos. Ins. Co., 259 La. 599, 250 So.2d 754 (1971).
. See supra note 5.
. Weber v. Fidelity & Cas. Ins. Co., 259 La. 599, 250 So.2d 754 (1971).
. Smith v. Max Thieme Chevrolet Co., 315 So.2d 82, 86 (La.App. 1975) (citing Rey v. Cuccia, 298 So.2d 840 (La. 1974)). See also Moreno's, Inc. v. Lake Charles Catholic High Schools, Inc., 315 So.2d 660, 663 (La. 1975).
. See Robertson, supra note 13, at 87-88; see also Continental Ins. Co. v. International Harve-stor Co., 412 So.2d 616, 617 (La.App. 1982) (implying a tort basis for the cause of action).
. Barham, supra note 13, at 381-84; Redmann, supra note 13, at 540.
. See, e.g., Peltier v. Seabird Indus., Inc., 309 So.2d 343, 344-45 (La. 1975) (Barham, J., concurring in writ denial); Barham, supra note 13, at 381-84; Redmann, supra note 13, at 540.
. See, e.g., Moreno’s, Inc. v. Lake Charles Catholic High Schools, Inc., 315 So.2d 660, 663 (La. 1975); Theriot v. Commercial Union Ins. Co., 478 So.2d 741, 745-46 (La.App. 1985); Landry v. Baton Rouge Lumber Co., 434 So.2d 1144, 1145-46 (La.App. 1983); DeSoto v. Ellis, 393 So.2d 847, 849 (La.App. 1981); Huffman-Euro Motors, Inc. v. Physical Therapy Serv., Ltd., 373 So.2d 565, 569-70 (La.App. 1979). See also Aizpura v. Crane Pool Co., Inc., 449 So.2d 471, 472-73 (La. 1984).
. Desoto v. Ellis, 393 So.2d 847, 840-50 (La.App. 1981).
. See La.Civ.Code arts. 2503, 1764(A)(2), & 11. See also Hob’s Refrigeration & Air Conditioning, Inc. v. Poche, 304 So.2d 326, 327 (La. 1974); Rey v. Cuccia, 298 So.2d 840, 842 (La. 1974); Prince v. Paretti Pontiac Co., Inc., 281 So.2d 112, 117 (La. 1973). See also Fernandez v. Miller Richards Aircraft Sales, Inc., 487 So.2d 660, 664-65 (La.App. 1986); California Chem. Co. v. Lovett, 204 So.2d 633, 636 (La.App. 1967).
. Fontenot v. F. Hollier & Sons, 478 So.2d 1379, 1386 (La.App. 1985), writ granted, 481 So.2d 1326 (La. 1986); Hendricks v. Horseless Carriage, Inc., 332 So.2d 892, 894 (La.App. 1976); Anderson v. Bohn Ford, Inc., 291 So.2d 786, 788 (La. App. 1973), writ denied, 294 So.2d 829 (La. 1974). See Hersbergen, supra note 8, at 1365; Comment, Modification or Renunciation of Warranty
. See, e.g., Dunlap v. Chrysler Motors Corp., 299 So.2d 495, 498 (La.App.), writ denied, 302 So.2d 38 (La. 1974); Wolfe v. Henderson Ford, Inc., 277 So.2d 215, 217 (La.App. 1973). See also Hersber-gen, supra note 8, at 1365.
. See, e.g., Thibodeaux v. Meaux’s Auto Sales, Inc., 364 So.2d 1370, 1371 (La.App. 1978). See generally Robertson, supra note 13, at 94; Redmann, supra note 13, at 544-46; Hersbergen, supra note 8, at 1363; Campbell, The Remedy of Redhibition: A Cause Gone Wrong, 22 La.B.J. 27, 33 (1974).
. See Hersbergen, supra note 8, at 1366-67.
. Louisiana Nat'l Leasing Corp. v. ADF Serv., Inc., 377 So.2d 92, 96 (La. 1979); Anderson v. Bohn Ford, Inc., 291 So.2d 786, 790-91 (La.App. 1973), writ denied, 294 So.2d 829 (La. 1974). See also Barham, supra note 13, at 386-89.
. 473 So.2d 861 (La.App.), writ denied, 477 So.2d 1128 (La. 1985).
. 473 So.2d at 866-67.
. Hersbergen, supra note 8, at 1355-1358.
. Campbell, supra note 30, at 33.
. See, e.g., Cox v. Lanier Bus. Prod., Inc., 423 So.2d 690, 694 (La.App. 1982), writ denied, 429 So.2d 129 (La. 1983).
. See Weber v. Fidelity & Cas. Ins. Co., 259 La. 599, 250 So.2d 754 (1971), and its progeny.
Reference
- Full Case Name
- DATAMATIC, INC. v. INTERNATIONAL BUSINESS MACHINES CORPORATION
- Cited By
- 3 cases
- Status
- Published