Controlled Environments Construction, Inc. v. Key Industrial Refrigeration Co.

Page 1

266 Neb. 948

___ N.W. ___

Controlled Environments Construction, Inc., a California corporation, appellant, v. Key Industrial Refrigeration Co., a California corporation, defendant, Hill-Phoenix, Inc., a Delaware corporation, defendant and third-party plaintiff, and Refrigeration Equipment Specialists, third-party defendant, appellees.

No. S-02-708.

Supreme Court of Nebraska.

Filed October 31, 2003.

1.

Summary Judgment.

Summary judgment is proper when the pleadings and the evidence admitted at the hearing disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

2.

Summary Judgment: Appeal and Error.

In reviewing an order for summary judgment, an appellate court views the evidence in a light most favorable to the party against whom the judgment was granted and gives such party the benefit of all reasonable inferences deducible from the evidence.

3.

Warranty: Time.

In order to constitute a future performance warranty, the terms of the warranty must unambiguously indicate that the manufacturer is warranting the future performance of the goods for a specified period of time.

4.

Uniform Commercial Code: Warranty.

Only express warranties may trigger the future performance exception set forth in Neb. U.C.C. § 2-725(2) (Reissue 2001).

5.

Warranty.

The mere existence of repair and replace language will not disturb a finding that a warranty extends to future performance.

6.

Limitations of Actions: Breach of Warranty.

When a warranty extends to future performance, the statute of limitations is tolled and the cause of action does not begin to accrue until the breach of that warranty is or should have been discovered.

7.

Summary Judgment: Appeal and Error.

The governing standard of review for an order of summary judgment should be, and continues to be, one favorable to the nonmoving party.

8.

Uniform Commercial Code: Limitations of Actions: Warranty.

When goods are warranted against defects, the discovery analysis should focus on the buyer's knowledge of the nature and extent of the problem(s) with the goods. It is only when a buyer discovers, or should have discovered, facts sufficient to doubt the overall quality of the goods that Neb. U.C.C. § 2-725(2) (Reissue 2001) is satisfied and that the statute of limitations begins to run.

9.

Summary Judgment: Proof.

A prima facie case for summary judgment is shown by producing enough evidence to demonstrate that the movant is entitled to a judgment in its favor if the evidence were uncontroverted at trial.

10.

Summary Judgment: Evidence: Proof.

After the movant makes a prima facie case for summary judgment, the burden to produce evidence showing the existence of a material issue of fact that prevents summary judgment as a matter of law shifts to the party opposing the motion.

11.

Summary Judgment: Appeal and Error.

Where ambiguity exists in a summary judgment proceeding, an appellate court resolves such matters in favor of the nonmoving party.

12.

Limitations of Actions: Sales.

The determination of a discovery date is essentially an inquiry into all of the facts and circumstances facing the buyer; thus, a court should examine all relevant evidence that bears on the buyer's discovery.

13.

Sales: Breach of Warranty.

Denials of a defect by the seller may not prolong discovery of a breach of warranty in the face of overwhelming evidence to the contrary.

14.

Summary Judgment: Evidence.

In connection with a motion for summary judgment, unless the evidence is marked, offered, and received, it does not become part of the record and cannot be considered by the trial court as evidence in the case.

15.

Uniform Commercial Code: Limitations of Actions.

Neb. U.C.C. § 2-725(1) (Reissue 2001) prohibits the parties, at least by original agreement, from extending the statute of limitations.

Appeal from the District Court for Douglas County: J. Patrick Mullen, Judge. Affirmed in part, and in part reversed and remanded for further proceedings.

David S. Houghton and J.P. Sam King, of Lieben, Whitted, Houghton, Slowiaczek & Cavanagh, P.C., L.L.O., for appellant.

Mary Kay Frank, of Cline, Williams, Wright, Johnson & Oldfather, and Brian W. McGrath and G. Michael Halfenger, of Foley & Lardner, for appellee Hill-Phoenix, Inc.

Michael A. Nelsen, of Hillman, Forman, Nelsen, Childers & McCormack, for appellee Key Industrial Refrigeration Co.

Hendry, C.J., Connolly, Gerrard, Stephan, and Miller-Lerman, JJ.

Gerrard, J.

I. NATURE OF CASE

Controlled Environments Construction, Inc. (CEC), sued Key Industrial Refrigeration Co. (Key) and Hill-Phoenix, Inc., for breaches of contract and warranty arising out of two separate construction contracts to build refrigeration facilities in Omaha, Nebraska, and Minot, North Dakota. Essentially, CEC alleged that Hill-Phoenix sold defective refrigeration equipment to Key and that Key then sold that equipment to CEC for use in the construction projects they were undertaking for Food Services of America, Inc. (FSA). Only the warranty claims arising out of the Minot project are at issue in this appeal.

The district court determined that the Hill-Phoenix warranty extended to future performance and that the breach of warranty was or should have been discovered by CEC by January or February 1994. As such, the court concluded that CEC's warranty claims—filed in July 1998—were barred by the 4-year statute of limitations for the sale of goods, Neb. U.C.C. § 2-725 (Reissue 2001), and entered summary judgments for Hill-Phoenix and Key. CEC appeals.

II. FACTUAL AND PROCEDURAL BACKGROUND

In June 1992, CEC contracted with FSA to construct a building in Omaha. In June 1993, CEC entered into a second contract with FSA to construct a similar building in Minot. Shortly thereafter, CEC entered into agreements with Key. Under these agreements, Key was to design and provide the refrigeration equipment for the Minot and Omaha projects in accordance with the specifications set out in the contracts between FSA and CEC. As relevant here, Key was to provide a Hill-Phoenix Para-Temp Rack System (Rack System) and associated equipment at each location.

Hill-Phoenix provided a 1-year limited express warranty under which each Rack System was "WARRANTED TO BE FREE FROM DEFECTS IN MATERIAL AND WORKMANSHIP . . . FOR A PERIOD OF ONE YEAR." Hill-Phoenix also provided a 4-year extended warranty on compressors. In turn, Key extended the "manufacturer's One (1) year warranty against defects in material and workmanship in parts . . . to the owner."

FSA experienced failures of the refrigeration equipment almost immediately upon installation. The cause, nature, and severity of the failures in the Minot system are matters of dispute between the parties. It is clear, however, that for the next few years, CEC, Hill-Phoenix, and Key made repeated attempts to remedy the problems and provide FSA with a properly functioning refrigeration system.

On May 23, 1995, John Vana, the vice president of engineering of Hill-Phoenix, wrote a memorandum to CEC and others. In it, Hill-Phoenix promised to warrant the unit in Minot "for parts for one year with a four year extended warranty on the compressors to be honored," after certain changes were made to the Rack System. When asked in his deposition if Hill-Phoenix was extending a new warranty, Vana stated, "After the work was done we were going to warrant it as if it shipped from the factory," and that it was his "intent to extend the warranty for a year . . . from the time all changes were made." CEC contends that within 3 months after receipt of this memorandum, it had completed the changes requested by Hill-Phoenix.

The problems in Minot continued, and in a letter dated February 27, 1996, Hamid Shekarbakht, an employee of Hill-Phoenix, advised Gary Guesman, the president of CEC, that Hill-Phoenix would no longer participate in further attempts to resolve existing or future problems with the Rack System.

On July 16, 1998, CEC sued Hill-Phoenix and Key for breach of contract and breach of warranty based on the problems at the projects in Minot and Omaha. In general, CEC alleged that the refrigeration systems in Minot and Omaha repeatedly malfunctioned. More specifically, CEC alleged that the Hill-Phoenix Rack Systems were defective and that Key and Hill-Phoenix failed to fix the refrigeration systems.

Hill-Phoenix moved for summary judgment on January 19, 1999. By order dated June 1, 1999, the district court found there was no written contract between Hill-Phoenix and CEC, and granted summary judgment for Hill-Phoenix on CEC's contract claim. By the same order, the court found there was a genuine issue of material fact as to whether Hill-Phoenix breached its express limited warranty and the implied warranties of merchantability and fitness for a particular purpose. CEC is not appealing any part of this order.

On August 23, 2000, Hill-Phoenix filed a second motion for summary judgment. The court granted summary judgment for Hill-Phoenix on claims arising out of the Minot project, finding the statute of limitations had run on the warranty claims. The court denied Hill-Phoenix's motion for summary judgment on claims arising out of the Omaha project, finding material issues of fact remained as to whether CEC gave sufficient notice of the breach to Hill-Phoenix.

Key moved for summary judgment on December 13, 2001. The court granted Key's motion for summary judgment in part, finding CEC's causes of action arising out of the Minot project were barred by the statute of limitations. The court denied Key's motion for summary judgment on claims arising out of the Omaha project. On June 24, 2002, the court, finding no just reason to delay entry of a final judgment for some of the disputed claims, issued a final order pursuant to Neb. Rev. Stat. § 25-1315(1) (Cum. Supp. 2000) on all of CEC's claims relating...