Jul 23 2013, 6:19 am
FOR PUBLICATION
ATTORNEY FOR APPELLANT: ATTORNEY FOR APPELLEE:
JEFFREY O. MEUNIER S. GREGORY ZUBEK
Carmel, Indiana Whitham Hebenstreit & Zubek LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
GARED HOLDINGS, LLC, )
)
Appellant-Plaintiff/Counterdefendant, )
)
vs. ) No. 49A02-1210-PL-811
)
BEST BOLT PRODUCTS, INC., )
)
Appellee-Defendant/Counterclaimant. )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Heather A. Welch, Judge
Cause No. 49D12-0909-PL-41784
July 23, 2013
OPINION - FOR PUBLICATION
CRONE, Judge
Case Summary
Gared Holdings, LLC (“Gared”), approached Best Bolt Products, Inc. (“Best
Bolt”), to see whether Best Bolt could supply pulleys for use in basketball goal systems
that Gared manufactures. Gared provided Best Bolt with samples of the pulleys that it
had been using, but also indicated that there were problems with those pulleys. Gared did
not provide detailed specifications to Best Bolt and did not specifically request a
lubricated bushing, a cylindrical part that fits between the wheel and axle to reduce
friction. Best Bolt produced some samples, and Gared had some testing performed on the
pulleys, but did not discover that the pulleys lacked a lubricated bushing. The lack of
lubrication caused the pulleys to seize up soon after the basketball goals were sold.
Gared sued Best Bolt on several theories, including breach of contract, breach of
the implied warranty of fitness for a particular purpose, and breach of the implied
warranty of merchantability. Best Bolt filed a counterclaim seeking payment for a
second order of pulleys and an order of clevis pins, which Gared had refused to accept.
The trial court ruled in Best Bolt’s favor on each of Gared’s claims and on Best Bolt’s
counterclaim. Gared now appeals.
Gared had argued that the parties’ contract required Best Bolt to replicate the
samples that Gared provided to Best Bolt, and the trial court rejected that argument. The
evidence favorable to the judgment reflects that Gared informed Best Bolt that it was
having problems with the pulleys that it was using at the time. From this, it is reasonable
to infer that Gared did not want or expect duplicates of the sample pulleys. Regarding
the warranty of fitness for a particular purpose, the trial court found that Gared had not
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established that it relied on Best Bolt’s skill or judgment in producing a pulley that was
appropriate for use in the basketball goal systems. The evidence favorable to the
judgment reflects that Gared was aware that the pulleys should have a lubricated bushing
and simply assumed that Best Bolt would include one in its design. We conclude that the
evidence supports the trial court’s judgment on these two issues.
The trial court concluded that the warranty of merchantability did not apply
because Best Bolt was not a merchant of pulleys. The trial court found that Best Bolt was
a distributor rather than a manufacturer and had made only one sale of pulleys. We
conclude that the fact that Best Bolt was not a manufacturer is not relevant to the issue of
whether it was a merchant. Also, the undisputed evidence shows that Best Bolt made two
sales of pulleys and was willing to continue selling pulleys. We conclude that these facts
indicate that Best Bolt is a merchant with a relatively new product rather than a non-
merchant seller making an isolated sale. Because the evidence is in conflict and the trial
court did not reach the issue, we remand for the trial court to determine whether Best Bolt
breached the warranty of merchantability. Depending on the trial court’s resolution of
this issue, it may also be necessary to reconsider the ruling on Best Bolt’s counterclaim.
Therefore, we affirm in part and remand.
Facts and Procedural History
Best Bolt primarily sells fasteners, such as “bolts, nuts and screws and
miscellaneous hardware items.” Tr. at 115. Best Bolt is a distributor; it does not
manufacture the products that it sells. Sometime in 2006, Curtis Sparks, a salesman for
Best Bolt, noticed that Gared had playground equipment outside its facility and thought
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that Gared could be a potential customer. Sparks stopped in and introduced himself. He
was directed to Lori Turner, a purchasing manager who is responsible for ordering parts
that Gared uses in the products that they manufacture. Sparks began stopping in every
four weeks in hopes of establishing a business relationship with Gared. Gared eventually
placed orders for cable clamps, clevis pins, and D rings.
At issue in this case are two orders that Gared placed for pulleys. Gared uses
pulleys in the basketball goal systems that it manufactures. The basketball goals are
designed to hang from the ceiling and can be raised and lowered. The facts favorable to
the judgment reflect that, during one of Sparks’s regular sales calls in 2006, Turner asked
him if Best Bolt could supply pulleys. Turner indicated that their current supplier,
Inventory Sales, was going to raise the price, and she was hoping to find a less expensive
pulley. Turner also indicated that there was a problem with cables slipping off the wheel
and becoming lodged between the wheel and the side plate. Turner provided samples
pulleys in two sizes, #3 and #5. Sparks told Turner, “I’ll see what I can do.” Id. at 129.
Sparks did not tell Turner that neither he personally nor Best Bolt generally had ever sold
pulleys before.
Sparks requested a drawing, but Turner indicated that they did not have one.
Gared did not provide detailed specifications for the pulleys, but did indicate that the #5
pulleys needed to be rated at 1550 pounds, withstand a standard pull test of 8000 pounds,
and withstand a side pull test of 5000 pounds. At some point during the design process,
Gared also requested that the pulleys be fastened together with nylocks rather than rivets.
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Best Bolt decided to source the pulleys through Dakota Engineering, which would
manufacture the pulleys in China. The sample pulleys from Gared were sent to Dakota’s
engineer in China, who sent back a sample. Joe Connerly, the engineering manager for
Gared, examined the samples, measured the diameter, and looked for a proper gap
between the wheel and side plate. He did not take the samples apart because they
“appeared to be correct.” Id. at 191. Although he could not tell for sure without taking
the pulley apart, he believed that the pulley contained a lubricated bushing because there
was a small gap on each side of the wheel between the wheel and the side plate.
However, the sample pulleys did not actually have a bushing.
Gared then sent the samples to St. Louis Labs, which performed the standard pull
and side pull tests. The standard pull test involves pulling down on the pulley to see how
much weight it takes to destroy the pulley. The side pull test is designed to determine
how much force it takes to pull the pulley apart from the sides. The sample pulleys
exceeded the minimum requirements that Gared had set for each test.
On June 27, 2007, after receiving the test results, Turner placed an order with Best
Bolt for 4995 #5 pulleys. On April 14, 2008, Turner placed an order for 2000 #3 pulleys
and an additional 5000 #5 pulleys. The purchase order requested that Best Bolt send
samples of each for testing, although it is unclear whether Best Bolt sent the samples and,
if so, whether Gared had any testing done.
In the fall of 2008, one of Gared’s customers reported that a basketball goal had
fallen part way to the floor. Connerly examined the goal system and determined that the
pulley had stopped turning. Because the pulley was not moving with the cable, the cable
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eventually became frayed and snapped. Connerly took the pulley apart and realized for
the first time that the pulley did not have a bushing and was not lubricated in any way.
Without any lubrication, the wheel and axle had become “frozen” together. Id. at 194.
Connerly conducted a cycling test on two Best Bolt pulleys, which involves repeatedly
lifting and lowering a load. The pulleys each seized up after twenty-one cycles.
Gared contacted Best Bolt about the problem, and Best Bolt proposed applying a
spray lubricant to the pulleys. Connerly felt that this solution was inadequate because
there was no guarantee that the spray could be accurately applied to the axle, the spray
would likely need to be applied repeatedly, and the process would require a lot of
manpower. Gared wanted Best Bolt to accept the return of the unused pulleys and pay
for the replacement of the pulleys that had been already been used, but Best Bolt refused.
Concerned that the basketball goal systems incorporating the Best Bolt pulley posed a
safety hazard, Gared decided to replace the pulleys with a more expensive pulley
manufactured by Block Division (“Block”). Gared refused to pay for the second order of
Best Bolt pulleys and also refused delivery of an order of clevis pins.
On September 10, 2009, Gared filed a complaint against Best Bolt stating five
claims: breach of contract, breach of the implied warranty of merchantability, breach of
the implied warranty of fitness for a particular purpose, breach of express warranty, and
fraud. On November 4, 2009, Best Bolt filed an answer and a counterclaim seeking
payment for the second order of pulleys and the clevis pins.
A bench trial was held on June 5 through 7, 2012. It was undisputed that Gared
did not specifically request that the pulley have a lubricated bushing. However, Gared
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attempted to show that a lubricated bushing was a standard or essential component of a
pulley, and therefore a buyer would not typically need to make a specific request for a
lubricated bushing. Connerly testified that he considered pulleys to be an “off-the-shelf”
item that could be purchased from a catalog without needing to provide a drawing. He
testified that a buyer would not have to specify that it have a lubricated bushing or
bearing because “[t]hat’s standard in the industry.” Id. at 189. Connerly stated that the
pulleys that Gared has purchased from suppliers other than Best Bolt have all had
lubricated bushings and did not have problems with seizing up. Connerly testified that a
pulley without a lubricated bushing could work only “[f]or a short period of time,” but
not for the “expected life of the … pulley.” Id. at 190. He stated that the Best Bolt
pulleys started failing less than a year after the basketball goal systems were sold, and he
would expect a pulley to last more than a year. Connerly testified that he had not opted
to perform a cycle test on the pulleys before approving them for purchase because “the
pulleys that … are normally manufactured … it’s a requirement of that pulley to be able
to rotate. So when you purchase a pulley you expect it to be able to rotate and it was
really no reason to do a cycle test at that point in time.” Id. at 188. After the problem
arose with the Best Bolt pulleys, Connerly made a detailed drawing of a pulley “so that if
we chose to go to … another supplier who was not a normal manufacturer of pulley[s]
they would understand the requirements of manufacturing a pulley.” Id. at 200.
However, when Gared started purchasing pulleys from Block, it did not provide the
drawing to Block because Block had its own drawing.
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Turner likewise testified that the pulleys that Gared had purchased from other
manufacturers all had lubricated bushings. She said that at the time that she started
ordering from Best Bolt, Gared did not have a specification sheet for the #5 pulley
because “it was a standard item. There was nothing custom about it….” Id. at 52. She
did not think that it was necessary to specify that the pulleys needed to have a lubricated
bushing because they were an off-the-shelf item and always have a lubricated bushing.
Kevin Needler, the operations manager of Gared, also characterized pulleys as an
off-the-shelf part. Needler also testified that the pulleys that Gared had purchased from
other manufacturers all had lubricated bushings. He stated that Gared had not had to ask
Inventory Sales or Block to provide a lubricated bushing.
Gared also presented testimony from Bobby Day, the president of Block. Day has
a B.S. degree in engineering and has designed a pulley. Day testified that he did not ask
Gared to supply a drawing and that Block’s customers typically rely on its catalog. He
characterized the pulley that Block sells to Gared as an off-the-shelf product. While he
agreed that it would be good practice to give a manufacturer a set of requirements, he did
not think that a pulley should be made without a lubricated bushing regardless of what
the requirements were. Day opined that the Best Bolt pulley was “doomed to failure”
because the friction between the metal parts would eventually “cause the effect known as
galling where the metal will grab to the metal and finally it will just completely seize.”
Id. at 273-74. Day testified that he is not aware of any manufacturer that makes a pulley
without a lubricated bushing and that it would not be good engineering or manufacturing
practice to do so.
8
Alan Jones, the president of Dakota, testified that he knew that the pulleys would
bear a dynamic (moving) load. He acknowledged that the pulleys had failed due to
galling between the wheel and axle, and the problem could have been prevented by a
lubricated bushing. Jones is not an engineer, and he stated that he would not disagree
with Day’s testimony that a lubricated bushing is an essential component of a pulley.
However, he also testified that they did not receive drawings or specifications, that
“every other product we sell is made to a specification,” and that it “is very uncommon to
typical engineering business – to just have an unknown sample.” Id. at 338.
Dustin Hostetler, the quality manager of Best Bolt, testified that he knew that “if
you had metal on metal it could fail,” and that the purpose of a bushing would be to
prevent that problem. Id. at 361. He was not aware that the pulleys lacked a bushing
until Gared started having problems with the pulleys. However, he also testified that Best
Bolt normally had prints and standards for the items that it sells.
Best Bolt presented expert testimony from Peter Hylton, an associate professor in
the School of Engineering and Technology at Indiana University Purdue University
Indianapolis. Hylton testified that he had never designed a pulley, but if he were asked to
do so, he would want to know the specifications, such as dimensions and material
properties. In the absence of specifications, he would want to know the “requirements,”
which he defined as “the set of operating characteristics under which the component or
the assembly or subassembly whatever you’re discussing will be operating that defines
what it must be able to do – withstand, that sort of thing.” Id. at 451-52.
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Hylton agreed that the Best Bolt pulleys had failed due to galling between the
wheel and axle. He also agreed that it is not possible to tell that the pulleys are not
lubricated without taking them apart. When asked if dynamic testing of the pulleys
would have been appropriate, he said, “I would’ve thought it would’ve been mandatory.”
Id. at 476.
Hylton testified that he had done some research on the internet and found one
supplier that sold pulleys that could be ordered with or without bushings. He also stated
that he has his students conduct a laboratory experiment involving pulleys, and those
pulleys do not have bushings. He testified that “under certain load – static load or …
very low dynamic loads a non[-]bushed pulley could work just as well as a bushed
pulley.” Id. at 509.
Gared voluntarily dismissed its fraud claim during the bench trial. On September
21, 2012, the trial court entered a judgment for Best Bolt on Gared’s remaining claims
and on Best Bolt’s counterclaim. The court’s order included findings of fact and
conclusions thereon. As to Gared’s breach of contract claim, the court’s order states:
The Court finds that the facts do not establish that there was an oral
contract for the sale of pulleys which matched the samples provided by
Turner to Sparks…. Turner and Sparks nor any other representative of
either company agreed that they would provide pulleys identical to the
samples furnished by Turner. In fact, Best Bolt furnished samples of what
it “could do.” Gared agreed that [it] would complete [its] own inspection
and testing on the samples provided by Best Bolt, as required by Gared
policy.… [I]t was established that Best Bolt would provide samples of
what it could supply at a cost that Gared would pay, and Gared would do its
own inspection and testing to determine if the Best Bolt pulleys would
work for Gared in its basketball systems.
Appellant’s App. at 17-18.
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As to Gared’s claim for breach of the warranty of merchantability, the court’s
order states: “The evidence demonstrated that this was the first and last sale of pulleys by
Best Bolt. In fact Best Bolt was merely the distributor and Gared was aware that Best
Bolt was trying to find a company to manufacture the pulleys at a price acceptable to
Gared.” Id. at 20.
As to Gared’s claim for breach of the warranty of fitness for a particular purpose,
the court’s order noted that Gared was required to prove three things: (1) that Best Bolt
had reason to know of Gared’s particular purpose; (2) that Best Bolt had reason to believe
that Gared was relying on Best Bolt’s skill and judgment; and (3) that Gared in fact had
relied on Best Bolt’s skill and judgment. The court found that Best Bolt knew that the
pulleys would be used in basketball goal systems. However, the court found that the
evidence was unclear as to the second element and that Gared had not established the
third element. The trial court also rejected Gared’s claim for breach of express warranty.
Having rejected all of Gared’s claims, the trial court found that Gared was not justified in
rejecting the second order of pulleys and the order of clevis pins and therefore entered
judgment for Best Bolt on Best Bolt’s counterclaim. Gared now appeals.
Discussion and Decision
The trial court issued findings of fact and conclusions thereon pursuant to Indiana
Trial Rule 52(A). Our standard of review is well-settled:
First, we must determine whether the evidence supports the trial
court's findings of fact. Second, we must determine whether those findings
of fact support the trial court’s conclusions of law. We will set aside the
findings only if they are clearly erroneous. Findings are clearly erroneous
only when the record contains no facts to support them either directly or by
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inference. A judgment is clearly erroneous if it applies the wrong
legal standard to properly found facts.
In applying this standard, we neither reweigh the evidence nor judge
the credibility of the witnesses. Rather, we consider the evidence that
supports the judgment and the reasonable inferences to be drawn therefrom.
To make a determination that a finding or conclusion is clearly erroneous,
our review of the evidence must leave us with the firm conviction that a
mistake has been made.
Hartley v. Hartley, 862 N.E.2d 274, 281 (Ind. Ct. App. 2007) (quoting Gregg v.
Cooper, 812 N.E.2d 210, 214-15 (Ind. Ct. App. 2004), trans. denied).
Gared argues that the trial court’s findings regarding Gared’s claims for breach of
contract, breach of the implied warranty of fitness for a particular purpose, and breach of
the implied warranty of merchantability are erroneous. Gared also argues that it had a
proper basis for rejecting the second order of #5 pulleys and that the court therefore erred
in its ruling on Best Bolt’s counterclaim insofar as Gared was ordered to pay for the #5
pulleys.1
I. Breach of Contract
“The elements of a breach of contract action are the existence of a contract, the
defendant’s breach thereof, and damages.” Murat Temple Ass’n v. Live Nation
Worldwide, Inc., 953 N.E.2d 1125, 1128-29 (Ind. Ct. App. 2011), trans. denied. Gared
was required to prove these elements by a preponderance of the evidence. Rollins
Burdick Hunter of Utah, Inc. v. Bd. of Trs. of Ball State Univ., 665 N.E.2d 914, 922 (Ind.
Ct. App. 1996).
1
Gared does not challenge the trial court’s ruling that it must pay Best Bolt for the #3 pulleys and clevis
pins.
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Gared does not dispute that it did not provide detailed specifications to Best Bolt
and did not specifically request a lubricated bushing. Gared argues, however, that the
parties’ agreement required Best Bolt to match the samples that Gared provided.
Sparks testified that Turner approached him about providing pulleys:
A. Well, what happened whenever she asked me about pulleys she had a
problem with pulleys she was using where the wire rope had slipped out of
the pulley and lodged between the side and wheel. She said, I got a
problem – she said I don’t need this. So she said, can you take of this – can
you find me a source. And I said, yes I think we can find you a source.
Q. And she gave you [a] sample, didn’t she?
A. Yes she did.
Q. And she told you that’s what she needed, didn’t she?
A. No, she didn’t tell me anything like that.
Q. Okay what did she tell when she gave me the sample?
A. She asked me to see what I could do.
Tr. at 118.
While Gared employees denied that there was a problem with the Inventory Sales
pulleys that they had been using at the time, the trial court rejected this testimony and
found that Gared “wanted to locate a new pulley vendor due to price and quality
problems with the current vendor.” Appellant’s App. at 10. This finding is supported by
Sparks’s testimony.
Gared faults the trial court for finding that the agreement merely required Best
Bolt to produce a sample within Gared’s price range and that Gared would do its own
testing to determine whether the pulleys would be suitable for use in its basketball goal
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systems. Gared notes that the testing that was performed was to determine the strength of
the pulley and was not designed to reveal whether the pulley was properly lubricated.
Even if we were to conclude that the trial court improperly relied on the testing that
Gared had performed on the pulleys, that still does not alter the trial court’s valid finding
that Gared was having problems with the Inventory Sales pulleys. From that fact, it is
reasonable to conclude that Gared did not want or expect Best Bolt to replicate the
Inventory Sales pulley. Gared’s argument is a request to reweigh the evidence, which we
will not do.
II. Implied Warranty of Fitness for a Particular Purpose
Indiana’s version of the Uniform Commercial Code provides:
Where the seller at the time of contracting has reason to know any
particular purpose for which the goods are required and that the buyer is
relying on the seller’s skill or judgment to select or furnish suitable goods,
there is, unless excluded or modified under IC 26-1-2-316, an implied
warranty that the goods shall be fit for such purpose.
Ind. Code § 26-1-2-315. The implied warranty of merchantability is imposed by
operation of law for the protection of the buyer, and it must be liberally construed in
favor of the buyer. Woodruff v. Clark Cnty. Farm Bureau Coop. Ass’n, 153 Ind. App. 31,
43, 286 N.E.2d 188, 194-95 (1972).
In an action for breach of the warranty of fitness for a particular purpose, the buyer
must show: “(1) that seller must have had reason to know buyer’s particular purpose, (2)
that seller must have had reason to believe buyer was relying on seller’s skill and
judgment, and (3) that buyer in fact had relied on seller’s skill and judgment.” Paper
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Mfrs. Co. v. Rescuers, Inc., 60 F. Supp. 2d 869, 881 (N.D. Ind. 1999).2 The trial court
found that Gared proved the first element, that the evidence was unclear as to the second
element, and that Gared had not proven the third element by a preponderance of the
evidence.
On cross-examination, Connerly was questioned about whether Gared relied on
Best Bolt’s judgment:
Q. Knowing that your standard operating procedure was to check
specifications and[/]or a drawing and[/]or a narrative and based upon your
testimony that you did that in this case and that you tested … the pulleys
the way you wanted and that you inspected them the way that you wanted
to, isn’t it a fact that you were not relying on Best Bolt’s judgment as to
what Gared needed for this Number Five (#5) pulley?
A. That would be correct.
….
Q. Would you agree that Best Bolt never advised Gared that the Best Bolt
pulley would do whatever it was that Gared required?
A. Not to my knowledge.
Q. In fact Gared made its own independent analysis that the pulleys would
meet its requirements, isn’t that right?
A. That’s correct.
Tr. at 240, 243.
On redirect, Connerly testified as follows:
2
Naturally, we are not bound by a federal district court’s interpretation of Indiana law. However, there are
a limited number of cases interpreting Indiana Code Section 26-1-2-315. Both parties cite Paper Manufacturers for
its list of elements, and we agree that it appears to be an accurate summary of the elements that must be proved by
the buyer. See Ind. Code § 26-1-2-315, cmt. 1 (“Under this section the buyer need not bring home to the seller
actual knowledge of the particular purpose for which the goods are intended or of his reliance on the seller’s skill
and judgment, if the circumstances are such that the seller has reason to realize the purpose intended or that the
reliance exists. The buyer, of course, must actually be relying on the seller.”).
15
Q. [D]id you ever have any expectation that the Best Bolt pulleys would
not have a lubricated bearing?
A. No.
Q. Or a bushing?
A. No.
Q. [D]id you rely on them to provide that?
A. Yes.
Id. at 254-55.
Connerly initially testified that Gared did not rely on Best Bolt’s judgment, and
while he later stated that he relied on Best Bolt to provide a lubricated bushing, it is clear
from his testimony as a whole that he knew that the pulley needed to have a lubricated
bushing and assumed that Best Bolt would know that, too. Gared again notes that the
testing that was performed on the pulleys was not designed to show whether the pulley
was properly lubricated. However, the evidence reflects that Gared determined what
testing would be performed and did not rely on Best Bolt to perform any testing. The
drawing that Connerly later produced demonstrates that Gared knew what it needed in a
pulley and was capable of specifying its needs; Gared simply failed to do so. See Adsit
Co. v. Gustin, 874 N.E.2d 1018, 1024-25 (Ind. Ct. App. 2007) (seller of vehicle seat
covers did not breach warranty of merchantability by supplying seat covers that did not
match interior of vehicle where buyer did not provide vehicle’s VIN number or other
information that would enable seller to determine the exact color needed). The evidence
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favorable to the judgment supports the trial court’s conclusion that Gared failed to
establish that it relied on Best Bolt’s judgment to select a suitable pulley.
III. Implied Warranty of Merchantability
The trial court ruled that the implied warranty of merchantability did not apply
because Best Bolt is not a merchant as that term is defined by Indiana’s version of the
Uniform Commercial Code. Indiana Code Section 26-1-2-314(1) provides: “Unless
excluded or modified (IC 26-1-2-316), a warranty that the goods shall be merchantable is
implied in a contract for their sale if the seller is a merchant with respect to goods of that
kind.” The comments to this section state, “A person making an isolated sale of goods is
not a ‘merchant’ within the meaning of the full scope of this section and, thus, no
warranty of merchantability would apply.” Ind. Code § 26-1-2-314, cmt. 3. Indiana
Code Section 26-1-2-104 defines a “merchant” as “a person who deals in goods of the
kind or otherwise by his occupation holds himself out as having knowledge or skill
peculiar to the practices or goods involved in the transaction.” The comments to this
section state that, in the context of the implied warranty of merchantability, the term
“merchant” is restricted “to a much smaller group than everyone who is engaged in
business and requires a professional status as to particular kinds of goods.” Ind. Code §
26-1-2-104, cmt. 2. At the same time, our cases hold that the implied warranty of
merchantability “is imposed by operation of law for the protection of the buyer and must
be liberally construed in favor of the buyer.” Frantz v. Cantrell, 711 N.E.2d 856, 859
(Ind. Ct. App. 1999).
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Regarding Gared’s claim for breach of the warranty of merchantability, the court’s
order states: “The evidence demonstrated that this was the first and last sale of pulleys by
Best Bolt. In fact Best Bolt was merely the distributor and Gared was aware that Best
Bolt was trying to find a company to manufacture the pulleys at a price acceptable to
Gared.” Appellant’s App. at 20. The term “merchant” is not limited to manufacturers,
and Best Bolt does not cite any authority that supports the proposition that a distributor
cannot be a merchant. Furthermore, the court’s order is incorrect insofar as it states that
Best Bolt made only one sale of pulleys. Best Bolt made two sales to Gared, and we also
note that Best Bolt’s vice president testified that Best Bolt would be willing to continue
selling pulleys if it had a buyer.
Gared argues that if the trial court’s “interpretation of the definition of ‘merchant’
is accepted then a seller such as Defendant which sells a wide variety of industrial
products would get a free pass on its first sale of any item that it sold.” Appellant’s Br. at
13. Although the number or frequency of sales surely is relevant to the question of
whether a seller is a merchant, we are inclined to agree that a small number of sales is not
necessarily conclusive proof that the seller is not a merchant; rather, it could be indicative
that the seller simply has a relatively new product or a limited market for a particular
product.
Gared argues that this case is similar to Frantz. In that case, a homeowner sued
Joseph Frantz and Frantz Lumber Company over defective shingles that were installed on
his roof. The opinion treats Frantz and the lumber company as a single entity, although
the opinion is somewhat vague as to their relationship and the lumber company’s role in
18
the work that was performed on the roof. However, the ultimate holding appears to be
that the lumber company was found to be a merchant of shingles because it represented
that it sold “all kinds of building material” and appeared knowledgeable about roofing
materials. Frantz, 711 N.E.2d at 859. Similarly, Best Bolt sold a variety of hardware
products, and pulleys are in the same general line of business. On the other hand, Frantz
does not shed much light on the issue of whether a seller who has made only a few sales
of a product may be considered a merchant.
Frantz is one of only a few Indiana cases to discuss the meaning of the term
merchant; therefore, we find it helpful to look to cases from other jurisdictions that have
addressed the issue. One commentator states:
A single, isolated transaction is not enough to establish that a merchant
deals in goods of that kind, but one can be found to be a merchant for this
purpose if he customarily sells a general line of goods related to the item in
question, even though that specific item is being sold for the first time.
HAWKLAND’S UNIFORM COMMERCIAL CODE SERIES § 2-314:2 (West 2012) (footnotes
omitted). Wood Products v. CMI Corp., 651 F. Supp. 641 (D. Md. 1986), is cited in
support.
Wood Products concerned a furnace that was originally designed by James Angelo
to convert sawdust and other wood waste products into charcoal. CMI Corporation
obtained the rights to manufacture the Angelo furnace and sold one to Wood Products, a
company primarily engaged in milling and selling lumber. CMI altered the design of the
furnace to incorporate a larger drum. Wood Products began experiencing problems with
the furnace almost immediately, most of which stemmed from the fact that the drum was
19
too large and too thin. Wood Products sued CMI on several theories, including breach of
the warranty of merchantability. CMI argued that it was not a merchant with respect to
goods of the kind due to “the experimental nature of the furnace.” Id. at 650. The court
disagreed, noting that CMI “was then manufacturing (for the use of one of its affiliates) a
similar furnace and it has manufactured another since.” Id. at 650-51. See also Geo.
Byers Sons, Inc. v. E. Europe Import Export, Inc., 488 F. Supp. 574, 580 (D. Md. 1980)
(company that was trying to establish an American market for East European vehicles
was held to be a merchant of East German motorcycles even though its only other sale at
the time was a single Romanian jeep).
Best Bolt argues that this case is similar to Fred J. Moore, Inc. v. Schinmann, 700
P.2d 754 (Wash. App. 1985). In that case, the Moore family was in the business of
growing mint for the production of mint oil. The Moores were approached by the
Schinmanns, who wished to buy spearmint roots. The Moores had never previously sold
mint roots, but ultimately agreed to sell roots to the Schinmanns. When the mint roots
turned out to be a mixture of spearmint and peppermint, the Schinmanns sued the Moores
on several theories, including the warranty of merchantability. The court held that the
Moores were not merchants with respect to mint roots because “this was the first and
only sale of roots by the Moores.” Id. at 757. Moore involved a single sale, and there
was no evidence to suggest that the Moores were interested in continuing to sell mint
roots. The case at bar is more similar to Wood Products and Geo. Byers, where the
sellers had made a few sales and there was evidence to suggest that the sellers were
attempting to develop a new market.
20
We conclude that the trial court erred by focusing on the fact that Best Bolt was a
distributor rather than a manufacturer because that fact is not relevant to the analysis. We
also conclude that the trial court erred by characterizing Best Bolt’s experience with
pulleys as a single sale where the undisputed evidence reflects that Best Bolt made two
sales and was willing to continue selling pulleys if it had a buyer. See McHugh v.
Carlton, 369 F. Supp. 1271, 1277 (D.S.C. 1974) (service station that would procure and
sell recapped tires upon request of customer was a merchant of recapped tires even
though service station did not regularly stock and sell recapped tires). Based on the
authorities that we have examined, we conclude that Best Bolt is a merchant with respect
to pulleys.
We turn then to whether Best Bolt breached the implied warranty of
merchantability. Indiana Code Section 26-1-2-314(2) provides:
Goods to be merchantable must at least be such as:
(a) pass without objection in the trade under the contract description;
and
(b) in the case of fungible goods, are of fair, average quality within
the description; and
(c) are fit for the ordinary purposes for which such goods are used;
and
(d) run, within the variations permitted by the agreement, of even
kind, quality, and quantity within each unit and among all units
involved; and
(e) are adequately contained, packaged, and labeled as the agreement
may require; and
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(f) conform to the promises or affirmations of fact made on the
container or label if any.
The undisputed evidence establishes that the ordinary purpose of a pulley is to bear a
dynamic load. Several of Gared’s witnesses testified that a lubricated bushing was an
essential part of a pulley, that lubricated bushings were standard in the industry, that it
was unreasonable to make pulleys without lubricated bushings, and that a pulley without
a lubricated bushing would inevitably have a short useful life. On the other hand, Hylton
testified that he was aware of pulleys made without lubricated bushings and opined that
“under certain load – static load or … very low dynamic loads a non[-]bushed pulley
could work just as well as a bushed pulley.” Tr. at 509. Because the evidence is in
conflict and the trial court did not reach the issue, we remand for the trial court to
determine whether Best Bolt breached the warranty of merchantability. Depending on
the trial court’s resolution of this issue, it may also be necessary to reconsider the portion
of Best Bolt’s counterclaim dealing with #5 pulleys.
Conclusion
We conclude that the trial court’s judgment on Gared’s claims of breach of
contract and breach of the implied warranty of fitness for a particular purpose is
supported by the evidence, and we affirm as to those issues. However, we conclude that
the trial court erred in ruling that Best Bolt was not a merchant. We therefore remand for
the trial court to determine whether Best Bolt breached the implied warranty of
merchantability, and if so, whether that alters the result of Best Bolt’s counterclaim.
22
Affirmed in part and remanded.
FRIEDLANDER, J., concurs.
ROBB, C.J., concurs with separate opinion.
23
IN THE
COURT OF APPEALS OF INDIANA
GARED HOLDINGS, LLC, )
)
Appellant-Plaintiff/Counterdefendant, )
)
vs. ) No. 49A02-1210-PL-811
)
BEST BOLT PRODUCTS, INC., )
)
Appellee-Defendant/Counterclaimant. )
ROBB, Chief Judge, concurring with separate opinion
I concur in the majority’s result with respect to Gared’s breach of contract and
implied warranty of merchantability claims. I respectfully dissent, however, from the
resolution of the implied warranty of fitness for a particular purpose claim.
The implied warranty of fitness for a particular purpose occurs where the seller
has reason at the time of contracting to know of any particular purpose for which the
goods are being purchased and the buyer is relying on the seller’s skill or judgment in
choosing suitable goods for that purpose. See Irmscher Suppliers, Inc. v. Schuler, 909
N.E.2d 1040, 1048n.4 (Ind. Ct. App. 2009). The trial court found that Gared had proved
Best Bolt knew of the particular purpose for which the goods would be used – to raise
and lower basketball backboards. I believe when Gared asked Best Bolt to procure
pulleys and Best Bolt agreed to do so, Gared was relying on Best Bolt to offer a pulley
that would suit this purpose and further, that Gared demonstrated that reliance when it did
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not test the pulleys for lubrication because, as the majority notes in the discussion of the
implied warranty of merchantability, there was testimony indicating a lubricated bushing
is an essential part of a pulley and is standard in the industry. Non-lubricated bushings
could bear a static load or low dynamic load, but not the load Best Bolt knew these
pulleys would be bearing. Gared gave Best Bolt a sample pulley, and although Gared did
not want an exact replica of that pulley because they were having quality issues with the
cable separating and jamming between parts of the pulley, there were no quality issues
with the lubricated bushing and Best Bolt, offering to procure a suitable replacement,
held itself out to have the ability to judge what would be suitable.
I would reverse the trial court’s judgment in favor of Best Bolt on the implied
warranty of fitness for a particular purpose claim.
25