NJ Transit Corp v. Harsco Corporation

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit

8-7-2007

NJ Transit Corp v. Harsco Corporation
Precedential or Non-Precedential: Precedential

Docket No. 06-3507

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________________

No. 06-3507
________________________

NEW JERSEY TRANSIT CORPORATION,
Appellant

v.

HARSCO CORPORATION; HARSCO TRACK
TECHNOLOGIES, Division of Harsco Corporation;
HARSCO FAIRMONT TAMPER TRACK
TECHNOLOGIES, Division of Harsco Corporation; W. W.
WILLIAMS SOUTHEAST, INC.; DETROIT DIESEL
CORPORATION

________________________

On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 03-cv-2724)

District Judge: Honorable Katharine S. Hayden
________________________

Argued June 28, 2007

_________________________

Before: BARRY, FUENTES, and GARTH, Circuit Judges
(Opinion Filed: August 7, 2007)

David W. Smith [Argued]
Kevin J. Hughes
Cozen & O’Connor
1900 Market Street, 3rd Floor

1
Philadelphia, PA 19103
Counsel for Appellant

John J. Weinholtz [Argued]
David H. Tennant
Nixon Peabody LLP
40 Fountain Plaza, Suite 500
Buffalo, NY 14202

David W. Field
Lowenstein Sandler PC
65 Livingston Avenue
Roseland, NJ 07068
Counsel for Appellee Harsco Corp.

E. Graham Robb
John C. Falls
John A. Miller, Jr. [Argued]
Christie, Pabarue, Mortensen and Young, PC
1880 JFK Boulevard, 10th Floor
Philadelphia, PA 19103
Counsel for Appellees Detroit Diesel Corp., W.W.
Williams Southeast, Inc. et al.

_________________________

OPINION

_________________________

GARTH, Circuit Judge:

This appeal requires us to decide if, in a contract
governed by Article 2 of New Jersey’s Uniform Commercial
Code (“U.C.C.”), see N.J. Stat. Ann. § 12A:2-101 et seq.,
appellant New Jersey Transit Corporation (“Transit”) can rely
on the implied warranties of merchantability and fitness for a
particular purpose to recover damages, where the contract’s one-

2
 year express warranty had expired at the time of the loss. The
District Court, exercising diversity jurisdiction, 28 U.S.C. §
1332, granted summary judgment in favor of appellee Harsco
Corporation (“Harsco”) and all other appellees,1 holding that the
express warranty of one year governs. We have jurisdiction
over this appeal pursuant to 28 U.S.C. § 1291. We will affirm.

I.

In March 1998, Transit issued an Invitation for Bid for
the procurement of a new track geometry inspection vehicle
(“TGIV”). The Invitation for Bid included Transit’s required
specifications for the TGIV; 57 paragraphs over 27 pages
detailed all the equipment, material, and design requirements
Transit mandated for the TGIV. Paragraph 55 stated:

Warranty:

The contractor shall warranty the car and all
equipment and components installed on it for one
(1) year after break in period and final
acceptance. This shall be one (1) warranty and
shall be provided by the contractor, not the
suppliers, subcontractors, or anyone else. The
warranty period shall start on the day after the
service representative leaves and the car has been
finally accepted. Final acceptance is when NJ
TRANSIT inspects the car after the service
representative has been on the property for at least
one (1) week and the car is found to meet
specifications and is functioning properly. Abuse
(by NJ TRANSIT), accidents and lack of proper
(as stated in instruction books) maintenance are
not covered by the warranty. Minor items, like
lamps and fuses, are not part of the warranty. The

1
Because Harsco is the principal appellee and the manufacturer and seller of the
inspection vehicle at issue, we will refer only to Harsco throughout this opinion as the
appellee. We dispose of the contentions pertaining to the other appellees in footnote 4,
infra.

3
 warranty shall cover the cost of both parts and
labor required to repair defects that occur during
the term of the warranty. Corrections shall be
made in a timely manner. Any modifications
requiring redesign necessary to satisfy the
warranty shall be completed within thirty (30)
calendar days of notification.

(App. 456.) (emphasis added).

In June 1998, Harsco submitted a bid to Transit to
manufacture the TGIV at a price of $2,296,500. As required by
Transit’s bid procedure, Harsco also submitted a technical
proposal dated May 22, 1998, setting forth the details as to how
Harsco planned to satisfy all 57 paragraphs of Transit’s
specifications for the TGIV.

Harsco was awarded the contract. The contract attached
and incorporated the specifications that were included in
Transit’s Invitation for Bid, including paragraph 55, the
warranty provision. Harsco signed and returned the copies of
the contract, and Transit provided Harsco with a copy of the
fully-executed contract on August 24, 1998.

Appellee Detroit Diesel Corporation (“Detroit Diesel”),
the manufacturer of the diesel drive engine Harsco used in the
TGIV, and appellee W.W. Williams Southeast, Inc.
(“Williams”), the Detroit Diesel distributor that sold the engine
to Harsco, provided a one-year limited warranty for the engine.
The limited warranty provided coverage for the repair or
replacement of any engine component that failed during the first
twelve months of operation as a result of a defect in material or
worksmanship. It also provided that:

THIS LIMITED WARRANTY IS THE ONLY
WARRANTY APPLICABLE TO THESE
ENGINES AS USED IN CONSTRUCTION
AND INDUSTRIAL APPLICATIONS.
DETROIT DIESEL CORPORATION MAKES
NO OTHER WARRANTIES EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED

4
 WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
DETROIT DIESEL CORPORATION SHALL
NOT BE LIABLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES AS
DESCRIBED ABOVE.

(App. 559.) The terms of this warranty were also included with
the Engine Operator’s Guide provided to Transit.

Harsco delivered the TGIV to Transit in April 2000, and
it was placed in service in June or July 2000. According to
Transit’s allegations, on or about September 17, 2002, while
“Transit employees were operating the TGIV under normal and
foreseeable conditions, the engine of [the] TGIV caused and/or
contributed to the cause of a fire” and “[a]s a result of the fire,
the TGIV was a total loss.” (App. 74 at ¶¶ 12, 13.)

Transit filed a complaint in the United States District
Court for the District of New Jersey against Harsco on June 4,
2003, alleging claims for negligence, product liability, and
breach of warranties. In turn, Harsco filed a third-party
complaint against Detroit Diesel and Williams, alleging claims
for contribution, indemnification, and breach of warranties.
Transit then filed an amended complaint, adding Detroit Diesel
and Williams as direct defendants. In the amended complaint,
Transit alleges that Harsco, Detroit Diesel, and Williams
breached both the express warranty and the warranties implied
in the sale under the New Jersey U.C.C. Transit alleges that it
sustained property damage and extra expenses of over $3
million.

Harsco filed a motion for summary judgment,2 arguing,
inter alia, that any applicable warranty governing the TGIV had
expired at the time of the fire. The District Court heard oral
argument on this issue, and rendered an oral opinion granting
summary judgment in favor of all appellees. Transit appeals.

2
The other appellees also filed motions for summary judgment.

5
 II.

We exercise plenary review over a district court’s order
granting summary judgment. Horn v. Thoratec Corp., 376 F.3d
163, 165 (3d Cir. 2004). As did the District Court, we must
view the facts in the light most favorable to the non-moving
party, and draw all reasonable inferences therefrom in that
party’s favor. Id. at 166. Summary judgment is appropriate
only where “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law.” Fed. R. Civ. P. 56(c); see also Celotex
Corp. v. Catrett, 477 U.S. 317, 324 (1986).

III.

Transit alleges that Harsco breached both the express
warranty and the implied warranties of fitness for a particular
purpose and merchantability. There is no disagreement that
paragraph 55 of the contract provided an express warranty of
one year; the dispute here focuses on whether paragraph 55 also
limited the duration of any implied warranties to one year.

As the contract at issue here involved the sale of goods,
the parties agree that it is governed by Article 2 of the U.C.C.,
as adopted by New Jersey. See N.J. Stat. Ann. § 12A:2-101 et
seq. There are several provisions of the U.C.C. relevant to this
dispute. First, section 12A:2-314 provides, in relevant part, that
“[u]nless excluded or modified (12A: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.” N.J. Stat. Ann. § 12A:2-314(1). The next section, 12A:2-
315, states that:

[w]here the seller at the time of contracting has
reason to know any particular purpose for which

6
 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 the next section an implied
warranty that the goods shall be fit for such
purpose.

N.J. Stat. Ann. § 12A:2-315. Section 12A:2-316, entitled
“Exclusion or modification of warranties,” declares, in part, that:

(2) Subject to subsection (3), to exclude or
modify the implied warranty of merchantability or
any part of it the language must mention
merchantability and in case of a writing must be
conspicuous, and to exclude or modify any
implied warranty of fitness the exclusion must be
by a writing and conspicuous. Language to
exclude all implied warranties of fitness is
sufficient if it states, for example, that “There are
no warranties which extend beyond the
description on the face hereof.”

N.J. Stat. Ann. § 12A:2-316(2). Finally, section 12A:2-725,
entitled “Statute of limitations in contracts for sale,” provides,
in part, that:

(1) An action for breach of any contract for sale
must be commenced within four years after the
cause of action has accrued. By the original
agreement the parties may reduce the period of
limitation to not less than one year but may not
extend it.

(2) A cause of action accrues when the breach
occurs, regardless of the aggrieved party’s lack of
knowledge of the breach. A breach of warranty
occurs when tender of delivery is made . . . .

N.J. Stat. Ann. § 12A:2-725(1), (2).

Transit argues that in order to “exclude or modify” either

7
the implied warranty of merchantability or fitness for a
particular purpose, the contract must satisfy the requirements of
§ 12A:2-316. In that regard, Transit points out that paragraph
55 does not mention the word “merchantability.” Nor does
paragraph 55 include any general language, such as that offered
in § 12A:2-316, to disclaim the implied warranty of fitness for
a particular purpose. Arguing that the exculpatory clauses
allowed by U.C.C. § 2-316 are subject to strict construction, see
Neville Chem. Co. v. Union Carbide Co., 422 F.2d 1205, 1219
(3d Cir. 1970) (“Strict construction of exculpatory clauses is
also indicated by the Uniform Commercial Code which requires
sellers use very specific language in order to modify or disclaim
liability to purchasers for a breach of the implied warranties.”),
Transit concludes that the absence of any language specifically
addressed to the implied warranties means that the one-year time
limit contained in paragraph 55 pertains only to the express
warranty. Accordingly, Transit maintains that the duration of
the implied warranties remains unchanged by paragraph 55, and
that, per § 12A:2-725, Transit can sue for a breach of those
warranties any time up to four years from tender of delivery.

By contrast, Harsco claims that the implied warranties
were subsumed by the exceptionally broad warranty of
paragraph 55, and that its one year duration applied to all
warranties, express or implied. For statutory support, Harsco
points to § 12A:2-725, which it asserts provides authority for
shortening the duration of a warranty, whether express or
implied.

Harsco also argues that here, where the contract,
including the warranty provision, was drafted by the buyer;
where the warranty was exceptionally broad; and where both
parties were sophisticated business entities dealing at arms-
length, to strictly apply the requirements of § 12A:2-316 would
afford Transit three years’ additional protection for which it did
not bargain or pay.

The District Court agreed with Harsco that § 12A:2-725
was the authority by which the contracting parties could and did
reduce the duration of the warranty period. See App. 203. The
Court reasoned that because paragraph 55's warranty was so

8
broad and the Invitation to Bid’s specifications so lengthy and
detailed, no specific language was necessary to limit the implied
warranties: “where the parties have made such a clear
expression of what they agree to, they [do not] need to make an
equally clear expression of what they don’t agree to.” (App.
204.) The District Court found that here, where the warranty
was drafted by the buyer and there was no gross inequality of
bargaining power, it would be unfair “[t]o have silence or
omission support three more years of such global
responsibility.” (App. 205.) In addition, the District Court held
that this interpretation of paragraph 55 necessarily meant that
Detroit Diesel and Williams also could not be liable for the
alleged breach and, in the alternative, that these subcontractors’
disclaimers of implied warranties were effective against Transit.
See App. 207.

IV.

As a justification for holding that paragraph 55 shortened
the length of any implied warranties even though it did not
include the language mandated by § 12A:2-316, the District
Court agreed with Harsco that it was not § 12A:2-316, but §
12A:2-725, a provision with no specific language requirements,
which governs the parties’ ability to shorten the length of
express and implied warranties. We cannot agree.

Section 12A:2-725 provides only that in the original
agreement the parties may reduce to one year, but may not
extend beyond four years, the period after a breach of contract
within which a party may commence an action, and provides a
four-year default if the parties do not contract for an alternative.
The length of time a party has to commence a suit is distinct
from the length of time a product is under warranty. For
example, a warranty may expire after a year, but if the parties
have not chosen to contract around § 12A:2-725’s default statute
of limitations, the buyer may bring suit based on that warranty
for events occurring during that first year and until four years
after the breach.

Paragraph 55 contains no language shortening the statute

9
of limitations, only language shortening the warranty period,
and thus the statute of limitations remains § 12A:2-725’s four
years, regardless of whether an express or implied warranty is
involved.

V.

We turn to consideration of § 12A:2-316, the U.C.C.
provision primarily at issue here. This is hardly the typical case
where we are asked to construe the provisions of the U.C.C.
regarding the exclusion or modification of implied warranties.
For example, ordinarily the parties’ contract is drawn by the
seller of goods, and typically the seller has disproportionately
greater bargaining power than the buyer. Here, by contrast, the
buyer not only drafted the contract, but also included numerous
and detailed specifications to which the seller was required to
accede, including a broad one-year warranty. Thus, not only
was this contract not drawn by the usual party, but also–even
though the parties to this contract were two sophisticated
commercial entities dealing at arms-length–it was the buyer,
who dictated all the contract’s terms, whose bargaining power
was superior. Considering this atypical scenario, we turn to the
commentary to § 12A:2-316 for guidance.

Comment 9 to § 12A:2-316 observes that while the
“situation in which the buyer gives precise and complete
specifications to the seller is not explicitly covered in this
section, . . . this is a frequent circumstance by which the implied
warranties may be excluded.” N.J. Stat. Ann. § 12A:2-316 cmt.
n.9. The comment continues on to explain that:

[t]he warranty of fitness for a particular purpose
would not normally arise since in such a situation
there is usually no reliance on the seller by the
buyer. The warranty of merchantability in such a
transaction, however, must be considered in
connection with [§ 12A:2-317]. Under paragraph
(c) of that section in case of [an inconsistency
between an implied warranty of merchantability

10
 and an express warranty,] the implied warranty of
merchantability is displaced by the express
warranty that the goods will comply with the
specifications. Thus, where the buyer gives
detailed specifications as to the goods, neither of
the implied warranties as to quality will normally
apply to the transaction unless consistent with the
specifications.

Id. (emphasis added).

Turning first to the implied warranty of fitness for a
particular purpose, it is clear that there was no reliance on the
skill or judgment of the seller (Harsco) by the buyer (Transit);
indeed, Transit specified precisely what it required. For this
reason, we are satisfied that the facts here represent a scenario
where there was no implied warranty of fitness for a particular
purpose.

With regard to the implied warranty of merchantability,
the comment makes clear that the existence and extent of this
implied warranty require consideration of § 12A:2-317. That
section provides, in relevant part, that:

Warranties whether express or implied shall be
construed as consistent with each other and as
cumulative, but if such construction is
unreasonable the intention of the parties shall
determine which warranty is dominant. In
ascertaining that intention the following rules
apply:
...
(c) Express warranties displace
inconsistent implied warranties other
than an implied warranty of fitness for a
particular purpose.

N.J. Stat. Ann. § 12A:2-317.

Our task is thus to discern whether the express warranty
in paragraph 55 and an implied warranty of merchantability are

11
consistent, keeping in mind that we are obligated to construe
them as consistent and cumulative, unless such construction is
unreasonable. Applying this rule of construction to the contract
at issue and the facts of this case, we conclude that it is only
reasonable to construe the two warranties as consistent with
each other for the one year term of the express warranty.
Beyond that period, the implied warranty of merchantability
conflicts with the contract’s specifications, and is therefore
displaced by the express warranty. See N.J. Stat. Ann. § 12A:2-
317(c).

In the same way that the contract drawn by Transit
required Harsco to comply with certain equipment, material, and
design specifications, it also required Harsco to sign on to a
warranty specification. The required warranty of paragraph 55
was extremely broad, covering all “parts and labor required to
repair defects” occurring in the first year in “the car and all
equipment and components installed on it.” In all respects
except for the time limitation, the express warranty is consistent
with an implied warranty of merchantability, which “simply
means that the thing sold is reasonably fit for the general
purpose for which it is manufactured and sold.” Henningsen v.
Bloomfield Motors, 161 A.2d 69, 76 (N.J. 1960); cf. id. at 80
(stating, in the case of a very limited, 90-day warranty against
defective parts and workmanship, that broad implied warranties
cannot be excluded for the sole reason that they are inconsistent
with express warranties). However, insofar as the implied
warranty would last longer than the one year term of the express
warranty, it would be unreasonable to construe the two as
consistent beyond the one year term.

For instance, a prospective bidder receiving Transit’s
Invitation to Bid and the mandated specifications would
reasonably conclude that it was required to warranty the TGIV
for only one year, and would structure its bid price accordingly.
An implied warranty which lasts beyond one year would require
an entirely different set of calculations, and would conflict with
the expressed intent of the contract that the bidder only be
responsible to warranty the TGIV for a single year. While the
express and implied warranties can coexist for the one-year term
of the express warranty, after that first year they are inconsistent

12
 and the implied warranty of merchantability is displaced.
Accordingly, at the time Transit’s TGIV was damaged, no
warranty was any longer in effect.

We emphasize that we are not interpreting § 12A:2-316
to allow all express warranties of limited duration to impliedly
exclude or modify implied warranties. Instead, we base our
holding on the fact that here, paragraph 55’s global warranty
was incorporated into the specifications, and even the
commentary to § 12A:2-316 recognizes that the instance in
which a “buyer gives precise and complete specifications to the
seller” is not the ordinary circumstance that the section is
designed to address. Nevertheless, we believe our holding is in
line with the general purpose of § 12A:2-316, which, according
to the commentary, is to ensure that there are no surprises
concerning which warranties accompany the goods sold. See
N.J. Stat. Ann. § 12A:2-316 cmt. n.1. See also Travel Craft,
Inc. v. Wilhelm Mendhe GmbH & Co., 552 N.E.2d 443, 445
(Ind. 1990) (holding that to apply Ind. Code § 26-1-2-316(2)
(which is identical to § 12A:2-316) “in favor of . . . the buyer
and drafter of the warranty, would subject the seller to the same
type of surprise the provision is intended to prevent.”).3

3
Though similar in that the warranty in Travel Craft and the warranty at issue here
were drafted by the buyer, the two warranties differ in a significant way. In Travel Craft,
the warranty provision included the statement that “[t]here are no other warranties,
express or implied.” Travel Craft, 552 N.E.2d at 444. The buyer-drafter asserted that
this disclaimer was ineffective as to the implied warranty of merchantability because Ind.
Code § 26-1-2-316(2) (which is identical to N.J. Stat. Ann. § 12A:2-316(2)) provided
that a disclaimer of that warranty was only effective if, inter alia, it used the word
merchantability. After noting that the purpose of this requirement was to protect the
buyer from unfair surprise, the Travel Craft court stated that “[a]ccepting [the buyer’s]
argument would turn a buyer’s shield against surprise into a buyer’s sword of surprise,”
and concluded that “if the buyer drafts the disclaimer it cannot in good faith claim
surprise or unexpected and unbargained for language.” Id. at 445.
While unlike Travel Craft this case does not involve a disclaimer, we believe that
the general principle underlying Travel Craft applies here as well. That is, because the
goal of having stringent requirements in order to disclaim implied warranties is to protect
the buyer from surprise, where the buyer is the drafter of the warranty the court will take
a more critical position towards the buyer’s claim of unfair surprise and, as we do here, a

13
 Because we conclude that in this case there was no
implied warranty of fitness for a particular purpose, and that the
implied warranty of merchantability was displaced by paragraph
55's express warranty after one year, we hold that at the time
Transit’s TGIV was destroyed by fire, all warranties had
expired. The order of the District Court granting summary
judgment to Harsco and the other appellees will be affirmed.4

more lenient view of the seller’s claim of unfair surprise.
4
We affirm the grant of summary judgment in favor of Detroit Diesel and
Williams without deciding whether the implied warranty disclaimer these subcontractors
included in their contract with Harsco is effective against Transit. We note that this is an
unresolved question of New Jersey law. See Spring Motors, Inc. v. Ford Motor Co., 489
A.2d 660, 674, 677 (N.J. 1985) (while holding that “the absence of privity between a
remote supplier and an ultimate purchaser should not preclude the extension to the
purchaser of the supplier’s warranties made to the manufacturer,” also “reserv[ing]
determination on the effectiveness of a remote manufacturer’s disclaimer or limitation on
express and implied warranties to an ultimate purchaser that did not have the opportunity
to negotiate over the terms of the agreement.”).
Having determined that all warranties which arose in the contract between Transit
and Harsco expired after one year, there can be no warranty for the subcontractors to
fulfill no matter how we would answer this question of first impression. For example,
there is obviously no warranty if the disclaimer is effective against Transit. However, if
it is not effective, then Detroit Diesel and Williams must be bound by the warranty in the
contract between Transit and Harsco, the very warranty we have just decided had expired
by the time of the fire.

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