Lovely v. Burroughs Corporation

No. 12569

I N T E SUPREME C U T O THE STATE O MONTANA
H OR F F

1974

ORVIS G. LOVELY AND D N L R. LAUBACH,
O AD

P l a i n t i f f and Respondent and
Cross -Appellant,

BURROUGHS CORPORATION, a c o r p o r a t i o n ,

Defendant and Appellant.

Appeal from: D i s t r i c t Court of t h e S i x t h J u d i c i a l District,
Honorable C. B. Sande, Judge p r e s i d i n g .

Counsel o f Record:

For Appellant :

Landoe, Gary and White, Bozeman, Montana
H. B. Landoe appeared, Bozeman, Montana
Henson and T u l l y , Minneapolis, Minnesota
Robert Henson argued, Minneapolis, Minnesota

For Respondent:

Conrad B, F r e d r i c k s argued, and Richard W. Josephson
argued, Big Timber, Montana

Submitted: June 13, 1974

Decided :OCT 2 % 1974
M r . J u s t i c e Frank I. Haswell d e l i v e r e d t h e Opinion of t h e Court.

I n a nonjury t r i a l i n t h e d i s t r i c t c o u r t of Park County,

p l a i n t i f f s were awarded damages i n t h e amount of $16,760.82 f o r

l o s s e s r e s u r t i n g from t h e d e f e c t i v e o p e r a t i o n o f e l e c t r o n i c a c -

counting equipment s u p p l i e d by t h e defendant. Defendant a p p e a l s

from t h e judgment. P l a i n t i f f s cross-appeal from t h e damages

awarded.

The i s s u e s r a i s e d by t h e defendant on a p p e a l a r e : 1 ) L i -

a b i l i t y f o r breach of e x p r e s s o r implied warranty; 2 ) Measure of

damages; 3) Assessment o f c o s t s . p l a i n t i f f s ' cross-appeal con-

c e r n s o n l y t h e measure o f damages.

Given t h e complex n a t u r e of t h e f a c t s and i s s u e s involved,

a d e t a i l e d c o n s i d e r a t i o n o f both i s r e q u i r e d .

P l a i n t i f f Orvis Lovely commenced a n accounting p r a c t i c e

i n L i v i n g s t o n , Montana, i n 1953. I n 1964 h e formed a p a r t n e r s h i p

w i t h t h e o t h e r p l a i n t i f f , Donald taubach. I n 1966, t h e p a r t n e r -

s h i p purchased a n a d d i t i o n a l p r a c t i c e i n nearby Big Timber, Montana,

and maintained a n o f f i c e t h e r e . The a d d i t i o n of t h i s p r a c t i c e i n -

c r e a s e d t h e workload o f t h e p a r t n e r s h i p t o t h e p o i n t where ad-

d i t i o n a l h e l p had t o be h i r e d o r t h e work had t o be automated.

P l a i n t i f f s were approached by David Larsen, a s s a l e s rep-

r e s e n t a t i v e of t h e defendant, concerning t h e u s e o f Burroughs

equipment i n t h e i r expanded p r a c t i c e . A s e r i e s of meetings, c o r -

respondence and demonstrations of a v a i l a b l e equipment ensued, re-

s u l t i n g i n a purchase o r d e r f o r a s m a l l Burroughs computer. That

o r d e r was superseded i n February, 1967 by a s i m i l a r o r d e r f o r a

l a r g e r , more expensive computer. The second o r d e r bore a hand-
w r i t t e n n o t a t i o n t h a t it was t o be converted i n t o a l e a s e p r i o r

t o delivery.

Although t h e computer was d e l i v e r e d and i n s t a l l e d i n

June, 1967, no formal l e a s e was e v e r executed. P l a i n t i f f s sub-

m i t t e d a n a p p l i c a t i o n and a check, through Larsen, f o r consid-

e r a t i o n by a t h i r d - p a r t y l e a s i n g f i r m i n November o f 1967. P l a i n -

t i f f s forwarded a second check i n December i n t h e same amount t o

Burroughs b e f o r e l e a r n i n g t h a t t h e a p p l i c a t i o n had been denied.

Defendant then o f f e r e d t o l e a s e d i r e c t l y t o p l a i n t i f f s a t a

h i g h e r monthly r e n t a l . p l a i n t i f f s ' r e j e c t i o n of t h i s o f f e r prompt-

ed t h e removal of t h e computer i n February o f 1968.

The d i s t r i c t Court found t h a t defendant, a t t h e time o f

t h e o r d e r , knew t h e p a r t i c u l a r purposes f o r which t h e equipment

was r e q u i r e d and t h a t p l a i n t i f f s were r e l y i n g on d e f e n d a n t ' s

judgment i n f u r n i s h i n g s u i t a b l e goods. It f u r t h e r found t h a t

t h e equipment d e l i v e r e d was n o t f i t f o r t h e purposes i n t e n d e d ,

and t h a t p l a i n t i f f s were damaged thereby.

These f i n d i n g s of f a c t a r e amply supported by t h e r e c o r d .

During t h e c o u r s e of p l a i n t i f f s ' n e g o t i a t i o n s w i t h Larsen, t h e

l a t t e r became thoroughly f a m i l i a r w i t h t h e o p e r a t i o n s o f t h e i r

accounting p r a c t i c e . P l a i n t i f f s t e s t i f i e d t h a t they r e l i e d heav-

i l y on ~ a r s e n ' sassessment o f t h e computer's s u i t a b i l i t y f o r

t h e i r p a r t i c u l a r needs. That r e l i a n c e prompted p l a i n t i f f s t o

solicit additional b u s i n e s s from t h e i r customers which was t o

be provided by t h e expanded c a p a b i l i t i e s of t h e new machine.

Following i n s t a l l a t i o n and debugging of t h e machine,

a number of customer accounts were t r a n s f e r r e d t o t h e automated
p u t e r while t h e defendant had t h e e x p e c t a t i o n of p r o f i t from a

lease d i r e c t l y with t h e p l a i n t i f f s o r a s a l e t o t h e third-party

l e a s i n g company. Defendant f u r t h e r b e n e f i t t e d by t h e r e c e i p t of

t h e two checks a s w e l l a s t h e s a l e of forms t o be used w i t h t h e

computer. To argue t h a t defendant g r a t u i t o u s l y placed a $38,000

computer a t t h e d i s p o s a l of t h e p l a i n t i f f s without e x p e c t a t i o n of

p r o f i t does n o t square w i t h t h e f a c t s .

Bailments f o r mutual b e n e f i t f a l l w i t h i n t h e scope o f

s e c t i o n 42-101, R.C.M. 1947, which provides:
one
"Hiring i s a c o n t r a c t by ~ h i c h / ~ i v e s an-
to
o t h e r t h e temporary possession and u s e of property,
o t h e r than money, f o r reward, and t h e l a t t e r a g r e e s
t o r e t u r n t h e same t o t h e former a t a f u t u r e time."
[Emphasis suppZied]

The L e g i s l a t u r e , by t h e u s e of t h e word "reward", obviously con-

templated b e n e f i t s o t h e r than money a s being included i n a h i r i n g .

W , f i n d no sound reason f o r excluding a n t i c i p a t e d rewards from
e

t h e scope o f t h e s t a t u t e .

S e c t i o n 42-211, R.C.M. provides:

"One who l e t s personal p r o p e r t y must d e l i v e r
i t t o t h e h i r e r , s e c u r e h i s qu5et enjoyment thereof
a g a i n s t a l l lawful claimants, p u t i t i n t o a c o n d i t i o n
f i t f o r t h e purpose f o r which h e l e t s i t , and r e p a i r
a l l d e t e r i o r a t i o n s thereof not occasioned by t h e f a u l t
of t h e h i r e r and not t h e n a t u r a l r e s u l t of i t s use."
[Emphasis supplied]

This s t a t u t e expresses t h e common law o f bailments r e -

q u i r i n g f i t n e s s f o r u s e i n bailments f o r mutual b e n e f i t . A t l a n t i c
-.

Tug & Equip-. . Co, -v,. S . . 6 L. ,.Pavinn C ~ r p , 334 N ,Y.S 2d 532, 8 Am,
.
Jur.2d Bailments 5144. When a b a i l o r has reason t o know t h e u s e

f o r which t h e property is r e q u i r e d , t h e r e a r i s e s an implied war-

r a n t y of f i t n e s s f o r t h a t u s e - - p a r t i c u l a r l y when t h e b a i l e e re-

-5-
process. Within a s h o r t time, problems a r o s e i n t h e o p e r a t i o n

o f t h e computer, r e q u i r i n g numerous v i s i t s by ~ u r r o u g h s ' r e -

pairmen. These d i f f i c u l t i e s occurred a s f r e q u e n t l y a s d a i l y

and o f t e n n e c e s s i t a t e d s h u t t i n g t h e computer down u n t i l t h e r e -

p a i r s could be made. The problems experienced a d v e r s e l y a f f e c t e d

t h e p l a i n t i f f s ' a b i l i t y t o promptly and a c c u r a t e l y s e r v i c e t h e i r

customers' accounts. The damage t o t h e r e p u t a t i o n of t h e f i r m

was one of t h e f a c t o r s which l e d t o t h e s a l e o f t h e p r a c t i c e .

Given t h i s evidence, t h e d i s t r i c t c o u r t concluded t h a t

defendant had breached both express and implied w a r r a n t i e s o f

f i t n e s s f o r intended use. It f u r t h e r concluded t h a t t h i s breach

was t h e proximate cause o f t h e damages which we s h a l l d e a l w i t h

later.

Defendant argues t h a t t h e r e was no t r a n s a c t i o n a l b a s i s

f o r any warranty; t h a t breach of warranty, i f such warranty ex-

i s t e d , was n o t e s t a b l i s h e d by t h e r e c o r d ; and t h a t i f t h e r e was

a breach of warranty, t h e p l a i n t i f f s waived t h e i r c l a i m f o r r e -

lief,

Defendant maintains t h a t t h e t r a n s a c t i o n h e r e amounted

t o nothing more than a g r a t u i t o u s bailment, g i v i n g r i s e t o no

e x p r e s s o r implied warranty of f i t n e s s f o r intended use. We

disagree.

A t t h e very l e a s t , a bailment f o r mutual b e n e f i t a r o s e

a s both p a r t i e s received t h e b e n e f i t s of t h e t r a n s a c t i o n . -
Global-
-. *

- - - - " T r a -... e- r .S.- l e s . v.
Tank ."*
il
w-
a . --
Textilena-Nease,- g c * .
. -..-. -* -- .... . - .
-- , 209 Kan. 314, 496

P.2d 1292; M-i l-l e r --v. Hand . - . . Sales-, -I$c,.,, 216 O r . 567, 340 P.2d
-- .. Ford -.* .
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