Opinion
Civil Action No. 01-3651, Section: "R" (1)
September 9, 2002
ORDER AND REASONS
Before the Court is plaintiff's motion for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the following reasons, the Court denies plaintiff's motion to take possession of the MOVAX vibratory pile driver. The court denies plaintiff's motion for summary judgment on defendants' counterclaims in contract, except that the Court, first, grants plaintiff's motion for summary judgment on defendants' counterclaims for consequential damages and, second, grants plaintiff's motion for summary judgment on the issue of mutual mistake. Last, the Court grants plaintiff's motion for summary judgment on defendants' counterclaims in tort.
I. Background
This matter arises out of a lease-purchase agreement in which defendants, McElwee Brothers, Inc. and Tri-State Design Construction Company, Inc. (referred to jointly as "MBI"), obtained from plaintiff Hercules Machinery CorporaLion a MOVAX SP-40 Robotic Vibratory Hammer.
MBI, a Louisiana corporation, entered into a contract with the U.S. Army Corps of Engineers to perform work on the Dwyer Road Discharge Tubes Construction Project in New Orleans. As part of the project, MBI was to install and remove AZ-18 sheet pilings in 40 foot lengths. In preparing a bid for the project, MBI determined that the most cost effective means of installing and removing the sheet pilings would be to use a vibratory pile driver hammer attached to an excavator. MBI's bid for the project was based on the use of this specific equipment configuration.
MBI obtained a Hyundai Model 210LC-3 excavator from State Machinery and Equipment Sales, Inc. Melvin McElwee, President of MBI, then entered into negotiations with Scott Reed, Hercules' Gulf Coast Division Manager, for the lease-purchase of a vibratory pile driver to use in combination with the Hyundai excavator.
On August 3, 2001, MBI specified to Hercules that it needed a vibratory pile driver in order to remove and install AZ-18 sheet piling in 40 foot lengths using a Hyundia Model 210LC-3 excavator. MBI further provided Hercules with detailed soil boring logs of the job site where the piling would be installed and specifically inquired as to whether Hercules' MOVAX vibratory pile driver was capable of handling the job. On August 15, 2001, Scott Reed delivered a fax to Melvin McElwee indicating that Hercules' vibratory pile driver would perform under the conditions specified by MBI. In the same fax, Reed wrote that Hercules would not be held responsible for any guarantees as to the pile driver's performance absent accurate soil boring reports that include "blow count per foot" ratings. Nor would Hercules be held responsible for unknown conditions under the soil. On the same day, the parties entered into a lease-purchase agreement for Hercules' MOVAX vibratory pile driver. As required by the contract, MBI made an initial purchase payment of $35,374.20.
When work began, it became apparent that the MOVAX was not installing the sheet piling to the required depth. Thereafter, MBI made no further payments to Hercules under their lease-purchase agreement. Hercules sued MBI in this Court to recover the remaining purchase price under the contract and to obtain a declaration of ownership of the MOVAX. On December 10, 2001, the Court ordered that a writ of sequestration issue, directing the Federal Marshal's Office to seize the MOVAX and to place it in safekeeping pending the outcome of this lawsuit. MBI counterclaimed for damages arising from Hercules' breach of contract and tortious misrepresentation, or, in the alternative, sought to void the contract due to mutual mistake.
Hercules now moves for partial summary judgment pursuant to Rule 56(a) and 56(b). FED. R. Civ. P. 56. Hercules asks, first, that the Court recognize its ownership and right to take immediate possession and control of the MOVAX. Second, Hercules moves for summary judgment in its favor on each of defendants' counterclaims.
II. Discussion
A. Legal Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2551 (1986). The court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). The moving party bears the burden of establishing that there are no genuine issues of material fact. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993). A factual dispute precludes a grant of summary judgment if the evidence would permit a reasonable jury to return a verdict for the nonmoving party. See Hunt v. Papides Healtheare System, LLC, 2001 WL 1650961 (5th Cir. 2001) (citations omitted).
If the dispositive issue is one for which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. Celotex, 477 U.S. at 325, 106 S.Ct. at 2552; Lavespere, 910 F.2d at 178. The burden then shifts to the nonmoving party, which must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.
B. Discussion
1. Ownership
Hercules moves for partial summary judgment on the issue that it is the true and lawful owner of the MOVAX vibratory pile driver referenced in the lease-purchase agreement signed with MBI. Plaintiff notes that the contract provides that "Ownership and Title of [the MOVAX vibratory pile driver] will be owned and controlled by [Hercules] until full execution and payments are made in full of said contract" (Def.'s Mot. for Partial Summ. J., Ex. A., Lease-Purchase Agreement, at 2.) Plaintiff further asserts that should the Court determine plaintiff to be the lawful owner of the MOVAX, then the Court should dissolve the writ of sequestratidn to allow plaintiff to introduce the MOVAX back into the stream of commerce.
The contract provides that it is to be governed by and construed according to the law of Indiana. ( Id. at 7.) Absent ambiguity, Indiana law accords to the terms of a contract their plain and ordinary meaning. Shriner v. Sheehan, 2002 WL 1797017, *5 (Ind.Ct.App. 2002). Construction of the terms of a written contract is a pure question of law. Id.
Construction of the contract is governed by Article 2 of the Uniform Commercial Code ("UCC"), IND. CODE ANN. § 26-1-2-101 through § 26-1-2-725 (West 2002). Specifically, Indiana law provides that "[a]ny retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest." IND. CODE ANN. § 26-1-2-401(1). Further, "whether a transaction creates a lease or security interest is determined by the facts of each case." IND. CODE ANN. § 26-1-2-201 (37) Thus, courts must examine the nature of the agreement, and not its express language, to determine whether the seller retains title to a product or instead retains only a security interest in that product. This provision of Indiana law "represents the drafter's refusal to recognize form over substance." United Leaseshares, Inc. v. Citizens Bank Trust Company, 470 N.E.2d 1383, 1387 (Ind.Ct.App. 1984). A transaction creates a security interest, and not a lease agreement, when (1) the consideration the lessee is to pay the lessor is an obligation for the term of the lease not subject to termination by the lessee, and (2) the lessee has an option to become the owner of the goods for no additional consideration upon compliance with the lease agreement. Urn. CODE ANN. § 26-1-2-201 (37). Accordingly, courts have held that when a lessee may obtain the property for no additional consideration, "the lease is intended for security." In the Matter of Marhoefer Packing Company, Inc., 674 F.2d 1139, 1142 n. 2 (7th Cir. 1982).
Here, the contract provided that MBI was entitled to take possession of the MOVAX upon compliance with the lease agreement for no additional consideration. Therefore, Indiana law dictates that when Hercules delivered the MOVAX to MBI, MBI took title and ownership to the MOVAX. IND. CODE ANN. § 26-1-2-401(1). Hercules retained a security interest in the MOVAX pending execution of the agreement, but Hercules did not retain title. Accordingly, the Court denies Hercules' motion for summary judgment on the issue that it is the true and lawful owner of the MOVAX. In light of the Court's finding that title in the MOVAX passed from Hercules to MBI upon delivery, plaintiff should advise the Court if it still wishes to dissolve the writ of sequestration.
2. Defendants' Counterclaims
Hercules asserts that it is entitled to summary judgment in its favor on each of defendants' counterclaims, in which defendants seek to recover their initial payment of $35,374.20 and consequential damages totaling $149,825.80. Defendants assert claims in both contract and tort.
a. Defendants' Contract Claims
In contract, defendants assert, first, that plaintiff breached its contractual obligation to supply a vibratory pile driver adequate to install and remove the AZ-18 sheet piling as specified by MBI; second, that HMC breached its obligation to carry out "application engineering;" third, that plaintiff breached its obligation to repair or replace defective components; and, fourth, that the contract should be rescinded due to a mutual mistake. At the heart of each of these inquiries is the central issue of identifying the party that assumed the risk that the MOVAX vibratory pile driver might not ultimately perform the work that MBI needed it to perform. For the following reasons, the Court finds that Hercules, and not MBI, assumed this risk.
i. Express and Implied Warranties
In order to determine which party bore the risk that the MOVAX might not drive the sheet pilings to the desired depth, the Court must first determine whether there existed any express or implied warranties as to the machine's performance. Indiana law provides that an express warranty by the seller is created when the seller makes "any affirmation of fact or promise . . . to the buyer which relates to the goods and becomes part of the basis of the bargain." IND. CODE ANN. § 26-1-2-313. If an agreement exists entirely in writing, then the question of whether an express warranty was made "is one for the court." Martin Rispens Son v. Hall Farms, Inc., 621 N.E.2d 1078, 1082 (Ind. 1993).
In a fax sent to Hercules on August 3, 2001, MBI squarely asked, "Can the [MOVAX] handle AZ 18 sheet piling in 40-foot lengths using a Hyundai Robex 210LC-3?" (Def.'s Memo. in Opp. to Pl.'s Mot. for Partial Summ. J., Fax of Aug. 3.) To help Hercules make this determination, MBI provided detailed information on the Hyundai excavator with which the MOVAX would be used, as well as soil reports indicating the quality of the soil at the work site. ( Id.) In response, Hercules sent a fax to MBI on August 15, 2001, indicating that the MOVAX "will technically handle the conditions and the piling you are using for the job." (Def.'s Supplemental Memo. in Opp. to Pl.'s Mot. for Partial Summ. J., Fax of Aug. 15.) Hercules further stated that the MOVAX is "performing well" for other customers operating under "similar conditions." ( Id.) On the same day that MBI received this fax, it signed the contract to purchase the MOVAX. MBI testified that it "reasonably believed" that the work specifications submitted would be "properly analyzed by [Hercules] to determine if the MOVAX would install the specified sheet piling using the Hyundai excavator in the soil indicated in the soil logs provided by MBI." (Def.'s Supplemental Memo. in Opp. to Pl.'s Mot. for Partial Summ. J., Supplemental Aff. of Melvin M.L. McElwee, Sr., at 2.) MBI further testified that the soil reports submitted to Hercules were sufficient for Hercules to make a determination as to the work capacity of the MOVAX. ( Id.)
Indiana law provides that a contract may be "explained" or "supplemented" by the "course of dealing." IND. CODE ANN. § 26-1-2-202. Indiana law further provides that it is permissible to incorporate contract terms by reference to contemporaneous documents. Penn v. Ryan's Family Steak Houses, Inc., 269 F.3d 753, 760 (7th Cir. 2001). Indiana law further recognizes that "when writings are executed at the same time and relate to the same transaction or subject matter, they must be construed together in determining the contract." Torres v. Meyer Paving Company, 423 N.E.2d 692, 695 (Ind.Ct.App. 1981). Here, the fax communications were executed at around the same time of the contract and pertained to the same subject matter. Furthermore the contract indicates that Hercules will deliver to MBI "the equipment and materials . . . as listed in all proposals." (Lease-Purchase Agreement, at 2 and 4.) Accordingly, the Court will construe the fax of August 3, 2001 and the fax of August 15, 2001 together with the contract as a whole.
A representation is deemed an express warranty when the seller "asserts a fact of which the buyer is ignorant." Rispens, 621 N.E.2d at 1082; Royal Business Machines, Inc. v. Lorraine Corp., 633 F.2d 34, 41 (7th Cir. 1980). Whereas an "expression of future capacity or performance" may be considered an expression of fact that creates an express warranty, Royal Business, 633 F.2d at 42, indicating that a product is "top quality" is "a classic example of puffery" that does not constitute an express warranty. Rispens, 621 N.E.2d at 1082. In the fax of August 15, 2001, Hercules indicated that the MOVAX "will technically handle the conditions" in which MBI intended to work. (Fax of Aug. 15.) This is more than "puffery;" it is an expression of future capacity or performance that constitutes an express warranty. Further, this representation of fact is one of which Hercules knew MBI to be ignorant. As evidence of Hercules' specialized knowledge, Hercules agreed in the contract to perform on-site training and job-site supervision. ( Id.) Hercules conceded that MBI was "inexperienced" in the use of vibratory pile drivers like the MOVAX and that it may have been the first pile driving job MBI had ever done. (Pl.'s Supplemental Memo. in Support of its Mot. for Partial Summ. J., Supplemental Aff. of Scott Reed, at 4.) Accordingly, Hercules' representation in the fax of August 15, 2001 constitutes an express warranty.
The Court also finds that the contract gives rise to two separate implied warranties. First, unless modified or excluded, a warranty that 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." Rispens, 621 N.E.2d at 1084. Because Hercules is in the business of selling construction equipment like the MOVAX, its contract with MBI is subject to Indiana's implied warranty of merchantability. IND. CODE AZmi. § 26-1-2-314. Second, in the fax of August 3, 2001, Hercules learned that MBI intended to use the MOVAX for a particular purpose and that MBI was relying on Hercules judgment to select suitable equipment. Therefore, the contract is also subject to an implied warranty of fitness for a particular purpose. IND. CODE ANN. § 26-1-2-315.
ii. exclusion or Modification of Express and Implied Warranties
Having found that the contract is subject to both express and implied warranties, the next inquiry is whether the parties excluded or modified these warranties pursuant to IND. CODE ANN. § 26-1-2-316. The contract provides that:
"22. LIMITATION OF WARRANTIES
Services shall be performed in a workmanship-like manner and in accordance with [MBI]'s specifications. [Hercules] warrants its workmanship for a period of 90 days from the date of performance. [MBI]'s only warranty for the equipment and system shall be as provided by the manufacturer of said equipment to [Hercules]. `[Hercules] hereby expressly disclaims any and all express and implied warranties for the equipment, including, without limitation, the implied warranties of merchantability and fitness for a particular purpose.'"
(Lease-Purchase Agreement, at 8.) Also, in the fax of August 15, Hercules stated that it "cannot be held responsible for any guarantees to the performance without accurate soil boring with `blow count per foot' ratings included in the soils boring reports, and [Hercules] cannot be held responsible for unknown conditions that may be discovered under the soil." (Fax of Aug. 15.)
The Court will first address the validity of the contract clauses purporting to exclude express warranties. To protect buyers "from unexpected and unbargained language of disclaimer," Indiana law expressly provides that negation or limitation of an express warranty is "inoperative" if inconsistent with the seller's representation of an express warranty. IND. CODE ANN. § 26-1-2-316 and UCC Comment (1) ; see L.S. Heath Son, Inc. v. ATT Information Systems, Inc., 9 F.3d 561, 570 (7th Cir. 1993) (finding that under the UCC, "a warranty disclaimer inconsistent with an express warranty is inoperative"). When there is an attempt to both warrant and to refuse to warrant in the same sale, then "an irreconcilable conflict emerges." Woodruff v. Clark County Farm Bureau Cooperative Association, Inc., 286 N.E.2d 188, 200 (Ind.Ct.App. 1972). The Court finds it impossible to read Hercules' express warranty and Hercules' waiver of an express warranty as consistent with each other. Under Indiana law, this conflict renders Hercules' waiver of express warranties inoperative.
The Court also finds Hercules' waiver of implied warranties to be inoperative. At the outset, it is important to note that "[d] isclaimers of implied warranties are not favored and are strictly construed against the seller for reasons of public policy." Rispens, 621 N.E.2d at 1084. A waiver of the implied warranty of merchantability must mention merchantability, and any waiver of implied warranty, if in writing, must be "conspicuous." IND. CODS ANN. § 26-1-2-316. Whether a waiver of implied warranties is conspicuous is a question of law that is determined by the court. Rispens, 621 N.E.2d at 1084; Woodruff, 286 N.E.2d at 196. Among the factors courts consider in making this determination is whether the waiver appeared in the beginning of the contract, whether it appeared on a page requiring the buyer's signature, and whether it was printed in bold or colored text. Urschel Farms, Inc. v. Dekalb Swine Breeders, Inc., 858 F. Supp. 831, 835 (N.D.Ind. 1994); Roberts v. Homelite Div. of Textron, Inc., 649 F. Supp. 1440, 1444 (N.D.Ind. 1986); Hahn v. Ford Motor Company, Inc., 434 N.E.2d 943, 947 (Ind.Ct.App. 1982).
Here, the waiver of implied warranties expressly mentions "merchantability." Further, the contracting parties are sophisticated companies. Nevertheless, the Court finds that the waiver of implied warranties was not conspicuous. Given that the seller made an express warranty in the very first bullet point of a fax delivered to buyer as part of the contract, the buyer's expectation that the seller would then attempt to waive all relevant warranties would be low. The waiver was neither printed in bold or colored letters nor located on a page requiring MBI's signature. Instead, the waiver of implied warranties was tucked into the last sentence of a confusing paragraph. In this paragraph, the seller began by guaranteeing its workmanship for a period of 60 days and representing that the manufacturer' s warranties would remain effective, and then concluded by waiving express and implied warranties. This confusing language, coupled with the prominent placement of an express warranty, lead the Court to conclude that Hercules' waiver of implied warranties was not sufficiently conspicuous "that a reasonable person against whom it is to operate ought to have noticed it." Roberts, 649 F. Supp. at 1444 (quoting IND. CODE ANN. § 26-1-2-201 (10)).
iii. Limitation of Damages and Remedies
That the contract embodies both express and implied warranties does not, in and of itself, defeat plaintiff's motion for summary judgment on defendants' counterclaims. First and foremost, there remains the issue of the limitation of defendants' remedies. Such limitations limit the remedy that is available once a breach of warranty or contract is established. Rispens, 621 N.E.2d at 1085. Generally speaking, Indiana recognizes the validity of exculpatory clauses. Ransburg v. Richards, 770 N.E.2d 393, 396 (Ind.Ct.App. 2002); Hainlen v. Atofina Chemicals, Inc., 2001 WL 1781922, *5 (S.D.Ind. 2001); IND. CODE § 26-1-2-719. No public policy prevents such contracts, and parties are permitted to agree to exculpatory clauses so long as they are knowingly and willingly made. Ransburg, 770 N.E.2d at 396. The "freedom to set contract terms is especially important in the context of a commercial transaction." Rheem Manufacturing Company v. Phelps Heating Air Conditioning, Inc., 746 N.E.2d 941, 950 (Ind. 2001).
Here, the contract provides that:
"21. LIMITATION OF LIABILITY
[Hercules] shall not be liable for any loss, damage or expense of [MBI] or any third party arising directly or indirectly out of the purchase, installation, operation, use or licensing of equipment, or services sold, supplied or furnished pursuant to this Agreement. In no event shall [Hercules] be liable for special, indirect, incidental or consequential damages of any kind or nature or due to any cause. [MBI]'s sole right and remedy shall be the repair or replacement of any defective component of the equipment as agreed upon between the parties."
(Lease-Purchase Agreement, at 8.)
Plaintiff first asserts that the contract specifically precludes the recovery of consequential damages. The Court agrees. Although limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, limitation of damages when the loss is commercial is not. Rheem, 746 N.E.2d at 946. Defendants' remedy under the contract is that plaintiff agreed to repair or replace defective components of the MOVAX. (Lease-Purchase Agreement, at 8.) The Indiana Supreme Court has squarely held that the existence of a limited remedy, even if such a remedy "fails of its essential purpose," does not invalidate an exclusion of consequential damages. Rheem, 746 N.E.2d at 947.
Defendants argue that plaintiff is precluded from enforcing the contract's exculpatory clause because plaintiff breached the contract. Even if plaintiff did breach the contract, the contract expressly provides that "[i]n no event shall [Hercules] be liable for special, indirect, incidental or consequential damages of any kind or nature or due to any cause." (Lease-Purchase Agreement, at 8.) This includes circumstances under which Hercules breaches the contract. Indeed, such a clause is intended to be enforceable when the seller is in breach, for the issue of consequential damages would not otherwise arise. Defendants reliance on Hopper v. Colonial Motel Properties, Inc., 762 N.E.2d 181, 187 (Ind.Ct.App. 2002), and Licocci v. Cardinal Associates, Inc., 492 N.E.2d 48, 52 (Ind.Ct.App. 1d 1986), is off the mark, for these cases did not involve the enforceability of exculpatory clauses.
Accordingly, the Court finds that Hercules' exposure to consequential damages is unambiguously precluded by the contract. The record does not indicate that the contract is unconscionable for any reason. Therefore, the Court finds that plaintiff is entitled to summary judgment on defendants' counterclaims for consequential damages.
The Court now turns to defendants' counterclaims for compensatory damages, namely, the initial payment of $35,374.20. Plaintiff asserts that defendants are not entitled to a return of this payment, and that defendants' "sole right and remedy shall be the repair or replacement of any defective component of the equipment." (Lease-Purchase Agreement, at 8.) Soon after the MOVAX was delivered to the work site, it became apparent that the MOVAX was failing to drive the piling to grade. (Def's Memo. in Opp. to Pl's Mot. for Partial Summ. J., Aff. of Melvin McElwee at 3.) Harry Bicknell, Sales Manager at State Machinery and Equipment Sales, and Francis Mazerac, Shop Foreman at State Machinery and Equipment Sales, testified that the MOVAX failed to perform the work that MBI needed it to perform. (Def's Opp. to Pl.'s Mot. for Partial Summ. J., Aff. of Harry Bicknell and Aff. of Francis Mazerac.) In a letter dated October 22, 2001, Hercules made a number of recommendations as to how to solve the problems that MBI encountered at the work site, such as getting a larger excavator. (Def.'s Opp. to Pl's Mot. for Partial Summ. J., Letter from Hercules to MBI, Oct. 22, 2001.) Significantly, Hercules never offered to repair or replace any component of the equipment; nor did it contend that this would have remedied the problem with the MOVAX. Indeed, Hercules offers no evidence now that the "repair or replace" remedy would have enabled the equipment to perform as warranted. Further, Melvin McElwee, signatory to the contract on behalf of MBI, testified that Hercules could not have solved the problem by simply repairing or replacing defective components of the ineffective MOVAX. (Supplemental Aff. of Melvin McElwee.)
Indiana law provides that when a limited remedy "fails of its essential purpose," then the buyer is entitled to additional remedies. IND. CODE ANN. § 26-1-2-719. This section is typically reserved for "novel circumstances not contemplated by the parties." Rheem, 746 N.E.2d at 954. It is triggered when the remedy fails of its essential purpose, "and not the essential purpose of the UCC, contract law, or of equity." Id. (quoting Rispens, 621 N.E.2d at 1086).
To determine whether a limited remedy fails of its essential purpose, courts begin by determining the purpose of the remedy. Rispens, 621 N.E.2d at 1086. Here, the purpose of the "repair or replace" remedy was to ensure that the MOVAX would perform as warranted in the agreement. Indiana courts have specifically noted that when an exclusive remedy of repair and replacement of defective parts does not succeed in repairing equipment's ability to perform as promised in an express warranty, that remedy fails of its essential purpose. Id. (citing Riley v. Ford Motor Co., 442 F.2d 670 (5th Cir. 1971)). This is exactly what has transpired here. Therefore, because the "repair or replace" remedy fails of its essential purpose, defendants may, should they establish that plaintiff breached the contract, recover compensatory damages. As previously discussed, defendants may not recover consequential damages. Rheem, 746 N.E.2d at 947.
iv. Breach of Contract
Of course, for defendants to succeed on their counterclaims, they bear the burden of proving that plaintiff breached the contract. The central elements of a breach of contract action are the existence of a contract, a party's breach thereof, and damages. Hopper, 762 N.E.2d at 187. Defendants assert that plaintiff breached an express warranty that the the MOVAX would perform the work they needed it to perform. Whether plaintiff breached this warranty remains an outstanding issue of material fact. On one hand, the record indicates that the MOVAX was simply incapable of performing the work that Hercules warranted it could perform. (Supplemental Aff. of Melvin McElwee, at 3.) On the other hand, Hercules indicated that the problem may have been caused by failure of the Hyundai excavator, and not Hercules' MOVAX. (Letter of October 22, 2001.) In the alternative, the problem may have been unexpected ground conditions unearthed only after the contract had been signed. ( Id.) Therefore, the Court is unable to grant summary judgment at this time on the issue of whether Hercules breached its express warranty.
Defendants also assert that plaintiff breached its obligation to "carry out application engineering, which includes equipment installation and training." (Lease-Purchase Agreement, at 4.) The parties dispute the extent of the services that Hercules was to perform under this clause. Defendants assert that "application engineering" entails not only on-site equipment installation and training, but also conducting an analysis of the soil test results that MBI provided to Hercules. (Def's Opp. to Pl.'s Not. for Summ. J., Aff. of J. Michael Dixon, at 2.) Had adequate application engineering been conducted, defendants assert, the problem may have been resolved at an earlier date, saving MBI time and money. Plaintiff, meanwhile, asserts that the application engineering conducted at the work site was sufficient. (Supplemental Aff. of Scott Reed.) Thus, outstanding issues of fact preclude the Court from granting summary judgment on the issue of whether plaintiff breached the "application engineering" clause of the contract.
v. Mutual Mistake
Last, defendants assert that the contract should be rescinded due to mutual mistake. "Where both parties share a common assumption about a vital fact upon which they based their bargain, and that assumption is false," the transaction may be voided under the doctrine of mutual mistake. Bowling v. Poole, 756 N.E.2d 983, 988-89 (Ind.Ct.App. 2001); Jay County Rural Electric Membership Corp., v. Wabash Valley Power Association, 692 N.E.2d 905, 912 (Ind.Ct.App. 1998). It is not enough that the parties be mistaken about any fact; rather, the fact that is mistaken must be "the essence of the agreement, the sine qua non." Jay County, 692 N.E.2d at 912. Moreover, mutual mistake of fact cannot lie against a future event, for it "does not cover an erroneous prediction or judgment as to events to occur in the future." Id. (quoting United States v. Southwestern Electric Cooperative, Inc., 869 F.2d 310, 314 (7th Cir. 1989)). Here, it cannot be said that both parties were mistaken as to an existing fact. Rather, one party relied upon the representation of another. Therefore, the doctrine of mutual mistake does not apply.
b. Defendants' Tort Claims
In tort, defendants assert that plaintiff negligently performed "application engineering" as required by the contract. Defendants further assert that Hercules intentionally and negligently made material misrepresentations to MBI concerning whether the MOVAX was capable of performing the required work. Although intentional and negligent misrepresentation claims "can relate to a contract," they are grounded in duty, breach of duty and deceit. Indiana Dep't of Transportation v. Shelly Sands, Inc., 756 N.E.2d 1063, 1077-78 (Ind.Ct.App. 2001). For this reason, Indiana courts treat misrepresentation claims as tort claims.
Indiana courts have squarely held that "where a negligence claim is based upon the failure of a product to perform as expected and the plaintiff suffers only economic damages, no recovery may be had in negligence; instead, the buyer's remedy lies in contract." Rispens, 621 N.E.2d at 1089; Prairie Production, Inc. v. Agchem Division-Pennwalt Corporation and MBM, 514 N.E.2d 1299, 1304 (Ind.Ct.App. 1987.) Otherwise, the buyer could circumvent the statutory framework intended to govern warranties and remedies for commercial transactions. Prairie, 514 N.E.2d at 1304. Therefore, defendants' counterclaims in tort fail as a matter of law. c. Summary
The Court notes that courts have applied the doctrine of negligent misrepresentation, or, constructive fraud, to situations in which the parties are in a buyer-seller relationship. See Mullen v. Cogdell, 643 N.E.2d 390, 401 (Ind.Ct.App. 1994); Scott v. Bodor, 571 N.E.2d 313 (Ind.Ct.App. 1991). Courts have not done so, however, where Article 2 of the UCC governed the commercial transaction. Rispens, 621 N.E.2d at 1089.
In summary, the Court finds that plaintiff is not entitled to summary judgment on defendants' counterclaims in contract. The contract contains express and implied warranties as to the performance capacity of the MOVAX that were neither waived nor modified. Defendants' exclusive remedy of "repair or replace" fails of its essential purpose. Therefore, should defendants establish that plaintiff is in breach, defendants may obtain compensatory damages, but they may not obtain consequential damages. The issue of breach, however, may not be decided on summary judgment. Specifically, outstanding issues of material fact exist as to (1) the reason why the MOVAX ultimately proved to be ineffective and (2) whether plaintiff adequately performed application engineering. Plaintiff is nevertheless entitled to summary judgment on defendants' counterclaims for consequential damages and defendants' counterclaims in tort.
III. Conclusion
For the foregoing reasons, the Court denies plaintiff's motion for summary judgment on the issue of whether it is the true and lawful owner of the MOVAX. The Court also denies plaintiff's motion for partial summary judgment on defendants' counterclaims in contract, except that the Court grants plaintiff's motion for summary judgment on defendants' claims for consequential damages. The Court grants summary judgment on defendants' counterclaims in tort.