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District Court of Appeal, First District, Division 2, California.

Robert J. POOLE et al., Plaintiffs, v. FUNCTIONAL CONSTRUCTION CO. et al., Defendants.

James P. ACED, dba Functional Construction Co., Defendant, Cross-Complainant and Respondent, v. HOBBS-SESAK PLUMBING CO., a co-partnership, Cross-Defendant and Appellant. *

Civ. 18770.

Decided: August 29, 1960

Crist, Peters, Donegan & Brenner, Palo Alto, for appellant. Ropers, Majeski & Kane, Redwood City, for respondent.

This is an appeal from an order granting defendant and cross-complainant Aced a new trial in an action instituted by the owners of a home built by Aced as general contractor to recover damages for costs of repair and eventual replacement of a radiant heating system installed in a concrete slab floor. Aced, respondent herein, cross-complained against several parties including Hobbs-Sesak Company, appellant herein, a partnership sub-contractor that furnished and installed the tubing for said system. During the second day of trial respondent stipulated that judgment in favor of the owners be entered against him for $7,715.54. The trial then proceeded on the cross-complaint against the sub-contractor and the manufacturer and distributor of the particular tubing on the theory of a breach of implied warranty of merchantability. The court found that appellant had entered into a written contract with respondent to furnish the necessary labor and material to install the radiant heating as per the plans and specifications and, pursuant to said contract had sold the tubing and other materials to respondent; that within three months thereafter the sub-contract had been completely performed; that some ten months later the tubing began to leak. During the ensuing year attempts to repair were made but the entire system had to be replaced. The owners filed their suit against respondent as general contractor some three years and nine months after appellant had completed his sub-contract and the cross-complaint was filed about four months later.

The particular tubing used was made of steel coated with a plastic to deter corrosion, copper being in short supply due to the Korean conflict. The installation of the system began with a fill of gravel which was covered by a membrane, wire mesh and the tubing laid on top of and fastened to the mesh. When the slab was poured the wire mesh and tubing was lifted into the concrete until it rested two inches below the surface. There was evidence that the tubing could have leaked from several possible causes such as by being left on the ground or from chipping or other damage to the plastic coating from being stepped on during installation or from the abrasive action of the concrete aggregates and, also, from checking or cracking when bending it to the required shapes. Without specifying detail the court found that there were several possible causes of the leaks in the system but that cross-complainant had failed to prove that the leaks resulted from unmerchantable quality. Judgment was accordingly entered in favor of the cross-defendants. Motion for new trial was granted upon the issues of the cross-complaint. Hobbs-Sezak is the only cross-defendant appealing. The order granting the motion does not specify insufficiency of evidence as the basis for the order and it is therefore presumed it was grounded upon errors of law. Townsend v. Gonzalez, 150 Cal.App.2d 241, 309 P.2d 878.

We are mindful of the procedural rules and presumptions applicable to the review of the particular order as discussed in Follett v. Brown, 118 Cal.App. 198, 5 P.2d 51; Verzola v. Russi, 135 Cal.App.2d 330, 287 P.2d 166; Estate of Baird, 198 Cal. 490, 246 P. 324; Renfer v. Skaggs, 96 Cal.App.2d 380, 215 P.2d 487, and Brandelius v. City and County of San Francisco, 47 Cal.2d 729, 306 P.2d 432 and other cases cited by the parties. Repetition thereof would serve no purpose.

Appellant's principal contention is that under the circumstances of the case there can be no warranty of merchantability because (a) there was no sale and (b) he was not a dealer. Under Civil Code sections 1735 and 1721 an implied warranty of merchantability arises only when there is a sale, i. e. a transfer of property in goods for a consideration. The question is whether the sub-contract involved herein was a contract for labor and materials and, therefore, one for services rather than a sale within the meaning of the Uniform Sales Act. In contending it was not a sale appellant relies on Steiger Terra Cotta & Pottery Works v. City of Sonoma, 9 Cal.App. 698, 100 P. 714. There a contractor who engaged to build a city hall defaulted and the sub-contractor who was to furnish and set the roofing tile was allowed to replevy tiles that had been delivered to the site and stored to await use. The court held that the contract was one for labor and materials and, because it was not sale and the tile had not been installed or affixed to the building, title did not pass. It should be noted, however, that the case was decided before California adopted the Uniform Sales Act and turned largely on property aspects of the law of fixtures and the provisions of the Mechanic's and Materialman's Lien Law. Under the Uniform Sales Act, whether a contract is one of sale or for labor and materials depends on the old ‘Massachusetts Rule’ wherein the test is whether the goods supplied were specially manufactured for the recipient and not suitable for sale to others in the ordinary course of business. Williston on Sales, § 55a, 1948 ed. The test was applied even before enactment of the Uniform Sales Act in Golden Eagle Milling Co. v. Old Homestead Bakery, 59 Cal.App. 541, 211 P. 56 and United Iron Works v. Standard Brass Casting Co., 69 Cal.App. 384, 231 P. 567. In the former case (barley flour of a type milled and sold generally by plaintiff) the transaction was held to be a sale. In the latter case (check valves cast to a special design furnished by defendant and not ordinarily manufactured by plaintiff) it was held that the contract was not a sale. Granting that the test originated in cases wherein the principal issue was whether a contract was within the purview of the Statute of Frauds, as noted by Williston, supra, and § 563 it is equally applicable to the question before us and was adopted by enactment of the Uniform Sales Act. Similar installations, including an air cooling system, a refrigeration unit for a meat packing plant, a conveyor belt in a glass factory and the intake tower, filtration house and other units of a municipal water works were held to be contracts of sale in Carver v. Denn, 117 Utah 180, 214 P.2d 118; Burge Ice Machine Co. v. Weiss, 6 Cir., 219 F.2d 573; Service Conveyor Co. v. Shatterproof Glass Corp., 6 Cir., 219 F.2d 583; and Wiseman v. Gillioz, 192 Ark. 950, 96 S.W.2d 459. Appellant attempts to distinguish these cases on the ground that the litigation in each instance was between the seller and ultimate consumer. The distinction does not affect the principles involved. The fact that a transaction goes through a contractor to the owner as ultimate consumer does not destroy or alter its nature. The case cited by appellant, Rino v. Statewide Plumbing & Heating Co., 74 Idaho 374, 262 P.2d 1003, depends upon the law of fixtures (citing Steiger Terra Cotta & Pottery Works v. City of Sonoma, supra) and the Massachusetts rule under which it was determined that a furnace of special design was not suitable for sale to the general trade.

The tubing in question was manufactured by a subsidiary of General Motors and was not specially designed for the particular installation. As in Carver v. Denn, supra the appellant undertook not only to install but to furnish the materials necessary for the installation, presumably at a profit. As said in Carver [117 Utah 180, 214 P.2d 121]: ‘We fail to see how (he) can be the seller for the purpose of receiving the profits from the transaction and then successfully establish himself a mere installer for the purpose of avoiding the responsibilities of a seller’. We are of the opinion that the finding of a contract of sale in these circumstances was not erroneous.

The implied warranty of merchantability arises under Civil Code section 1735(2) when ‘goods are bought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not).’ There is evidence that the tubing was bought by description since in letting the contract respondent furnished appellant with the pertinent information as to intended use and requisite temperature specifications. Appellant contends that the phrase ‘seller who deals in goods' in said code section refers to a ‘dealer’ in the limited and special sense of ‘one who buys to sell again’, i. e., a retail merchant. He argues that there can be no implied warranty of merchantability because he was not a dealer. The argument is not sound and the cases cited (Phillips v. Byers, 189 Cal. 665, 209 P. 557; People v. Stevens, 10 Cal.App.2d Supp. 763, 51 P.2d 1179; People v. Terkanian, 27 Cal.App.2d 460, 81 P.2d 251) having to do with the meaning of ‘dealer’ as used in the Agricultural Code, § 1261(f), or the difference between ‘merchant’ in Section 2955, Civil Code (proscribing mortgaging of stock-in-trade) and ‘manufacturer,’ are not in point for at least two reasons. First, the cases do not deal with implied warranties and the courts were concerned with other aspects of meaning. Second and more important, the code phrase does not include the word ‘dealer’ and if the legislature had intended to limit the warranty to retail merchandising transactions as such it could readily have done so (cf. Phillips v. Byers, supra, 189 Cal. at page 671, 209 P. 557). Further, according to Williston 233(a) the quoted phrase includes those who are neither manufacturers or dealers. In our opinion, a person who supplies and installs sinks, toilets or other fixtures for a fixed price is a seller who deals in such goods and the warranty of merchantability attaches.

Appellant contends that even if the warranty existed the evidence does not show a breach thereof. He relies on Consolidated Pipe Co. v. Gunn, 140 Cal.App. 412, 35 P.2d 350, a case dealing with a warranty of special fitness. There the only evidence produced by a defendant who relied upon breach of warranty as a defense was that a casing shoe used in drilling a well had broken. There was considerable evidence that the shoe could break from drilling without being defective. It was held that the warranty of special fitness did not guarantee that the article would prove capable of doing the work or that it would stand up throughout the job but rather that it had a reasonable capacity to drill. It has been held that the meaning of a warranty of merchantability is that the article or goods sold with any known defects shall be as saleable as goods of the general kind they were supposed to be when purchased or shall be reasonably suited for the ordinary uses and purposes for which they are manufactured. Kenney v. Grogan, 17 Cal.App. 527, 120 P. 433; Simmons v. Rhodes and Jamieson, 46 Cal.2d 190, 293 P.2d 26. There is evidence that during the period of governmental restriction against the use of copper the particular tubing was in general use by the building industry in the installation of radiant heating systems. It follows that there was an implied warranty that the tubing was reasonably suited for such installation or could be used as efficiently as the average tubing made for such purposes. It is not disputed that the leaks were caused by corrosion which would occur only if the plastic coating was defective or damaged during installation. Although it could have been damaged, as above noted, in the way it was handled during construction as well as installation, there is no evidence that it was so damaged and there is evidence that precautions were taken against such damage by way of inspection and use of pressure gauges. The vulnerability of the plastic coating appears to be such that we cannot say that there was an abuse of discretion in granting the motion for new trial if the judge believed that if such vulnerability was known the tubing would not be readily saleable. Follett v. Brown, 118 Cal.App. 198, 5 P.2d 51, holds that the rule requiring a manifest and unmistakable abuse of discretion to justify reversal of an order granting a new trial is especially applicable when such order does not finally dispose of the matters at issue between the parties.

Since more than four years elapsed between the time installation was completed and the filing of the cross-complaint, appellant contends that the action is barred by section 337, Code of Civil Procedure. The question is posed whether a breach of an implied warranty of merchantability occurs at the time of sale or upon first discovery of the defects that may constitute a breach. Appellant relies on Mary Pickford Co. v. Bayly Bros., 12 Cal.2d 501, 86 P.2d 102. The case dealt with the common-law warranty of genuineness and validity of securities that had been issued in violation of the Corporate Securities Act. The case held a breach of such warranty could only occur at the time of sale and a cause of action based thereon was barred by limitations. However, the case is clearly distinguishable from this in that knowledge of breach (absence of permit to issue trust certificates) was discoverable at all times after issuance. Further the case did not deal with a warranty of quality as such. The court, however, does quote from section 212(a) Williston on Sales, ‘The typical warranty, being an undertaking regarding the quality of goods at the time of their sale must, if ever broken, be broken at that time; and the statute of limitations, therefore, begins to run immediately.’ The text writer indicates that this is because breach of warranty was originally in the nature of an action for deceit but goes on to note that many cases have extended time of breach to time of discovery thereof upon the fiction of a present representation as to a future event. He cites Firth v. Richter, 49 Cal.App. 545, 196 P. 277, wherein an express warranty was found that certain orange trees purchased as nursery stock were Valencias but that such warranty also was a warranty that the trees would bear Valencia oranges. It was there held that the statute did not begin to run until the trees produced another variety of fruit. The future event theory was also applied in Crawford v. Duncan, 61 Cal.App. 647, 215 P. 573 involving a warranty that radium treatments would not leave a permanent scar. As indicated in that case, the same principles apply to both express and implied warranties. The text writer's criticism of the cases holding that because of the nature of the goods sold the limitation period begins to run at the time of discovery of a breach rather than at the time of sale appears to be directed not against the rule but against the legal fiction as rationale for the rule. He states,

‘If the buyer's time is to be extended it should be on a broader and quite defeasible ground, following the analogy of a fraudulently concealed cause of action, that the statute should not run on an injury of which the injured person is ignorant, and of which he cannot reasonably be expected to be informed.’

The context requires that the word defeasible be ascribed to misprinting of the word ‘defensible’. As so read, we are in accord with the reason and logic of the quoted text. It is consequently our opinion that where a warrant of merchantability attaches to a sale and the nature of the goods sold is such that a defect in quality cannot be discovered by observation or test at the time of sale, the statute of limitations does not commence to run until the defect constituting a breach becomes apparent. Neither the majority or dissenting opinion in Southern California Enterprises v. D. N. & E. Walter & Co., 78 Cal.App.2d 750, 178 P.2d 785 is contrary to the announced rule. Though the court there did adopt the future event theory it also recognized that the test is ultimately that of discoverability. The same test is recognized in the dissenting opinion as justifying the exception to the general rule that was applied in cases where the variety of fruit a tree would bear could not be expected to be discovered until the tree reached the age of productivity.

The order granting a new trial is affirmed.

GOOD, Justice pro tem.

KAUFMAN, P. J., and DRAPER, J., concur.