Daitom, Inc. v. Pennwalt Corporation
39 U.C.C. Rep. Serv. (West) 1203, 741 F.2d 1569, 1984 U.S. App. LEXIS 19456 (1984)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under Uniform Commercial Code § 2-207, when an offer and acceptance contain different or conflicting terms, the conflicting terms are “knocked out” of the contract and replaced by the U.C.C.’s default or “gap-filler” provisions.
Facts:
- Daitom, Inc., acting through its engineering firm Kintech, sought to purchase rotary vacuum dryers for its plant that produces Vitamin B-5.
- Kintech developed specifications for the equipment and invited vendors to submit proposals.
- On September 7, 1976, Pennwalt Corporation submitted a formal proposal to sell Daitom two dryers, which included a pre-printed form limiting all warranties and establishing a one-year statute of limitations for any breach of warranty action.
- On October 5, 1976, Daitom issued a purchase order to buy the equipment, which included its own pre-printed terms explicitly reserving all warranties and remedies available under law, directly conflicting with Pennwalt's limitations.
- Pennwalt manufactured and delivered the dryers to Daitom's plant site in May 1977.
- Because Daitom's plant was still under construction, the dryers were stored in their crates and were not installed or operated until June 15, 1978.
- On June 17, 1978, just two days after installation, Daitom notified Pennwalt that the dryers had severe defects, including misaligned agitator blades and being undersized for their specified purpose.
- Pennwalt's attempts to repair the dryers were unsuccessful, and Daitom contended the machines never performed as required.
Procedural Posture:
- Daitom, Inc. filed a three-count complaint against Pennwalt Corporation in the United States District Court for the District of Kansas, alleging breach of warranties (Counts I and II) and negligent design and manufacture (Count III).
- Pennwalt moved for summary judgment on all counts.
- The district court granted summary judgment in favor of Pennwalt, dismissing Daitom's entire complaint.
- The district court ruled that Pennwalt's one-year statute of limitations was a term of the contract, thus barring the warranty claims, and that the tort claim failed because purely economic losses are not recoverable in tort.
- Daitom, as the plaintiff-appellant, appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Tenth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Under U.C.C. § 2-207, when an offer and acceptance contain different, conflicting terms regarding warranties and the statute of limitations, do the conflicting terms cancel each other out, with the gaps being filled by the U.C.C.'s provisions?
Opinions:
Majority - William E. Doyle
Yes. Under U.C.C. § 2-207, when exchanged forms contain conflicting terms, those terms cancel each other out, and the contract consists of the terms on which the writings agree, supplemented by applicable U.C.C. gap-filler provisions. The court found that a contract was formed by the exchange of forms under § 2-207(1) because Daitom's acceptance was not expressly conditional on Pennwalt's assent to its different terms. The court then analyzed three approaches to handling 'different' terms and adopted the 'knock-out' rule as the most reasonable and consistent with the purpose of § 2-207, which is to abrogate the common law 'mirror-image' rule. Under this rule, Pennwalt's one-year limitations period and Daitom's conflicting reservation of all legal remedies (implying the U.C.C.'s four-year period) knock each other out. The U.C.C. gap-filler, § 2-725, provides a four-year statute of limitations, making Daitom's warranty claims timely. The court affirmed the dismissal of the tort claim, holding that purely economic loss from a product's qualitative defects, absent unreasonable danger, is not recoverable in tort; the remedy lies in warranty law.
Dissenting - Barrett
No. The court should not have applied the 'knock-out' rule because the offeror's specific limitation term should control. The dissent agreed that a contract was formed but argued that the 'knock-out' rule was irrelevant because Daitom's acceptance form did not contain a term that was in direct conflict with Pennwalt's express one-year limitation period for bringing warranty actions. The dissent viewed the conflict as relating only to the scope of the warranty, not the time limit to sue. Therefore, Pennwalt's one-year limitation from its offer should have become part of the contract, barring Daitom's suit as untimely.
Analysis:
This case is a significant interpretation of U.C.C. § 2-207, establishing the 'knock-out' rule as the preferred approach for resolving the 'battle of the forms' when writings contain different, not just additional, terms. The decision rejects approaches that would favor the offeror's terms (a 'first-shot' rule), thereby preventing a party from gaining an unfair advantage simply by sending its form first. By adopting this rule, the court promotes a more equitable outcome where conflicting boilerplate provisions are replaced by neutral, standardized U.C.C. gap-fillers, enhancing predictability and fairness in commercial transactions between merchants.
