Diamond Fruit Growers, Inc. v. Krack Corp.

Facts

At the time this dispute arose, Krack was a manufacturer of cooling units that had been purchasing steel tubes supplied by Metal-Matic for approximately ten years. During the course of their relationship, typically Krack would submit a blanket purchase order for steel tubing to Metal-Matic and then, as Krack needed tubing, it would send release purchase orders to Metal-Matic requesting that tubing be shipped. Metal-Matic responded to these release purchase orders by sending Krack an acknowledgement form and then subsequently shipping the tubing. The acknowledgement form contained a disclaimer of all liability for consequential damages from its tubing and limited Metal-Matic’s liability for defects in the tubing to a refund of the purchase price or repair or replacement of the tubing. On at least one occasion, the purchasing manager from Krack expressed disapproval of these terms, but Metal-Matic refused to change the terms, and Krack continued to purchase Metal-Matic’s tubing.

In February 1981, Krack sold one of its cooling units, manufactured with Metal-Matic steel tubing, to Diamond. By January 1982, the unit began leaking ammonia into Diamond’s warehouse. Diamond brought suit against Krack to recover the loss in value of fruit that had to be removed due to the leak. Krack brought a third-party complaint against Metal-Matic for indemnification or contribution. A jury found Krack liable for damages and that Krack was entitled to contribution from Metal-Matic for thirty percent of Diamond’s damages. Metal-Matic moved for judgment n.o.v., but the court denied the motion. Metal-Matic appealed the jury verdict and the court’s denial of its motion on the grounds that it had included a disclaimer of liability in the acknowledgement form it had sent to Krack before it fulfilled each order of steel tubes. This disclaimer of liability, if upheld by the court, would prohibit the third-party complaint brought by Krack.