This is a suit by the manufacturer of marine diesel engines to recover the balance due on the purchase price of 20 engines; defendants filed a reconventional demand for redhibitory defect.
In 1982 suit was filed in the 16th Judicial District Court for the Parish of St. Mary by MTU Friedrichshafen (MTU-F), a German corporation with its principal place of business in Germany; and MTU of North America, Inc. (MTU-NA), a Delaware corporation with its principal place of business in the State of Texas (collectively MTU).
MTU's demand was for the balance of the purchase price of 20 marine diesel engines purchased on credit by Raven. MTU alleged that Mr. Favret, as president of Raven, had given several promissory notes for the purchase price of the engines, which amounted to $1,529,244.79 in globo, calculating principal and interest. The plaintiffs also claimed an additional balance of the purchase price owed of 1,630,837.44 DM (deutsch marks). Further demand was made for $167,282.00 for repair work on the diesel engines between October, 1979, and May, 1982.
Because Raven, serving as general contractor, had the engines placed in 10 crew/supply boats which were constructed by Swiftships, Inc., and because after construction of the vessels, Transocean took title to the vessels, the plaintiffs sued Mr. Favret, Raven, and Transocean. Plaintiffs prayed for a receiver to be appointed to liquidate Raven and Transocean and that they be enjoined from disposing of property. The plaintiffs sought judgment against Raven, Transocean, and Mr. Favret, in solido, dissolving the sales of the 20 engines, ordering the defendants to return the engines, and compelling the defendants to pay the difference in market value that had resulted from the use of the engines. In the alternative, plaintiffs sought a money judgment and recognition of their vendor's liens on the engines.
After having been sued by MTU, Mr. Favret filed for bankruptcy individually and for Transocean.
Following a trial on the merits, the court rendered judgment in favor of MTU and against Raven for $1,529,244.79 and $815,418.50, the latter amount representing the court's conversion into dollars of the claim for deutsche marks.
On the reconventional demand, the court found MTU liable to Transocean for the following: return of the purchase price, $1,580,972.00; interest on the loans financing the purchase price, $727,143.73; repairs, $507,112.28; and downtime (loss of profit), $169,166.00. Judgment was rendered
In his articulate reasons for judgment, the trial judge explained the background of the instant litigation:
TOM alleges that the engines were not suitable for use in its crew/supply boat application, despite the assurances of MTU that they would provide outstanding operating reliability and long operating life. Mr. Favret contends that the engines failed to deliver the number of operating hours promised by MTU before major overhaul, and that repairs and overhauls were so much more costly than projected by MTU that with the additional problem of downtime, TOM was ruined financially. MTU contends however that TOM's problems were the result of abuse
MTU makes the threshold assertion that the trial court erred in applying state law instead of the federal law of admiralty to the issue of whether the absence of privity bars an action in redhibition by an ultimate buyer against the manufacturer. We find no merit to this argument. MTU relies on East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) for the proposition that absent privity, federal admiralty law does not allow suit for purely economic loss. However, the United States Supreme Court noted (476 U.S. at 872, n. 7, 106 S.Ct. at 2303, n. 7) that if the plaintiffs' claims had been in breach-of-warranty actions, they would not have been in the admiralty jurisdiction, but state law would have governed the actions. Consequently, the trial court correctly applied the Louisiana law of redhibition in the instant case.
MTU also urges that Louisiana's redhibition law is misapplied in this case because: (1) Transocean had no privity of contract with MTU; (2) the engines were component parts of an untried system; (3) the sale should have been viewed as 20 separate sales instead of in globo; and (4) as charterer, Transocean had no right of action for redhibition for two of the vessels.
A party who seeks recovery for a defective product has two options: he can sue for a rescission of the sale and the return of the purchase price, [LSA-C.C. art. 2531; Rey v. Cuccia, 298 So.2d 840 (La.1974) ] or he can sue for a reduction of the purchase price. LSA-C.C. art. 2541; Sanders v. Sanders Tractor Co., Inc., 480 So.2d 913 (La.App. 2d Cir.1985). Under either option he cannot recover damages and attorney's fees from a seller in good faith. However, a manufacturer is presumed to know the defects of the products it places in the chain of commerce. Thus, a manufacturer who is amenable to suit by a buyer has potential liability for damages and attorney's fees as well as for return of the purchase price or return of a portion of the purchase price representing a reduction in price. See Bourne v. Rein Chrysler-Plymouth, Inc., 463 So.2d 1356 (La.App. 1st Cir.1984), writ denied, 468 So.2d 570 (La.1985).
In 1972, the law of redhibition in Louisiana reached a turning point. In Media Production Consultants, Inc. v. Mercedes Benz of North America, Inc., 262 La. 80, 262 So.2d 377 (1972), the buyer of a Mercedes automobile was allowed to recover, not only against his immediate vendor, but against the distributor who occupied the position of a manufacturer. The buyer was allowed to recover, on the basis of an implied warranty of fitness, the purchase price the buyer paid to his immediate vendor.
The court's concern for consumer protection was explicitly stated in Media Production, 262 So.2d at 381:
The no-privity-required rule was again applied shortly after Media in Moreno's, Inc. v. Lake Charles Catholic High Schools, Inc., 315 So.2d 660 (La.1975). The court classified the ultimate buyer's claim against the manufacturer as arising from legal subrogation. Lake Charles Catholic High Schools, Inc. had entered into a contract with a general contractor for the construction of an addition to an existing school. The general contractor subcontracted with Moreno's, Inc. to furnish and install two air conditioning units. Moreno's bought the units from the manufacturer, Trane Company. When the units failed two and one half years after being installed, Moreno's installed replacements. But the school corporation, which was the ultimate buyer of the units, refused to pay for the replacements. When the school was sued, it brought suit against the manufacturer, Trane. The Louisiana Supreme Court allowed recovery against Trane, explaining:
Moreno's, Inc. v. Lake Charles Catholic High Schools, Inc., 315 So.2d at 663.
Accordingly, we find no merit to MTU's argument that Transocean's claim was barred for lack of privity. The trial court correctly applied the post-Media rule.
Nor do we find error in the trial court's factual conclusion that the engines were not component parts. The engines were just as separate and separable from the vessels as the air conditioning units were from the school in Moreno's. Consequently, we cannot disturb the trial court's factual determination. Arceneaux v. Domingue, 365 So.2d 1330 (La.1978).
MTU's argument that the engines were 20 separate items for redhibition purposes is untenable when MTU, itself, treated the transactions between itself and Raven as two, not 20, in globo sales.
Finally, we reject MTU's argument that a charterer has no right of action. See East River SS Corp. v. Transamerica Delaval, Inc., supra, wherein the plaintiffs were charterers of supertankers.
At the trial level, as it does on appeal, MTU argued that neither Raven
A sale cannot be rescinded when the buyer who sues in redhibition no longer owns or possesses the defective product. If the plaintiff neither owns nor possesses the product when the suit for defect is tried, a total rescission of the sale is not possible, and the plaintiff is relegated to a reduction of the purchase price. See Bourne v. Rein Chrysler-Plymouth, Inc., supra, wherein the finance company had seized and sold the plaintiff's automobile before she filed suit against the seller and the manufacturer for redhibitory defects. Accord J.B. Beaird Co., Inc. v. Burris Bros. Ltd., 216 La. 655, 44 So.2d 693 (1949); Stratton-Baldwin Co., Inc. v. Brown, 343 So.2d 292 (La.App. 1st Cir.1977).
In the instant case ownership of the engines was transferred by Raven to Transocean. Transocean allowed the engines to be encumbered when Transocean entered into contracts to finance its purchase of the vessels from Swiftships and Raven.
In the instant case we believe the trial judge applied the wrong legal principles to the facts when he pointed out that rescission is not barred if return of the product is prevented by the nature of the product. See Greenburg v. Fourroux, 300 So.2d 641 (La.App. 3d Cir.), writ denied, 303 So.2d 181 (La.1974), (fact that puppy found to be suffering from neuromuscular disorder had to be euthanized did not bar rescission of sale). See also Molbert Bros. Poultry & Egg Co. v. Montgomery, 261 So.2d 311 (La.App. 3d Cir.) writ denied, 262 La. 306, 263 So.2d 46 (1972). Two other cases cited by the trial court question the plaintiff's right to a rescission of the sale when the product has been used. In Reech v. Coco, 223 La. 346, 65 So.2d 790 (1953), the use of a vehicle for 9,600 miles did not bar an action for rescission of sale. In Hebert v. Claude Y. Woolfolk Corp., 176 So.2d 814 (La.App. 3d Cir.1965), the use of a vehicle by the buyer while repairs were being attempted did not bar rescission when the defects proved unrepairable. Although Transocean used the MTU engines extensively, these cases are not controlling here. The acts of Transocean in putting itself into a position where it is impossible for it to return the engines bars a judgment rescinding the sale. See J.B. Beaird Co., Inc. v. Burris Bros. Ltd., supra.
Accordingly, we reverse that portion of the trial court's judgment awarding a return of the purchase price.
We now turn our attention to Transocean's entitlement to a reduction of the purchase price. The fact that a buyer is not entitled to rescission of a sale for redhibitory defect because he has disposed of the product does not foreclose the buyer from seeking a reduction of the purchase price. See Bourne v. Rein Chrysler-Plymouth, Inc. supra. We find no error in the trial court's factual conclusion that the MTU engines had a substantial redhibitory defect: they did not perform as the seller had warranted they would. Specifically, the engines were touted to operate for 12,000 hours without major overhaul, but they operated an average of only 3,000 hours. Cf. Peoples Furniture & Gift v. Carson Hicks/Friedrichs Refrigeration, Inc., 326 So.2d 919 (La.App. 3d Cir.), writ granted on other grounds, 329 So.2d 754 (La.1976).
The usual relief in quanti minoris cases is a reduction of the purchase price to the amount a reasonable buyer and seller, both aware of the defect, would have agreed upon. See Bourne v. Rein Chrysler-Plymouth, Inc., supra. Although there was testimony that the MTU engines cost two to three times more than comparable American-made engines, the price of the American-made engines is not germane to the reduced price for the MTU engines because of the warranties provided by MTU regarding performance and required maintenance. We believe the most accurate measure for a reduction in the purchase price in this case is a reduction of 75% to coincide with the fact that the engines performed only 25% of the promised time. When a defect sufficiently diminishes the value of a thing to warrant a reduction in the price ultimately paid by the ultimate buyer, the manufacturer must make up the difference between the actual value of the defective thing and the retail price.
Additionally, a 75% reduction in price gives rise to an award of 75% of the finance charges as damages. See Peoples Furniture & Gift v. Carson Hicks/Friedrichs Refrigeration, Inc., supra. However, we cannot assign a dollar amount for either the purchase price or the interest until we address one of the errors assigned by Transocean in its answer to MTU's appeal.
We agree with Transocean that the trial court erred in denying recovery for the engines of the M/V Sea Condor and the M/V Sea Hawk. The trial court erroneously concluded that the clause in the ITT leases automatically terminated the lessee's rights in the event of default or bankruptcy by the lessee. Because the trial court found the automatic termination clause effective, the trial court ruled that Transocean's rights to recover in redhibition were terminated. Such a ruling was contrary to 11 U.S.C. Sec. 365(e)(1).
Furthermore, the trial court's awards for repairs and downtime are inconsistent with our action in awarding a reduction in the purchase price in lieu of rescission
Finally, we find no merit in MTU's argument that it is entitled to set off the portion of the purchase price still owed by Raven against the amount it owes to Transocean. A set off would be appropriate only if Transocean were liable itself for all or a part of the purchase price, or if Transocean were liable for Raven's obligation; neither liability exists here. The trial court correctly noted that MTU failed to prove that the circumstances of the case require piercing the corporate veil; the trial court found that Raven and Transocean were "separate and distinct corporate entities." Because there is ample support in the record for this finding, we cannot disturb the trial court's ruling. Arceneaux v. Domingue, 365 So.2d 1330 (La.1978). Nor can we consider the trial court's action in dismissing Mr. Favret and Transocean from MTU's suit for the unpaid purchase price; MTU did not preserve for appeal an objection to that dismissal. Furthermore, MTU's demand against Raven has now been reduced to judgment, and Raven did not appeal. Thus, the question of liability of any of the defendants for the purchase price is not before us on appeal. The only aspect of MTU's original suit for the purchase price which we can consider is the amount of the judgment as affected by the conversion from deutsche marks into dollars.
MTU urges on appeal that it was error for the trial court to convert the deutsche marks into dollars. We agree. The contract was perfected in the foreign currency, and judgment should be awarded in that currency. Accordingly, we will amend the judgment in favor of MTU-F and against Raven to award $1,529,244.79 plus 1,630,837.44 DM.
ATTORNEY'S FEES AND OTHER EXPENSES
Finally, we review the award for attorney's fees and other expenses of Transocean. We find no error in the trial court's decision that Transocean was entitled to an award for this item, nor in the amounts calculated by the trial court. Accordingly, we quote and adopt as our own the pertinent portion of the trial court's reasons for judgment, as follows:
City of Baton Rouge vs, Stauffer Chemical, 500 So.2d 397 (La.1987).
Accordingly, the judgment of the district court rendered on May 18, 1990, is affirmed except for the following amendments to paragraph two and paragraph four of the judgment, which shall read as follows:
MTU OF NORTH AMERICA, INC. and MTU FRIEDRICHSHAFEN are cast for costs of this appeal.
AMENDED, AND AS AMENDED, AFFIRMED.
CARTER, J., concurs in part and dissents in part for reasons assigned.
FOIL, J., concurs in part and dissents in part for reasons assigned by CARTER, J.
CARTER, Judge, concurring in part and dissenting in part.
I respectfully dissent from the majority opinion insofar as its calculation of the
With regard to the proper amount of price reduction to which a purchaser is entitled in an action in quanti minoris, the law is clear that the reduced price is the difference between the actual selling price and the price a reasonable buyer and seller would have agreed upon if they had both known of the defects. Cornelious v. Bailey Lincoln-Mercury, Inc., 566 So.2d 85, 89 (La.App. 4th Cir.1990); Harper v. Coleman Chrysler-Plymouth-Dodge, Inc., 510 So.2d 1366, 1369 (La.App. 3rd Cir.1987); Bourne v. Rein Chrysler-Plymouth, Inc., 463 So.2d 1356, 1359 (La.App. 1st Cir.1984); Lusk v. Durham Pontiac-Cadillac, Inc., 459 So.2d 1277, 1280 (La.App. 1st Cir.1984). One of the principal elements in formulating the award is the cost of repairing the defects which existed at the time of the sale. Besse v. Blossman, 521 So.2d 570, 573 (La.App. 1st Cir.1988); Lusk v. Durham Pontiac-Cadillac, Inc., 459 So.2d at 1281. The buyer also has the right to be compensated for uncured defects, curtailments of use, and the inconvenience caused by the defects. Cornelious v. Bailey Lincoln-Mercury, Inc., 566 So.2d at 89; Lusk v. Durham Pontiac-Cadillac, Inc., 459 So.2d at 1281.
In determining the selling price which a reasonable buyer and seller would have agreed upon knowing of the defects in the engines, the various items of damages established at trial, which include repair costs and downtime, should have been considered.
In his written reasons for judgment, the trial judge discussed the various repair costs Transocean incurred. The repair histories of each of the engines were stipulated in Stipulations Nos. B.3.9 to B.3.35. Additionally, plaintiff's Exhibit No. 43 summarized the costs of repairs. The trial judge required MTU to refute any of the charges on the repair summary which were erroneous. The testimony at trial revealed several inaccuracies and duplications in the repair summary. The trial judge determined that the corrected repair summary, which was included in Transocean's post-trial brief accurately reflected the repair costs. This summary showed total repair costs of $605,378.07. Because of his finding that the ITT leases automatically terminated upon the bankruptcy of the lessee, the trial judge then deducted from the total repair costs those repair costs attributable to the Sea Condor and the Sea Hawk, $37,047.24 and $61,218.55 respectively. Accordingly, he awarded Transocean $507,112.28 in repairs. Because of the determination that the trial court erred in denying Transocean recovery for the Sea Condor and the Sea Hawk, the repair costs of the engines for both of these vessels, in addition to the repair costs for the repairs to the engines for the other vessels or $605,378.07, should be included in the calculation of the purchase price.
LOSS OF PROFITS OR DOWNTIME.
In his written reasons for judgment, the trial judge set forth the downtime requested by Transocean. The trial judge noted that some of the downtime resulted from engine failure and some of the downtime reflected periods of time when the vessels were out of work. The trial judge determined that a significant amount of the downtime resulted from the vessels being idle for lack of work. In his written reasons for judgment, the trial judge explained:
In light of the lack of convincing evidence of specific instances of lost business due to reputation of MTU engines, the trial judge permitted recovery only for downtime directly attributable to engine failure.
With regard to the Sea Ravener, the summary of downtime revealed that the vessel was out of service for 516 days between March 19, 1979 and March 15, 1984.
The summary of downtime for the Sea Eagle, which was introduced as Plaintiff's Exhibit # 46, showed that the vessel was out of service 123 days between May 25, 1983 and September 24, 1983.
Stipulation B.3.3 showed that the Sea Falcon was placed in service on May 5, 1979 and was operated until April 25, 1983. Therefore, the trial judge refused to permit compensation for the alleged downtime between April 26, 1983 and October 11, 1983.
With regard to the Sea Macaw, Stipulation B.3.4 revealed that the vessel was placed in service on August 22, 1981 and was operated by Transocean until February 29, 1984. Again, the trial judge determined that the 467 days of alleged downtime from March 1, 1984 to June 11, 1985, which was set forth in Plaintiff's Exhibit # 52, were not compensable. The repair summaries for the Sea Macaw, which are contained in Stipulations B.3.31 and 3.32, also showed that no major engine repairs were performed after February 9, 1984.
Stipulation B.3.7 revealed that the Sea Condor was placed in service on February 13, 1980 and was operated by Transocean until January 9, 1983, when it was repowered with an American-made engine. Although Transocean alleged that the Sea Condor sustained 502 days of downtime between October 17, 1982 and March 2, 1984,
The Sea Hawk was operated by Transocean from May 6, 1980 until June 27, 1983, according to Stipulation B.3.6. Thereafter, it was repowered with a non-MTU engine. This vessel was allegedly down because of engine failure 378 days between September 21, 1981 and July 30, 1984.
With regard to the Sea Gladiator, Stipulation B.3.7 reveals that Transocean operated this vessel between October 3, 1980 and March 18, 1987. During this period of time, the Sea Gladiator was allegedly down for 221 days due to engine failure.
After discounting the downtime that was clearly not the result of the failure of the MTU engines and considering all of the potential downtime allegedly due to failure of the MTU engines, the trial judge determined that the evidence failed to establish that all of downtime claimed by Transocean was attributable to engine failure. The trial judge noted in his written reasons for judgment that:
Thereafter, the trial court awarded Transocean $1,450.00 per day for one-third of the 350 days attributed to downtime. Following this rationale, the total downtime for all of the vessels, including the downtime of the Sea Condor and the Sea Hawk, was 494 days. One-third of this number or 165 days at the daily rental rate or $239,250.00 should be included in the calculation of the purchase price a buyer and seller aware of the defects in the engines would have agreed upon.
Therefore, considering all of the evidence, I submit that the purchase price paid by Transocean should be reduced by a figure which reflects the $605,378.07 in repair costs, the $239,250.00 in downtime, and other incidental costs of the sale established at trial as opposed to the 25%/75% formula for reduction as set forth by the majority.
Additionally, I submit that MTU should be permitted to set-off its award of $27,934.20 for the cost of repairs against the judgment awarded against it for the reduction in purchase price.
Engine Number Vessel Name Purchase price(2 engines) 553-192 M/V Sea Ravener $250,000 553-193 553-359 M/V Sea Falcon $300,000 553-360 553-361 M/V Sea Eagle $300,000 553-362 558-519 M/V Sea Macaw $365,486 558-520 558-521 M/V Sea Gladiator $365,486 558-522 553-363 M/V Sea Condor $336,338 553-364 553-365 M/V Sea Hawk $336,338 553-366
March 19, 1979 to March 23, 1979 5 June 1, 1980 to June 16, 1980 16 March 18, 1982 to April 6, 1982 20 July 4, 1982 to July 7, 1982 3 December 29, 1982 to March 15, 1984 472
October 20, 1979 to October 21, 1979 2 July 11, 1980 to July 11, 1980 1 July 25, 1980 to August 2, 1980 9 January 6, 1982 to January 8, 1982 3 April 9, 1982 to April 12, 1982 4 March 4, 1983 to March 15, 1983 12 May 25, 1983 to September 24, 1983 123 November 5, 1983 to November 29, 1983 25
September 19, 1980 to September 22, 1980 4 October 3, 1980 to October 17, 1980 15 October 25, 1980 to October 28, 1980 4 June 19, 1981 to June 23, 1981 5 April 18, 1982 to September 17, 1982 153 December 1, 1982 to December 10, 1982 10 February 14, 1983 to February 28, 1983 15 March 1, 1983 to March 3, 1983 3 March 17, 1983 to March 26, 1983 10 April 26, 1983 to October 11, 1983 168
March 5, 1981 to March 27, 1981 22 November 20, 1981 to November 27, 1981 7 January 12, 1982 to January 20, 1982 9 March 4, 1982 to March 4, 1982 1 October 17, 1982 to March 2, 1984 502
September 21, 1981 to September 29, 1981 11 June 16, 1982 to June 20, 1982 5 July 27, 1982 to July 31, 1982 5 January 23, 1983 to February 15, 1983 24 July 14, 1983 to October 7, 1983 85 November 25, 1983 to July 30, 1984 248
September 8, 1984 to October 13, 1984 31 August 13, 1985 to February 8, 1986 180