APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 72-1009).
Van Dusen and Weis, Circuit Judges and Stern, District Judge.
In this case, we are required to evaluate the competing gravitational pulls of the Uniform Commercial Code and the law of torts in a claim for consequential damages arising from the sale of a defective product. We conclude that § 402A of the Restatement of Torts does not apply and that under the circumstances of this case the Commercial Code provides appropriate guidelines for proving an agreement between buyer and seller to limit damages resulting from negligence. Although the trial judge properly charged the jury on the applicability of trade usage to supplement the agreement, we reverse because of trial errors which precluded adequate consideration of that factor.
Plaintiff Posttape Associates was formed in September, 1970 to produce documentary films. Its first effort, scheduled for shooting in October, 1970 and release in April, 1971, was an unrehearsed motion picture of an encounter group, entitled "Childhood II." In preparation for the production, Richard Gibson, one of Posttape's principals, contacted two Kodak sales representatives who recommended the use of No. 7252 Ektachrome film for the venture. Subsequently, Gibson ordered 105 four hundred-foot rolls and followed his oral request with a written purchase order. On October 12, 1970, he picked up the film from the Kodak distributor. Each roll was individually packaged and each cannister and box bore the legend:
This film will be replaced if defective in manufacture, labeling, or packaging, or if damaged or lost by us or any subsidiary company even though by negligence or other fault. Except for such replacement, the sale, processing, or other handling of this film for any purpose is without warranty or liability. Since color dyes may change in time, this film will not be replaced for, or otherwise warranted against, any change in color."
The film was shot during a two and a half day period, beginning on October 16, 1970, and was sent to a Kodak-approved developer. During the developing process, scratches appeared on the film which made it commercially worthless. Kodak's attempts to treat the damaged rolls by special means were unsuccessful. As a result, Posttape was required to reshoot the sequences and the film did not reach the market until early 1972. In October, 1971, another film of the alleged same genre, entitled "Together," was released by another producer, was well received by the public, and amassed receipts of more than $3 million.
Alleging breach of warranty, negligence and strict liability, Posttape commenced this suit claiming damages for its increased costs and lost profits because of the defective film. The court ordered the issues of liability and damages to be tried separately. During the liability portion of the trial, Kodak attempted to show that the limitation of damages to replacement of film was a custom and usage of the trade. To establish Posttape's knowledge, it introduced the deposition of another of Posttape's principals, Martin Spinelli, stating that he knew of the trade usage. The defense requested the trial judge to instruct the jury that the partnership should be thereby charged with this knowledge. The court refused the tendered point.
In another effort to demonstrate that Posttape was aware of the trade usage, Kodak sought to introduce evidence of Posttape's purchase of liability insurance covering loss from defective film. The court denied admission of this testimony on the ground of undue prejudice to the plaintiff.
The jury, in answers to special interrogatories on liability, found that:
1. Kodak had been negligent in the manufacture of the film;
2. the film had been in a "defective condition unreasonably dangerous to the property of plaintiff (including the film itself) at the time of its delivery to plaintiff;" and
3. neither by their intentions nor by the usage of trade at the time did the parties intend to limit Kodak's liability for negligence or strict ...