Diamond Fruit Growers, Inc. v. Krack Corp.

Krack Corp. (defendant) manufactured cooling units using steel tubes manufactured by Metal-Matic, Inc. (third-party defendant). Each year, Krack submitted a blanket purchase order for steel tubing to Metal-Matic and then, throughout the year, Krack sent 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 shipping the tubing. Metal-Matic’s acknowledgement form contained a disclaimer of all liability for consequential damages from its tubing and contained a clause limiting Metal-Matic's liability for defects in the tubing to a refund of the purchase price or repair or replacement of the tubing. Krack expressed disapproval of these terms at least once during the parties' 10-year relationship, but Metal-Matic refused to change the terms, and Krack continued to accept and pay for Metal-Matic’s tubing. In 1981, Krack sold one of its cooling units, manufactured with Metal-Matic tubing, to Diamond Growers, Inc. (Diamond) (plaintiff). The following year, the unit began leaking ammonia into Diamond’s warehouse. Diamond had to remove fruit from the warehouse as a result of the leak. Upon closer inspection, it was found that the leak was caused by a small hole in Metal-Matic’s tubing. Diamond brought suit against Krack to recover damages for the loss in value to its fruit. Krack brought a third-party complaint against Metal-Matic for indemnification. A jury found Krack liable for damages and found that Krack was entitled to contribution from Metal-Matic for 30 percent of these damages. Metal-Matic moved for a judgment notwithstanding the verdict, but the court denied the motion and entered judgment in accordance with the verdict. Metal-Matic appealed claiming, among other things, that it had disclaimed all liability for consequential damages and had limited its liability for defects to the purchase price or repair or replacement of the tubing.