Rheem Manufacturing Co. v. Phelps Heating & Air Conditioning, Inc.

Rheem Manufacturing Co. (Rheem) (defendant) manufactured furnaces for homes and offices. Rheem sold its furnaces through a distributor, which in turn sold them to Phelps Heating & Air Conditioning, Inc. (Phelps) (plaintiff). Phelps was a contractor that installed furnaces for end users. Rheem provided a limited warranty on its furnaces, under which Rheem would replace any part of a furnace that failed under normal use for a specified period of time; any replacement part would be warrantied for only the remaining period of time; Rheem expressly disclaimed any incidental or consequential damages; and Rheem disclaimed any liability for the cost of servicing furnaces, including “any labor expenses for service” and costs for removing or reinstalling parts. Under the limited warranty, any service cost was the end user’s responsibility unless a contractor agreed to cover the cost of labor. Rheem’s warranty terms were consistent with the industry standard. Distributors normally supplied their own one-year warranty for labor, and Phelps at one time marketed extended service warranties. During the early 1990s, Rheem’s furnaces frequently malfunctioned after being installed by Phelps. Rheem issued technical bulletins on repairs, but Phelps’s customers experienced continuing difficulties. In 1994, Phelps sued Rheem to recover its labor costs and lost profits. Phelps alleged breach of express warranty, among claims based on other legal theories. The trial court denied Rheem’s motion for summary judgment on Phelps’s express-warranty claim. The court of appeal affirmed, finding there was a question of material fact as to the commercial reasonableness of Rheem’s express warranty. The Indiana Supreme Court granted review.