Petrocon Engineering v. MAC Equipment Inc ( 2003 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________________
No. 02-40530
__________________________
PETROCON ENGINEERING, INC.,
Plaintiff-Appellant,
v.
MAC EQUIPMENT, INC., d/b/a/ MAC FLOTRONICS,
Defendant-Appellee.
___________________________________________________
Appeal from the United States District Court
for the Eastern District of Texas
(No. 1:00-CV-203)
___________________________________________________
March 6, 2003
Before BENAVIDES, STEWART, and CLEMENT, Circuit Judges.
PER CURIAM:*
Mobil Chemical Company (“Mobil”) hired Petrocon Engineering (“Petrocon”) to re-work and
expand Mobil’s facilities at its plant in Beaumont, Texas. Petrocon decided to out-source the
manufacture and supply of a Product Purge Vessel Extension with Bag House (“pressure vessel”) and
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
1
submitted a request for quotation to MAC Equipment (“MAC”).
Following an exchange of documents, Petrocon contracted with MAC to provide a pressure
vessel in accordance with an engineering drawing that contained the following specifications:
Radiography required None
Joint efficiency (shell/head) .70
Shop hydro test pressure 60 Psig
MAC fabricated the vessel and the vessel passed the hydrostatic test in the presence of
Petrocon’s authorized inspector. After the vessel was delivered to Mobil, Mobil criticized Petrocon
for agreeing to a 70% joint efficiency standard instead of an 85% standard. While connecting MAC’s
pressure vessel to the existing pressure vessel it was designed to extend, Mobil allegedly discovered
welding defects. On its own initiative, Mobil x-rayed all the welds and, based on the results of the
x-rays, paid roughly $225,000 to have the vessel re-welded. In part because of the cost involved in
re-welding, Mobil withheld a payment to Petrocon of approximately $168,000.
Petrocon sued MAC for breach of contract, negligence, breach of implied warranties, and
constructive fraud. MAC moved for summary judgment, which the district court granted,
characterizing the dispute as concerning whether the contract documents specified a 70% or 85%
joint efficiency standard and concluding the vessel satisfied the terms of the contract by passing the
hydrostatic test associated with the 70% joint efficiency standard.
This Court reviews a motion for summary judgment de novo. St. Paul Guardian Ins. Co. v.
Centrum GS Ltd., 283 F.3d 709, 712-13 (5th Cir. 2002). We review the construction of an
unambiguous contract de novo. Clardy Mfg. Co. v. Marine Midland Bus. Loan, 88 F.3d 347, 352
(5th Cir. 1996). The initial determination that a contract is ambiguous is itself a legal conclusion also
subject to de novo review. Id. When a contract is ambiguous and its construction turns on the
2
consideration of extrinsic evidence, we review the district court’s interpretation for clear error. Id.
Petrocon’s arguments largely rest on the premise that the joint efficiency standard does not
address weld quality, or in Petrocon’s words: “joint efficiency means only the amount of welds
subject to x-rays, but it has absolutely nothing to do with the substantive quality of the welds.” This
position is not supported by the guidelines from the American Society of Mechanical Engineers
(“ASME”) relating to pressure vessels, even though they do not mention porosity, incomplete
penetration, excessive slag, non-fusion, or burn-through. In fact, joint efficiency has everything to
do with weld quality: the only factor affecting joint efficiency is the expected quality of a weld.1
Every joint efficiency below 100% is an express indication that a weld must be assumed to be less
than perfect.
Petrocon argues MAC breached an express contract provision warranting the vessel would
be “free from defects in material or workmanship.” By agreeing to the 70% joint efficiency standard,
the parties agreed to a test for what constitutes a “defect.” MAC satisfied the contract’s express
warranty because the vessel passed the applicable test. This interpretation of the warranty does not
make it duplicative of the contract provision requiring the hydrostatic test for several reasons,
including the warranty’s longer temporal duration. Given the parties’ careful negotiations over joint
1
When two steel plates are welded together, the joint between the plates is not as strong as the parent
plates unless the weld is perfect. The reduction in strength is labeled “joint efficiency”, which is measured as the
ratio of the joint strength to the parent strength. A joint efficiency of 50% indicates the joint is half as strong as
the parent plates; a joint efficiency of 100% indicates the joint is as strong as the parent plates. When designing a
pressure vessel, an engineer must anticipate the efficiency of a joint in order to calculate other measurements. The
actual efficiency of the joint, which will vary with the actual weld, is unknown. The ASME guidelines provide
standards that allow engineers to assume maximum joint efficiencies depending on what test the vessel will be
required to pass upon completion. If the vessel will be required to pass a given test ex post then the engineer can
assume a joint efficiency of up to a given level ex ante. For the type of pressure vessel at issue, the ASME
guidelines provide that if the vessel will be required to pass a hydrostatic test, then the engineer can assume a joint
efficiency of up to 70%.
3
efficiency, it is not possible to conclude that the express warranty adopts, through the back door, the
more stringent definition of defect associated with the 100% joint efficiency standard.
Petrocon claims MAC was negligent in its construction of the vessel. The district court dealt
with this claim on the same basis it disposed of Petrocon’s breach of express warranty claim: MAC
fulfilled its duties to provide a vessel pursuant to the 70% joint efficiency standard. We affirm the
district court’s opinion on this issue.
Petrocon complains that MAC breached the implied warranties of merchantability and fitness.
Texas law provides that goods are merchantable if they are “fit for the ordinary purposes for which
such goods are used . . . .” TEX. BUS. & COMM. CODE § 2.314(b) (1994). Proof of breach of an
implied warranty of merchantability can consist of demonstrating the product has a defect. See Gen’l
Motors Corp. v. Brewer, 966 S.W.2d 56 (Tex. 1998). An implied warranty of fitness for a particular
purpose occurs when the contracting party “has reason to know any particular purpose for which the
goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish
suitable goods . . . .” TEX. BUS. & COMM. CODE § 2.315 (1994). MAC responds that it disclaimed
any implied warranties of fitness and merchantability, which is permissible under Texas law. See TEX.
BUS. & COM. CODE ANN. § 2.316 (Vernon 1994). The contract provides ample language to disclaim
the implied warranties of fitness and merchantability:
The foregoing warranties are in lieu of all other warranties, express or implied,
including but not limited to the warranties of merchantability and fitness for a
particular purpose.
For this reason, Petrocon’s arguments lack merit.
Petrocon argues MAC perpetrated a constructive fraud. Constructive fraud results from a
defendant’s “breach of some legal or equitable duty which, irrespective of moral guilt, the law
4
declares fraudulent because of its tendency to deceive others, to violate confidence, or to injure the
public interest.” Archer v. Griffiths, 390 S.W.2d 735, 740 (Tex. 1964). In the course of constructing
the vessel, MAC took t wo x-rays of welds. Petrocon contends the uncontroverted summary
judgment evidence shows these x-rays were of a different vessel and that MAC actively hid evidence
of defective workmanship and materials. Constructive fraud can only occur upon the breach of a
duty. Thompson v. Vinson & Elkins, 859 S.W.2d 617 (Tex. App. 1993). The district court found
MAC did not have a contractual duty to provide any x-rays. We agree.
In an apparent attempt to foreclose all of Petrocon’s arguments against summary judgment,
MAC attacks the admissibility and, in some instances, the relevance of most of Petrocon’s evidence
regarding alleged defects. Because the trial court did not disqualify or exclude any of the evidence
to which MAC now objects, these issues are not before this Court.
Although the district court intimates that Petrocon’s damages are too remote to be
recoverable and cites Hadley v. Baxendale, 9 Exch. 341, 354 (1854), this Court need not reach this
issue.
Because MAC delivered a pressure vessel which conformed to the requirements of its contract
with Petrocon, and for the other reasons stated, we affirm the judgment of the district court.
AFFIRMED.
5