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Nitrin, Inc. v. Bethlehem Steel Corp.

OPINION FILED JANUARY 23, 1976.

NITRIN, INC., PLAINTIFF-APPELLEE,

v.

BETHLEHEM STEEL CORPORATION, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. GEORGE FIEDLER, Judge, presiding.

MR. JUSTICE DRUCKER DELIVERED THE OPINION OF THE COURT:

This is an action brought by plaintiff against defendant and Foster Wheeler Corporation to recover damages caused by the failure of a large pressure vessel, known as a converter, at its Cordova, Illinois, anhydrous ammonia plant. Foster Wheeler was the general contractor that built the plant. Defendant was the manufacturer of the converter. At the close of plaintiff's evidence a directed verdict was entered in favor of Foster Wheeler. *fn1 The case against defendant was presented to the jury which returned a verdict in the amount of $4,769,907.50 in favor of plaintiff, and judgment was entered thereon. Defendant appeals, contending that (1) the recovery sought by plaintiff was barred by the terms of the contract for fabrication of the converter, and (2) certain evidentiary rulings by the court hindered it in the presentation of its defense. Defendant does not contend that the judgment was against the manifest weight of the evidence nor does it contest the size of the judgment. Plaintiff has cross-appealed, contending that (1) even if contractual provisions bar its recovery under a breach of contract or implied warranty, the judgment should still be upheld under its negligence theory, and (2) the court improperly struck a strict liability count in its complaint.

In August 1962 plaintiff contracted with Foster Wheeler for the construction of the anhydrous ammonia plant. The contract provided that Foster Wheeler would be responsible for the overall design of the plant and for field construction. It was contemplated that certain component parts of the plant would be manufactured by subcontractors. *fn2 Thus, in the late spring and summer of 1962, while Foster Wheeler was finalizing its agreement with plaintiff, it entered into negotiations with defendant for construction of the converter. They were initiated on May 29 when Foster Wheeler sent defendant an inquiry, dated May 23, to which was attached a document titled "Specifications for Forged and Welded Pressure Vessels." A provision of that document stated:

"XVIII. GUARANTEES

Vessels supplied under this standard are to be guaranteed by their supplier as free from fault in design, workmanship or materials for the specific conditions (exclusive of corrosion). Should any defects in workmanship or material develop within one year from first operation, not to exceed 18 months from date of shipment, defective equipment or materials are to be replaced without charge FOB supplier's shops."

This inquiry also provided:

"The vessel shall be designed for at least most severe conditions of pressure and temperature. Besides the internal pressure, the loading shall include all dead and superimposed loads, localized stresses and stresses through temperature gradients in vessel."

On June 7 Foster Wheeler sent defendant further specifications, labeled Material Requisition No. 3270-099A, which provided, in part, under the heading "Material and Workmanship Guarantees:"

"Vendor agrees to repair or replace FOB his plant, at his expense, any defective materials, equipment and/or machinery, provided defects are discovered within 18 months of date of shipment, or 12 months of plant start-up, whichever is earlier, and provided defects are not the result of erosion, corrosion and/or normal wear." (Emphasis added.)

The June 7 mailing also included, under the heading "Performance Guarantee," the following provision:

"In the event that equipment fails to perform as required by the specifications, vendor agrees to replace or modify his equipment to the extent that design performance can be met." (Emphasis added.)

On June 26 defendant made a price quotation for the materials required by Foster Wheeler. One of the terms of the question was that it "is subject to the attached `Terms and Conditions of Sale.'" The "Terms and Conditions of Sale" was a printed form prepared by defendant. Under the heading "Buyer's Remedies" it provided:

"Buyer's Remedies — If the material furnished to the Buyer shall fail to conform to the contract between the Buyer and the Seller (whether in failing to comply with any express or implied warranty or any applicable specifications or to be within the Seller's standard practices, tolerances, and variations or in any way whatsoever), the Seller shall replace non-conforming material at the original point of delivery and shall furnish instructions for the disposition of such non-conforming material. Any transportation charges involved in such disposition shall be for the Seller's account.

The Buyer's exclusive and sole remedy on account or in respect of the furnishing of non-conforming material shall be to secure replacement thereof as aforesaid. The Seller shall not in any event be liable for the cost of any labor expended on any non-conforming material or for any special, direct, indirect or consequential damages to anyone by reason of the fact that such material shall have been non-conforming." (Emphasis added.)

In early August defendant sent Foster Wheeler several letters concerning price negotiations and technical matters. Each of these letters specified that the "terms and conditions" of the June 26 mailing would apply.

On August 16 defendant's manager of sales sent to Foster Wheeler a letter which read, in part, as follows:

"On August 15, 1962 our Mr. C.J. Sweeney visited your office at Livingston, New Jersey and discussed with Mr. J.H. Hosek, Purchasing Agent of your Process Plants Division the prices to apply on the separator due to change in dimensions and additional items you requested we supply on this order. We wish to confirm this discussion and requote the following prices.

Based on your telephone conversation with our Mr. C.J. Sweeney on August 16, 1962, at which time you gave him your P.O. 15-3279-N1-152, it is our understanding that we are released to produce the forgings required for these vessels up to the point of welding the shell sections.

All other Terms and Conditions in our letter of June 26, August 3 and 13, 1962 will apply.

We thank you for placing this order with us and we would appreciate receiving your formal order at an early date."

Foster Wheeler responded with a letter which stated, in part:

"This is to confirm having placed the subject order number verbally with your Mr. C.J. Sweeney for the supply of the high pressure forged steel vessels for the Subject contract. * * * The [vessels] will be furnished in accordance with our inquiry dated May 29, 1962, supplemented June 1, 1962, including all specifications, requisitions and drawings attached thereto. Further to this, the vessels shall be as covered by your quotation to us dated June 26, 1962, amended August 3, 1962 and your letter of August 13, 1962, confirming engineering revisions to our original inquiry and your quote.

Please accept this letter as your authorization to immediately start all operations as planned to bring this contract to an early and successful conclusion."

On August 27, 1962, Foster Wheeler sent a purchase order to defendant which contained the following statements:

"The equipment called for in the requisitions mentioned below and in strict accordance with the specifications, drawings, etc. * * * mentioned therein.

General notes requisition 3270-099A is to be considered an integral part of this order.

Our inquiry 15-3270 dated 5/29/62, supplement # 1 dated 6/1/62, our telegrams of 8/7 & 8/8/62 and Mr. J.H. Hoseks letter of 8/16/62 forms a further basis for this order."

Exhibits in the record indicate that while the converter was being fabricated, defendant made several requests for minor price adjustments. These price adjustments were authorized by Foster Wheeler in written change orders.

On February 7, 1963, defendant sent a letter to Foster Wheeler stating that Foster Wheeler's "purchase order and requisition attached were not in accordance with our quotations dated June 26 and August 3, 13 and 16, 1962." The letter further stated that the "Material and Workmanship Guarantee" and "Performance Guarantee" found in Foster Wheeler's June 7, 1962, Material Requisition were unacceptable to defendant. Foster Wheeler made no written response to this portion of the letter.

In August 1963 manufacture of the converter was completed and it was shipped from defendant's shop in Bethlehem, Pennsylvania, to the plant site on the Mississippi River in the northwest portion of this State. Following a shakedown period lasting several months, the plant achieved the production levels guaranteed by Foster Wheeler in its contract with plaintiff. In late summer of 1964 plaintiff formally accepted the plant.

The converter was the unit in the plant in which ammonia gas was produced. Under high pressure, hydrogen and nitrogen gas were introduced into the vessel through an intake bore in its bottom closure. Within the vessel, in the presence of a catalyst, the hydrogen and nitrogen reacted to produce ammonia gas. The ammonia gas exited through an outtake bore to a condenser located nearby. *fn3

On October 4, 1964, a crack developed in the converter, and the plant was shut down. Almost immediately representatives of plaintiff, plaintiff's insurer, defendant and Foster Wheeler arrived on the scene and inspected the vessel. They then met in conference to discuss means of putting the plant back in operation. Basically two possible solutions were considered. Defendant's representatives proposed returning the 270-ton converter to its shops in Bethlehem, Pennsylvania, for replacement of the bottom closure. They urged that this course provided the only means of allowing scientists to analyze the cause of the failure. Moreover, they argued, removal and replacement of the bottom closure required the use of tools and facilities found only in defendant's shops. The job could not be done in the field. At least 26 weeks, including transportation time, would be required to effectuate repairs in this manner.

The alternative proposal called for repair of the vessel in the field through utilization of an innovative welding technique. Since it was uncertain how successful this technique would be over the long run, it was proposed that a replacement converter be ordered to be available on a ...


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