The opinion of the court was delivered by: Decker, District Judge.
MEMORANDUM OPINION AND ORDER
Plaintiff, Abco Metals Corporation ("Abco"), has filed its
amended complaint in this diversity action against three
defendants, J.W. Imports Company, Inc. ("J.W. Imports"), E.
Laursens Maskinfabrik ("Laursens"), and Equico Lessors, Inc.
("Equico"), alleging breach of express warranties, breach of
implied warranties of merchantability, breach of implied
warranties of fitness for a particular purpose, strict products
liability, negligence, and breach of contract. All nine counts of
the complaint involve the delivery and use of an allegedly
defective wire chopper manufactured by defendant Laursens, a
Denmark corporation. Each of the three defendants has filed a
motion to dismiss at least some of the counts. Defendant Laursens
has moved to dismiss all counts against it, including counts
stating causes of action for breach of express warranties (Count
I), breach of implied warranties (Counts III and V), strict
liability in tort (Count VII), and negligence (Count VIII).
Defendant J.W. Imports has filed an answer to the breach of
warranties counts against it (Counts II, IV and VI), and has
joined in Laursens' motion to dismiss the tort counts (Counts VII
and VIII). Finally, Equico has
moved to dismiss the only two counts naming it as a defendant,
which allege strict liability (Count VII) and breach of contract
(Count IX). After a short statement of the facts, each motion
will be discussed in turn.
The following facts have been alleged in plaintiff's amended
complaint filed on May 14, 1982 ("complaint"), which, for the
purpose of these motions, must be considered as true. In early
1980, Abco contacted J.W. Imports to inquire about buying a large
capacity wire chopper and granulator for use in Abco's scrap
metal processing business. A wire chopper is used in the
recycling of insulated wire and cable. Among other things, it
strips insulation from the metal conductor in the wire, usually
copper, which is then sold to a refiner for reprocessing. Abco
had had prior business dealings with J.W. Imports, and had
previously purchased a smaller capacity wire chopper and
granulator. Like the one involved here, the smaller wire chopper
had been manufactured by Laursens, for whom J.W. Imports was the
exclusive distributor in North America.
A meeting was arranged to discuss Abco's particular
requirements and the details of the newly proposed sale. Those
present at the meeting included Ray Ebinger, president of Abco;
Jorgen Warrer, president of J.W. Imports, and Ole Christiansen,
an engineer employed by Laursens. According to the complaint,
Ebinger specifically told Warrer and Christiansen that Abco
needed a wire chopper capable of processing mixed # 2 insulated
wire at a rate of 10,000 pounds per hour. Warrer and Christiansen
agreed that Laursens would build for Abco and J.W. Imports would
sell to Abco the wire chopper. Allegedly, Warrer and Christiansen
guaranteed that the wire chopper would meet the requirements
outlined by Ebinger. The purchase price of the machine was
The sale of the wire chopper was structured in the following
manner. Laursens was to manufacture the wire chopper and sell it
to J.W. Imports. It was agreed that J.W. Imports would then sell
the wire chopper to Equico, an equipment leasing company, who
would "lease" it to Abco. Pursuant to that arrangement, Abco
forwarded a substantial security deposit to J.W. Imports, and a
purchase order was exchanged between Equico and J.W. Imports,
with a copy being sent to Abco.
Abco and Equico then executed an agreement stated in the terms
of a lease. Under the agreement, Abco made an initial payment to
Equico of $55,152.50, to be followed by sixty monthly payments
of $2,459.00, in exchange for the wire chopper. Contemporaneously
with that agreement, Abco and Equico also executed a purchase
option, pursuant to which Abco could purchase the wire chopper
from Equico at the expiration of the sixty-month period for
$10,000. Plaintiff alleges that Laursens and J.W. Imports were
informed that the arrangement with Equico was strictly for
financing purposes, and that notwithstanding the "lease"
characterization, the import of the entire arrangement was that
Abco was purchasing the wire chopper from J.W. Imports and
The wire chopper was delivered to Abco in June 1980. After
accepting the machine, Abco learned that the chopper was not
capable of operating at a 10,000 pounds per hour capacity, and
that it could not process mixed # 2 insulated wire. Shortly after
Abco discovered that the wire chopper did not meet the expected
specifications, it notified both Laursens and J.W. Imports of the
problem. Laursens and J.W. Imports both assured Abco that the
problems would be cured. Abco alleges that in fact the problems
were not solved, and that the wire chopper has never operated
satisfactorily. As a consequence, Abco claims that it has
suffered damages from the purchase of the wire chopper itself,
from its purchase of additional equipment to be integrated with
the wire chopper, the maintenance and installation of the wire
chopper, the destruction of wire that was processed in the
chopper, and lost profits.
II. Laursens' Motion to Dismiss Warranty Counts.
In Counts I, III, and V, Abco alleges that the failure of the
wire chopper to work as expected constituted a breach by Laursens
of each of the three types of warranties created by the Uniform
Commercial Code. In Count I, Abco claims that the statements from
Laursens' representatives to the effect that the wire chopper
would process 10,000 pounds of mixed # 2 insulated wire were
affirmations of fact and promises constituting express warranties
which were subsequently breached when the chopper did not work.
Abco alleges in Count III that the wire chopper, as delivered,
was not fit for the ordinary purposes for which wire choppers are
used, and, therefore, Laursens breached its implied warranty of
merchantability. Finally, Count V alleges that, at the time
Laursens manufactured the wire chopper for Abco, Laursens was
aware of the particular purposes and needs of Abco, and the
failure of the wire chopper to meet those purposes constituted a
breach of the implied warranty of fitness for a particular
purpose. See Uniform Commercial Code, §§ 2-313, 2-314, and 2-315,
Ill.Rev.Stat. ch. 26, §§ 2-313, 2-314, and 2-315.
Laursens attacks all three of the warranty counts on
essentially the same grounds. Relying on the structure of the
deal between the various parties, Laursens claims that there was
no contract between it and Abco. Rather, Laursens notes that the
wire chopper was first sold to J.W. Imports, then sold to Equico,
who finally leased it to Abco. Therefore, Laursens argues that it
is not in privity of contract with Abco. According to Laursens,
without privity of contract between Laursens and Abco, the breach
of warranty claims do not state causes of action.
Initially, the court notes that the parties apparently assume
that Illinois law should govern this diversity action. Without
any suggestion to the contrary, the court agrees with the
parties' assumption. Turning to Laursens' specific arguments,
Illinois law does not always require privity of contract between
the user and the manufacturer of the product, at least insofar as
the enforceability of implied warranties of merchantability and
fitness for a particular purpose are concerned.
"[G]enerally privity only extends to the parties to
the sale and implied warranties are not applicable
between the buyer and a remote
manufacturer. . . . This is not true, however, where
there is a direct relationship between the
manufacturer and the seller . . ., or where, as here,
the manufacturer knew the identity, purpose and
requirements of the dealer's customer and
manufactured or delivered the goods specifically to
meet those requirements."
Franks' Maintenance & Engineering, Inc. v. C.A. Roberts Co.,
86 Ill. App.3d 980, 992-93, 42 Ill.Dec. 25, 408 N.E.2d 403 (1st Dist.
1980) (citations omitted). See Rhodes Pharmacal Co. v.
Continental Can Co., 72 Ill. App.2d 362, 372-73, 219 N.E.2d 726
(1st Dist. 1966).
From the allegations of plaintiff's complaint, it is apparent
that both conditions for avoiding the privity requirement may
exist in this case. Abco has alleged facts indicating that there
was a direct relationship between it and Laursens involving the
wire chopper. Laursens' employee was present at the meeting where
the purchase of the wire chopper was discussed, and he promised
the machine would meet Abco's requirements. Abco notified
Laursens when the wire chopper did not operate as expected. After
the notification, Laursens assured Abco that the chopper would be
fixed, and evidently took some steps to do so, though the
attempted repairs failed. Those allegations, if true, establish
the requisite direct relationship between Abco and Laursens.
Likewise, the same allegations show that Laursens was well aware
that Abco was J.W. Imports' customer, and that Laursens was
informed of Abco's purpose in buying the wire chopper and of
Abco's particular requirements. Given plaintiff's allegations,
privity of contract between Abco and Laursens was not necessary
for the implied warranties to arise.
This leaves only Laursens' arguments concerning the express
warranty. Apparently, the Illinois courts have not directly
considered whether the privity requirement for express warranties
will be eased under the same conditions that allow the
requirement to be relaxed for the purposes of implied warranties.
In dictum, however, an early Illinois decision suggested that no
distinction should be made between express and implied
"Since the Uniform Commercial Code, effective in
1962, adopts the third-party beneficiary language in
discussing the effect of express and implied
warranties, it seems that this doctrine should be
extended here to a situation where a seller makes a
product for a user who ...