BEFORE PATTERSON, PRATHER, SULLIVAN, AND SUGG
SUGG, RETIRED JUSTICE, FOR THE COURT *fn1
Jimmy A. Lee filed an action in the Circuit Court of Warren County against Contractor's Lumber and Supply Co. (Contractor) and Champion International Corporation (Champion) for breach of warranty involving plywood panels purchased by Lee from Contractor which had been manufactured by Champion and purchased from Champion by Contractor. Contractor filed an answer admitting the breach of warranty, and with its answer, filed a cross-claim against Champion to recover by way of indemnity any amount it, Contractor, might be "judicially determined liable for" together with reasonable attorney's fees and costs in defending Lee's action. Contractor did not tender the defense of Lee's action to Champion,
its seller. Champion answered the original action and the cross-claim and set up several affirmative defenses. Champion settled with Lee and before trial, Lee dismissed his action with prejudice. The trial court sustained Champion's motion to dismiss Contractor's cross claim and Contractor appealed.
The sole question on appeal is whether Contractor (buyer and indemnitee) is entitled to recover attorney's fees from Champion (seller and indemnitor) under the provisions of our Uniform Commercial Code [MCA 75-2-607 (5)(a) (1972)] when Contractor did not tender the defense of Lee's action to Champion. We hold Contractor was not entitled to recover attorney's fees because it did not tender defense of Lee's action to Champion and affirm.
We now set forth in more detail the proceedings in the trial court. Lee alleged he purchased 190 panels of plywood siding from Contractor which had been manufactured by Champion, and after he had installed the plywood on a church building, the panels began to delaminate, even though Lee followed the installation and finishing instructions of Champion, the manufacturer.
Lee alleged that both Contractor and Champion had breached an express warranty that the plywood was of a certain grade, and met certain industry standards. Lee further alleged that defendants had also breached an implied warranty of merchantability on the basis that the siding would not pass without objection in the trade under the standards of the industry; that the plywood was not fit for the ordinary purposes of which such goods are used; that defendants failed to cure the non-conformities and defects of the plywood after notice to them; and that he had been forced to replace the plywood panels, and other materials necessary to install and preserve the plywood on the church building. Lee sought recovery of $22,613.13 *fn2 for actual damages, and $50,000 punitive damages, costs and attorney's fees.
Contractor answered admitting the breach of warranty charge and admitted liability to Lee. Contractor filed a cross-claim against Champion and alleged it purchased the plywood from Champion and Champion had breached the express warranty and implied warranty as alleged by Lee. Contractor sued for any amount it might be "judicially determined liable for" including "reasonable attorney's fees for the defense of the case and costs. Contractor's cross-claim was an action for indemnity.
Champion filed its answer to Lee's complaint and the cross-claim of Contractor, denied it had breached any express or implied warranties, and asserted several affirmative defenses to the complaint and cross-claim. Some of the affirmative defenses, if established by evidence, would have defeated Lee's right to recovery from either Contractor or Champion.
On the day set for trial, Champion informed the court that it had reached a settlement with Lee for $11,000, based upon a denial of liability and Lee had agreed to dismiss his suit with prejudice. The proposed settlement was contingent upon dismissal of Contractor's cross-claim against Champion. Champion moved to dismiss Contractor's cross-claim on the basis that it failed to state a claim upon which relief could be granted, that the claim was moot due to the settlement agreement, and that Contractor had never tendered its defense to Champion as required by statute. [75-2-607 (5) (a), MCA (1972)]
The court entered in a final order dismissing Contractor's cross-claim and also a final order on motion of Lee and Champion dismissing Lee's action with prejudice.
Under the common law, a defendant had the right to" vouch-in "a person liable over to him by notifying such person of the pendency of the suit and requesting him to assume defense of the suit. [See Comment, 29 Ark. L. Rev. 486 (1976)]. In 1966 our legislature adopted the Uniform Commercial Code and codified this common law practice as it relates to the law of sales concerning" middle-men. "MCA 75-2-607 (5)(a) (1972).
(5). Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over.
(a) he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two (2) litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.
The statute permits a buyer, who is sued for breach of warranty or other obligation for which his seller is answerable over, to bind the seller in the action against the buyer if the buyer gives the seller written notice of the litigation and the notice tenders defense of the litigation to the seller. Of course, if the seller is a defendant in the litigation, the buyer is not required to give written notice of the litigation, but in order to bind the seller, must tender defense of the litigation to the seller in writing. This permits a seller to protect his rights by interposing any defense available to the action. It naturally follows that if the seller protects his rights, he likewise protects the rights of the buyer. Of course, the seller, after written notice of tender of defense, may decline to defend, but if the seller declines ...