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UNIFOIL CORP. v. CHEQUE PRINTERS & ENCODERS LTD.

November 26, 1985

UNIFOIL CORPORATION, Plaintiff,
v.
CHEQUE PRINTERS AND ENCODERS LIMITED, Defendant, and ALUMINUM COMPANY OF AMERICA, Third-Party Defendant



The opinion of the court was delivered by: STERN

 This opinion is rendered on the motion of the third-party defendant Aluminum Company of America ("Alcoa") to dismiss those crossclaims of defendant Cheque Printers and Encoders, Ltd. ("Cheque Printers") which allege fraud, breach of warranty of fitness, breach of warranty of merchantability, and punitive damages. This Court's jurisdiction is based on the diversity of citizenship of the parties; New Jersey law applies.

 FACTS

 Cheque Printers, an Australian company, purchased a product called "foilboard" from Unifoil, a New Jersey corporation for use in manufacturing "instant-winner" lottery tickets. Some of the tickets were defective, so that scratching the covering removed the prize information as well. At least one lottery had to be cancelled. Cheque Printers alleges that it suffered severe losses due to the need to recall the defective tickets from Australian lottery commissions.

 The foilboard was made with aluminum foil purchased by Unifoil from Alcoa. Cheque Printers alleges that the foil was not "A-wettable" -- that is, that its surface was slightly greasy -- and that for this reason coating materials did not adhere to it properly. After discovery showed that Unifoil had specified A-wettable foil in its order from Alcoa, and that at least one Alcoa employee knew that the foil was not A-wettable, Cheque Printers moved to amend its answer to include crossclaims alleging fraud, breach of warranty of fitness for a particular purpose, breach of warranty of merchantability, and to demand punitive damages. The motion to amend was granted under the liberal standard of Rule 15(b) of the Federal Rules of Civil Procedure. Alcoa now moves to dismiss these counterclaims, pursuant to Rule 12(b)(6). For the purposes of this motion, of course, all allegations made in the crossclaims are taken as true. All that is at issue is whether these allegations state a valid claim under the applicable law.

 DISCUSSION

 I. Cheque Printer's Fraud Claim

 Cheque Printers alleges the following facts:

 
2) Alcoa supplied foil which was not A-wettable.
 
3) Alcoa knew that the foil was not A-wettable.
 
4) Cheque Printers manufactured defective lottery tickets from the Unifoil foilboard and sold them to Australian lottery commissions.
 
5) Cheque Printers was obliged to recall the tickets and suffered economic injury as a result.

 Cheque Printers' attempt to raise claims of fraud and negligent misrepresentation against Alcoa on these facts raises an interesting question: when -- if at all -- may a remote purchaser of a defective product recover from the manufacturer in tort, and when -- if at all -- in contract? The New Jersey Supreme Court has recently treated this question at length in Spring Motors Distributors, Inc. v. Ford Motor Company, 98 N.J. 555, 489 A.2d 660 (1985). Although the Spring Motors decision undoubtedly will be fleshed out in future cases, the opinion clearly indicates that when the remote purchaser is a commercial buyer suffering an economic loss, claims sounding in tort will not ...


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