FOR PUBLICATION

ATTORNEYS FOR APPELLANT:        ATTORNEYS FOR APPELLEE:

STEPHEN L. VAUGHAN            ROBERT A. GARELICK
THOMAS J. CAMPBELL            BRYAN S. REDDING
ROBERT W. WRIGHT                Cohen, Garelick & Glazier
Locke Reynolds Boyd & Weisell            Indianapolis, Indiana
Indianapolis, Indiana

RHEEM MANUFACTURING COMPANY,        )
                                         )
    Appellant-Defendant,                 )
                                         )
        vs.                              )    49A02-9807-CV-620
                                         )
PHELPS HEATING & AIR                 )
CONDITIONING, INC.,                      )
                                         )
    Appellee-Plaintiff.                  )

                                     

      

purpose of the “quality commitment” provision was to warrant parts against failure under normal use within a specified time period. The “quality commitment” provision, an express warranty, read in pertinent part:
    MANUFACTURER AND RHEEM AIR CONDITIONING DIVISION warrant ANY PART of this furnace against failure under normal use and service within the applicable periods specified below, in accordance with the terms of this warranty.

The warranty periods varied with the model of furnace and/or with the components.
    The limited remedy provision addressed replacement parts only:
    Under this Warranty, RHEEM will furnish a replacement part that will be warranted for only the unexpired portion of the original warranty; if a heat exchanger fails and a replacement is not available, a credit will be allowed for the cost of the heat exchanger toward the purchase price of a new furnace as described below.

    The consequential and incidental damages exclusion read as follows:
    RHEEM'S SOLE LIABILITY WITH RESPECT TO DEFECTIVE PARTS SHALL BE AS SET FORTH IN THIS WARRANTY, AND ANY CLAIMS FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ARE EXPRESSLY EXCLUDED.

    Finally, the limited warranty contained a service labor exclusion. Rheem's brief characterizes this exclusion as “stating that [service labor] expenses are the responsibility of the home owner, unless a service labor agreement exists between the home owner and contractors such as [Phelps].” The exclusion read:
    SERVICE LABOR RESPONSIBILITY: This Warranty does not cover any labor expenses for service, nor for removing or reinstalling parts. All such expenses are your responsibility unless a service labor agreement exists between you and your contractor.

Phelps customers. Rheem responded that all service labor credits allowed by Rheem had already been issued by Federated (and thus, no further remedy would be available under the terms of the limited remedy provision relating to the furnaces).
    On August 8, 1994, Phelps filed suit against Rheem and Federated, claiming that the Rheem furnaces shut down and that parts such as pilot assemblies, hot surface igniters, flame sensors and ignition controls failed. Additionally, Phelps contended that the 90% drum furnace heat exchangers often cracked. The theories underlying Phelps' original action were negligence, breach of express warranty, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose.
    On September 5, 1997, Rheem filed a motion for summary judgment, with a supporting brief and a designation and submission of evidence. The summary judgment theories pertinent to this appeal are that the damages sought by Phelps were excluded by the service labor exclusion, consequential damages exclusion, and incidental damage exclusion of Rheem's written limited warranties. Rheem also asserted lack of privity between the parties as additional grounds for summary judgment on Phelps' implied warranty claims.See footnote 4
    On June 18, 1998, the trial court entered the following order on Rheem's motion for summary judgment:
    This matter, having come before the Court on the Motion for Summary Judgment, filed by the Defendant, Rheem Manufacturing Company with

regard to the claims of Plaintiff, Phelps Heating & Air Conditioning, Inc., and the Court having held a hearing on said motion on May 14, 1998, and having considered the arguments of counsel, and those matters designated by the parties pursuant to Ind. Trial Rule 56(C), the Court NOW FINDS as follows:

        1. There are no genuine issues as to any material facts with regard to the following:

            a. The Defendant, [Rheem], manufactured furnaces which were distributed by Defendant, [Federated] and sold to Plaintiff, [Phelps].

            b. Each of the furnaces manufactured by Defendant, [Rheem], [is] accompanied with a limited parts replacement warranty, created by Defendant, [Rheem].

            c. Problems occurred with certain component parts of the furnaces manufactured by Defendant, [Rheem].

            d. Defendant, [Rheem], corrected the problems with the component parts of all its furnaces within a period of approximately three and one half years.

            e. The claims of Plaintiff, [Phelps], herein are for economic damages.

            f. There is a lack of direct privity between Plaintiff, [Phelps] and Defendant [Rheem], with regard to any sale which is the subject of this action.

        2. There are genuine issues as to material facts regarding whether the Defendant [Federated] acted as an agent of Defendant [Rheem], with regard to any sale which is the subject of this action.

        3. There are genuine issues as to material facts regarding whether the exclusive remedy of replacement of defective parts failed of its essential purpose.

        1. Upon any trial or any further hearing in this action, those matters set forth in paragraphs 1(a), 1(b), 1(c), 1(d), 1(e) and 1(f) hereof shall be deemed established, and any such trial or hearing shall be conducted accordingly.

        2. The motion for Summary Judgment filed by Defendant, Rheem Manufacturing Company, be and the same is hereby DENIED with regard to the claims of Plaintiff [Phelps], for breach of express warranty and consequential damages.

        3. The Motion for Summary Judgment be and the same is hereby DENIED with regard to the implied warranty claims of Plaintiff [Phelps].

        4. The Motion for Summary Judgment filed by Defendant [Rheem], be and the same is hereby GRANTED with regard to the negligence claims of Plaintiff [Phelps].        
    Rheem filed a motion to certify the trial court's order on June 29, 1998; that motion was granted on June 30, 1998. The trial court's order certifying the ruling for interlocutory appeal read, in pertinent part, as follows:
    6. The Court's Order of June 15, 1998 involved substantial questions of law, the early determination of which will promote a more orderly disposition of this action, including:

exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in [Ind. Code §] 26-1.” Subsection (3) provides that
    [c]onsequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but limitation of damages where the loss is commercial is not.
Both parties also rely upon different sections of Comment 1 to Ind. Code § 26-1-2-719. Comment 1 reads as follows:
    1. Under this section parties are left free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect.
        However, it is of the very essence of a sales contract that at least minimum adequate remedies be available. If the parties intend to conclude a contract for sale within this Article they must accept the legal consequence that there be at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract. Thus any clause purporting to modify or limit the remedial provisions of this Article in an unconscionable manner is subject to deletion and in that event the remedies made available by this Article are applicable as if the stricken clause had never existed. Similarly, under subsection (2), where an apparently fair and reasonable clause because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain, it must give way to the general remedy provisions of this Article.    
    It is important to note at the outset that the trial court was absolutely correct in holding, “There are genuine issues as to material facts regarding whether the exclusive remedy of replacement of defective parts failed of its essential purpose.” We cannot decide as a matter of law whether Rheem's limited remedy has failed of its essential purpose: “Whether an exclusive or limited remedy has failed of its essential purpose is a question of fact and consideration must be given to the facts of the case which has actually arisen as

distinguished from conjecture in a hypothetical case which might arise.” 67A AmJur. 2d § 922 at 325-26; see also Johnson v. John Deere Co., 306 N.W.2d 231, 238 (S.D. 1981). Phelps argues that the limited remedy has failed of its essential purpose; Rheem's argument seems to be that the failure of essential purpose vel non is irrelevant.See footnote 5 In order for this Court to reach the core question of this interlocutory appeal, however, we must assume, arguendo, that the limited remedy has failed of its essential purpose. This is because Phelps argues that since Rheem's limited remedy failed of its essential purpose, the consequential damages exclusion is no longer operative under subsection (2), which provides that in such an instance, “remedy may be had as provided in [Ind. Code §] 26-1.”
    Professors James J. White and Robert S. Summers, in their treatise on the Uniform Commercial Code, explain that “[t]here is now a deep division among the courts on the question whether consequential damages . . . are recoverable when a limited warranty has failed of its essential purpose and a separate contractual provision excludes liability for consequential economic loss.” White & Summers, Uniform Commercial Code (3d Ed. 1988) § 12-10 at 604. The parties before this Court are on either side of this “deep division,” and no Indiana court has ruled on the issue.

unknown or undeterminable risks. The seller in all cases is free to disclaim warranties in the manner provided in Section 2-316.    
    The contrary view espoused by Phelps has been called the “dependent” or “interdependent” view, meaning that the evaluation of the validity of consequential damage exclusion clauses is necessarily dependent upon the availability of a limited remedy clause in the same agreement.See footnote 6 Cases representative of this approach include Adams v. J.I. Case Company, 261 N.E.2d 1 (Ill. App. 1970); R.W. Murray Co v. Shatterproof Glass Corp., 758 F.2d 266 (8th Cir. 1985); Matco Machine and Tool Co. v. Cincinnati Milacron Co., 727 F.2d 777 (8th Cir. 1984); Soo Line Railroad Co. v. Fruehauf Corp., 547 F.2d 1365 (8th Cir. 1977); and Jones and McKnight Corp. v. Birdsboro Corp., 320 F.Supp. 39 (N.D. Ill. 1970). “The 'dependent' courts follow a two-step analysis. First, they evaluate the limited remedy under subsection (2) to determine if the clause has failed of its essential purpose. If the limited remedy has failed, the consequential damage exclusion is automatically void.” (Appellee's Br. at 14.)
    Each side naturally argues that its position is “more thoroughly reasoned and consistent with the general purposes of the Uniform Commercial Code.” Middletown Concrete, 802 F.Supp. at 1152. Phelps asserts that the dependent approach “reflects the true intent of the parties more closely than the 'independent' courts as no buyer would purchase goods knowing that if the limited remedy provided failed, the buyer would be precluded from

[obtaining] consequential damages.” (Appellee's Br. at 14). However, the Middletown Concrete court (and those like-minded, including Rheem), agree with White and Summers that the “independent cases”
    seem most true to the Code's general notion that the parties should be free to contract as they please. When the state intervenes to allocate the risk of consequential loss, we think it more likely that the loss will fall on the party who cannot avoid it at the lowest cost. . . . Believing the parties to know their own interests best, we would leave the risk allocation to the parties.

White & Summers § 12-10 at 605. In making this observation, the authors were referring to American Electric Power Co. v. Westinghouse Elec. Corp., 418 F.Supp. 435, 19 UCC 1009 (S.D.N.Y. 1976) as “a leading case” for the independent view, and its progeny. The limitation at issue in American Electric Power was a repair-or-replace provision covering a $12 million generator. The court declined to “disturb the consensual allocation of business risk” memorialized in the agreement. 418 F.Supp. at 458. However, the American Electric Power court also stated that “it must be emphasized that the contract here in issue is not of the type entered into by the average consumer, but a commercial agreement painstakingly negotiated between industrial giants.” Id. Phelps points out that American Electric Power is factually distinguishable from the instant case, in that “the limited warranty and consequential damage exclusion were printed on cards and placed in the cartons in which the furnaces were delivered. There were no negotiations here.” (Appellee's Br. at 17.)
    The Seventh Circuit held in AES Technology Systems, Inc. v. Coherent Radiation that “we reject the contention that failure of the essential purpose of the limited remedy

automatically means that a damage award will include consequential damages.” 583 F.2d 933, 941 (7th Cir. 1978). The AES court, however, did not place great importance on the question of whether the limited warranty at issue in that case represented a meeting of the minds. “There is no evidence that the warranty was the subject of negotiation. However, the warranty was at least included on the reverse side of [the defendant-seller's] bid form, on the reverse side of [the defendant-seller's] invoice form, and on a separate warranty card packed with the [l]aser.” 583 N.E.2d at 938. The AES court discussed the purpose of § 2-719 as described by the Official Comment, and then went on to state, “By limiting the warranties available and the remedies under the warranties, parties are able to provide a consensual allocation of risk in accordance with sound business practices.” Id. Phelps asserts that AES represents a “hybrid view” instituted by the Seventh Circuit and followed by the Northern District of Illinois in KKO, Inc. v. Honeywell, Inc., 517 F.Supp 892 (N.D. Ill. 1981).See footnote 7 It is true that the AES court held that “an analysis to determine whether consequential damages are warranted must carefully examine the individual factual situation, including the type of goods involved, the parties and the precise nature and purpose of the contract.” 583 F.2d at 941. However, Rheem refutes the characterization of the AES decision as a “hybrid view,”

and asserts that the more recent Lefebvre Intergraphic, Inc. v. Sandon Mach. Ltd., 946 F.Supp. 1358 (N.D. Ill. 1996) (applying Illinois law) correctly recognized that in AES and subsequent holdings, the Seventh Circuit rejected outright the Eighth Circuit opinions relied upon by Phelps.
    The Lefebvre court also discussed Chatlos Systems v. Nat'l Cash Register Corp., 635 F.2d 1081 (3d Cir. 1980), an opinion often cited by “independent” courts, including the Seventh Circuit in Smith v. Navistar Int'l Transp. Corp., 957 F.2d 1439, 1443 (7th Cir. 1992). In Chatlos, the Third Circuit stated:
    The limited remedy of repair and a consequential damages exclusion are two discrete ways of attempting to limit recovery for breach of warranty. The [U.C.C.], moreover, tests each by a different standard. The former survives unless it fails of its essential purpose, while the latter is valid unless it is unconscionable. We therefore see no reason to hold, as a general proposition, that the failure of the limited remedy provided in the contract, without more, invalidates a wholly distinct term in the agreement excluding consequential damages. The two are not mutually exclusive.

(The foregoing language is found in Lefebvre, 946 F.Supp. at 1371; Smith, 957 F.2d at 1443- 44; and originated in Chatlos, 635 F.2d at 1086.) (Emphasis added.)
    One of the Eighth Circuit cases relied upon by Phelps is R.W. Murray v. Shatterproof Glass Corp., 758 F.2d 266 (8th Cir. 1985). The R.W. Murray court held that the plaintiffs had been able to “establish[] that Shatterproof's limited and exclusive warranty failed of its essential purpose under Missouri law,” and therefore “all other contractual remedies” were available. 758 F.2d at 272. Although the defendant Shatterproof argued that the limitation of liability should be held valid unless unconscionable, the Eighth Circuit deferred to the

district court's interpretation of Missouri state law, finding the court's interpretation “both reasonable and permissible.” Id. In so holding, the appellate court acknowledged that other courts (e.g., Chatlos, supra) had held the other way, but that according to White & Summers § 12-10, both the Missouri version of the U.C.C. and Comment 1 supported its holding.
    Finally, Phelps relies upon Adams v. J.I. Case Co., 261 N.E.2d 1 (Ill. App. 1970). Adams is an older case that involved a defective tractor. The buyer of the tractor sued the dealer and the manufacturer when the tractor was not properly repaired until approximately one year and three months after the problems were reported to the defendants. The plaintiff claimed that while the tractor was being repaired, he suffered the loss of profits, jobs, and reputation because of his inability to perform jobs he had contracted to do. The Adams language cited by Phelps is as follows:
    Plaintiff could not have made his bargain and purchase with knowledge that defendants would be unreasonable, or, in the words of his complaint, wilfully dilatory or careless and negligent in making good their warranty in the event of its breach. The manufacturer and the dealer have agreed in their warranty to repair or replace defective parts while also limiting their liability to that extent. Had they reasonably complied with their agreement contained in the warranty they would be in a position to claim the benefits of their stated limited liability and to restrict plaintiff to his stated remedy. The limitations of remedy and liability are not separable from the obligations of the warranty. Repudiation of the obligations of the warranty destroys its benefits. The complaint alleges facts that would constitute a repudiation by the defendants of their obligations under the warranty, that repudiation consisting of their failure or their careless and negligent compliance. It should be obvious that they cannot at once repudiate their obligation under the warranty and assert its provision beneficial to them.

261 N.E.2d at 7.

provision should be triggered when the remedy fails of its essential purpose, not the essential purpose of the U.C.C., contract law, or of equity.

621 N.E.2d at 1085 (emphasis in the original). Interestingly, Phelps points to this same excerpt in Rispens and asserts that it is “a clear indication that the Indiana Supreme Court would follow the 'dependent' courts.” (Appellee's Br. at 25).
    The diametrically opposed conclusions drawn by the parties in response to this excerpt are, it seems, rooted in each side's fundamental understanding of whether the heating units' failures were a possibility clearly foreseen (or foreseeable) by both parties or “novel circumstances not contemplated by the parties.” Obviously, the answer lies in whether there was a “meeting of the minds” at the agreement's inception. The Rispens court notably did hold that “whether there was mutual assent to the limitation of liability is a question of fact precluding summary judgment.” 621 N.E.2d 1088. Rheem, in its brief, points to the additional discussion of substantive unconscionability found in the same section of Rispens and the court's conclusion that “[t]he possibility that a latent defect may exist is a risk that is present at the time [a] contract is formed. It is not unconscionable for the seed producer and distributor to redistribute such risk.” 621 N.E.2d at 1087. Phelps, on the other hand, cites the introductory language found at 621 N.E.2d 1085: “We hold that, although such limitations are enforceable generally, there remains a question of fact as to their applicability here.” It would seem that perhaps Phelps has confused the supreme court's statement that “there remains a question of fact as to [the limitation's] applicability” with a blanket holding

that if there is a failure of essential purpose, “a purchaser would be entitled to recover an amount in excess of the cost of repairs.” (Appellee's Br. at 24).
    Rispens does seem, however, to indicate that our supreme court would be concerned with whether sufficient evidence existed at the trial court level to enable the fact-finder to determine whether there was a meeting of the minds as to the warranty provisions in a commercial sales agreement.
    Finally, the Rispens court went on to state:
    Th[e] provision clearly states that liability is limited to the purchase price of the seed, and does not allow any amount for incidental or consequential damages such as Hall Farms' lost profits. Obviously, the purpose of the limitation was to limit contract liability to the purchase price of the seed. The contract term has not failed of its essential purpose; rather, enforcement of the limitation will serve precisely the purpose intended.
681 N.E.2d at 1086 (emphasis added).
    We are convinced that the so-called “majority,” or “independent” view of subsections (2) and (3) is more in keeping with Indiana jurisprudence and the purposes of the U.C.C.. We agree that in testing each type of provision by a different standard -- a limited remedy by failure of essential purpose, and an exclusion by unconscionability -- the subsections were intended to be read independently of one another. We now adopt this independent view and agree with the Third Circuit that it is does not follow that “the failure of the limited remedy provided in the contract, without more, invalidates a wholly distinct term in the agreement excluding consequential damages. The two are not mutually exclusive.” Chatlos, 635 F.2d at 1086 (emphasis added).

sold and therefore no longer owns the goods, and where the intermediate reseller has created additional express warranties with remedies of greater scope than that of the defendant manufacturer.

    Phelps' original action was based upon theories of negligence, breach of express warranty, breach of implied warranty of merchantability, and breach of implied warranty of fitness for a particular purpose. It is not at issue that the trial court correctly granted summary judgment on the negligence claim, and we have held that “failure of essential purpose” is not dispositive. The remaining issues, as described in the certification above and in the parties' briefs, are intertwined and complicated, and require us to turn our attention to different sections of the U.C.C.
    Ind. Code § 26-1-2-714 governs a buyer's damages for breach in regard to accepted goods and provides:
    (1) Where the buyer has accepted goods and given notification . . . he may recover as damages for any nonconformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable.

    (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount.

    (3) In a proper case any incidental and consequential damages under [Ind. Code §] 26-1-2-715 may also be recovered.
    Ind. Code § 26-1-2-715 describes incidental and consequential damages:
    (1) Incidental damages resulting from seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses

or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

    (2) Consequential damages resulting from the seller's breach include
    (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not be reasonably be prevented by cover or otherwise; and

    (b) injury to person or property proximately resulting from any breach of warranty.

    We acknowledge first that Phelps is a “vertical non-privity plaintiff”See footnote 8 vis-à-vis Rheem because it purchased all the defective furnaces through the intermediary Federated. Accordingly, to circumvent the procedural problems posed by this “non-privity plaintiff” status, Phelps has advanced the argument that Federated acted as an agent of Rheem, a claim for which the trial court denied summary judgment in Rheem's favor.
    Although “the version of the U.C.C. enacted by the Indiana General Assembly does not answer the question of whether privity is required to permit recovery under an implied warranty from a remote seller, or, as in this case, the manufacturer,” Indiana jurisprudence has generally required such so-called “vertical” privity. Candlelight Homes, Inc. v. Zornes, 414 N.E.2d 980, 981 (Ind. Ct. App. 1981). This is in keeping with the majority of jurisdictions, although it is notable that Professors White and Summers observed in 1988

that “a growing number of courts now allow non-privity plaintiffs to recover for direct (and even consequential) economic loss.” White & Summers, § 11-5 at 537.See footnote 9
    In Spring Motors Distributors v. Ford, 489 A.2d 660, 663 (N.J. 1985), the New Jersey Supreme Court held that a commercial buyer seeking damages for economic loss resulting from the purchase of defective goods could recover from an immediate seller and a remote supplier in a distributive chain for breach of warranty under the U.C.C. Plaintiff Spring Motors Distributors was in the business of selling and leasing trucks and had purchased from Ford fourteen trucks specifically equipped with certain specially requested transmissions. Ford issued with each truck a warranty worded very similarly to the warranty in the instant case. The transmission manufacturer had also issued a warranty with each transmission to Ford. The gravamen of Spring Motors' complaint was that defects in the transmissions caused Spring Motors to sustain a loss in the benefit of its bargain and consequential damages.
    Spring Motors contains a thorough and well reasoned discussion of the New Jersey equivalent of our Ind. Code § 26-2-2-318, which reads,
    A seller's warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. A seller may not exclude or limit the operation of this section.

of the supplier's warranties made to the manufacturer.” 489 A.2d at 674. The court termed its decision
    particularly important in the present action[,] where Spring Motors read advertisements published by [the transmission builder], specifically requested [those] transmissions, expected the transmissions to be incorporated into trucks to be manufactured by Ford, contracted with Ford only, and now seeks to recover its economic loss. Given the nature of the transaction and the expectations of the parties, the absence of a direct contractual relationship should not preclude Spring Motors from asserting a cause of action for breach of express warranty against [the transmission builder].

489 A.2d at 676-677.

    The Spring Motors court went on to analogize its previous holding in Aronsohn v. Madara, 484 A.2d 675 (N.J. 1984), wherein it had recognized an implied covenant that ran from a building contractor to a subsequent homeowner:
    In suits relating to home improvements, Aronsohn focuses attention on the original contract to determine the scope of the duty owed by the building contractor. In the present case, involving a commercial setting for the sale of goods, we likewise focus on the parties' expectations and contractual arrangements to determine a remote buyer's right to recover for economic loss. . . . Thus, our decision in Aronsohn creating an implied assignment of contract rights to a subsequent purchaser comports with the present decision to abolish vertical privity and to allow an ultimate purchaser to sue a remote manufacturer under the Code.

489 A.2d at 677.    
    Just as the New Jersey Supreme Court, this Court has already carved out exceptions to the privity requirement. Agency between manufacturer and first seller is one such exception, as will be discussed briefly below.

contractors under the update program,” and that “Federated also held 'classes' on behalf of Rheem and educated contractors about new Rheem furnaces and other equipment. These classes would be 'taught' by a Federated representative and take place at Federated or the representative would visit Phelps directly.”See footnote 11
    Phelps correctly asserts that this Court has held that the mere express denial of the existence of an agency relationship -- such as the express denial in the distribution agreement between Rheem and Federated -- is not in itself determinative of the matter. Dutton v. International Harvester Company, 504 N.E.2d 313, 317, n.2 (Ind. Ct. App. 1987), trans. denied. However, Phelps attempts to distinguish this case from Dutton, in that there is purportedly “more evidence” in this case than in Dutton, where “whether an agency relationship exists turn[ed] on the interpretation of the agreement.” 504 N.E.2d at 316.
    Although the existence of agency is generally a question of fact, Phelps asserts that this Court “sits in as good a position as the trial court to apply the law to the facts.” Rheem, on the other hand, accurately argues that in Candlelight Homes, this Court held that a mere manufacturer/dealer relationship is not sufficient to abolish the privity requirement. 414 N.E.2d at 982.
    Rheem also argues that it should not be required to indemnify Phelps against damages incurred as a result of warranties Phelps issued to its customers that Rheem did not issue to

Phelps. Rheem explains, “Although Rheem's limited warranties exclude service labor, Phelps Heating gave one-year service labor warranties to its customers for repairs on all new installations of gas furnaces in the 1991 to 1994 time frame”; “[a]dditionally, Phelps Heating provided a 30-day labor warranty on service repairs . . .”; “Phelps Heating was also in the business of selling extended warranties to its customers in approximately 1991 to 1992.” Rheem argues that “to the extent that additional labor allowances were granted for components exhibiting a higher than desire[d] failure rate, these labor allowances supplemented Rheem's limited remedy of Rheem's basic warranty.” Finally, Rheem argues that Phelps extended greater warranties to the customers -- or “end-users” -- than those Rheem had extended to Phelps, and that to honor those greater warranties would “inferentially overrule Indiana indemnity law.” In response, Phelps basically relies on the same cases regarding the failure of essential purpose doctrine in its attempt to recover service labor costs. “The only fact that Phelps needs to prove is that it purchased the Rheem equipment, there was a breach of the Rheem warranty, and Phelps was damaged as a result. If Rheem asserts the breach of warranty was not the proximate cause of the damages, then this is an issue that Rheem can argue at trial.”
    We find that although the evidence supporting a genuine issue of material fact is slight regarding Phelps' argument that Federated acted as an agent of Rheem, when it is taken in conjunction with our decision that perfect vertical privity is not necessary in this case, as well as with the considerations of fairness we have articulated, a genuine issue of material fact

exists as to (1) whether Rheem breached its express warranty or an implied warranty of fitness for a particular purpose; and (2) whether, once a breach occurred, Rheem's conduct in asserting its limited remedy was reasonable.

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