Limitation of Remedies. Destileria Serralles, Inc, a distributor of rum and other products, operates a rum bottling plant in Puerto Rico. Figgie International, Inc, contracted with Serralles to provide bottle labeling equipment capable of placing a

Question

clear label on a clear bottle of "Cristal" rum within a raised glass oval. The contract stated that Serralles's remedy, in case of a breach of contract, was limited to repair, replacement, or refund. When the equipment was installed in the Serralles plant, problems arose immediately. Figgie attempted to repair the equipment, but when it still did not work properly several months later, Figgie refunded the purchase price and Serralles returned the equipment. Serralles asked Figgie to pay for Serralles's losses caused by the failure of the equipment and by the delay in obtaining alternative machinery. Figgie filed a suit in a federal district court, asserting that it owed nothing to Serralles because its remedy for breach was limited to repair, replacement, or refund. Serralles responded that the limitation "fail

Answer 1

Limitation of remedies
Figgie filed a motion for summary judgment, which the court granted, and Seralles appealed. The U.S. Court of Appeals for the Fourth Circuit affirmed the judgment of the lower court. The appellate court explained that there was a dispute over the wording of the contract but concluded that in the absence of language to the contrary, the usage of trade in the industry in which these parties were involved dictated a term limiting Seralles's remedy to repair, replacement, or refund. Did this term, as Seralles contended, fail in its essential purpose? The court acknowledged that if the provision had failed in its purpose, other remedies would have been available, but concluded that in this case, it did not fail. "[A] limited remedy of repair or replacement can fail of its essential purpose where the seller's repair or replacement is unsuccessful," but Seralles's remedies included "or return," which is what happened after Figgie could not repair or replace. "[T]he remedies invoked were exactly those envisioned by [UCC 2-719(1)(a)] and contemplated by the agreement. Seralles' contention that a seller eliminates the remedy of "refund" simply by electing to attempt repair or replacement is unpersuasive. On the contrary, one would expect a manufacturer or seller to first attempt to repair or replace equipment in order to meet its contractual obligations to the purchaser, and only resort to a return and refund if unsuccessful in doing so—particularly in the context of an agreement between two commercial entities for the purchase of sophisticated equipment."