Limited Remedies. In 1968, Canal Electric Co purchased a steam turbine generator from Westinghouse Corp In 1983, Canal purchased some new rotating blades from Westinghouse to use in the generator. The contract covering the 1983 sale of the blades

Question

warranted that Westinghouse would repair or replace any defective parts for a one-year period and limited Westinghouse's total liability under the contract to the purchase price of the blades, which was $40,750. Liability for incidental and consequential damages was specifically disclaimed. A few months later, the blades developed cracks, and Canal had to shut down operations for 124 days while the blades were being replaced. As a result, Canal incurred costs (which were significantly higher than the purchase price of the blades) to obtain replacement power during this period. Ultimately, Canal sued Westinghouse for breach of warranty and negligence. Westinghouse claimed that its liability to Canal was limited to the purchase price of the blades, $40,750. Will the court enforce the limitation-of-liability clause? What factors will the court consider in deciding the issue? Discuss fully.

Answer 1

Limited remedies
The court enforced the limitation-of-liability clause. The court pointed out that UCC 2-719 allows contracting parties, "especially sophisticated, commercial entities," to agree to the limitation of remedies. The only question is whether they provide for "minimum adequate remedies" in their contract. "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" [UCC 2-719, Comment 1]. The court concluded that "limiting damages to a refund of the purchase price in a contract between ‘sophisticated business entities, and where consequential damages in the event of a problem could be extensive, is a reasonable business practice.'" The court reasoned that "[f]irst[,] the [contract] provides for a damage recovery separate and independent from the limited warranty. Second, the warranted item is a highly complex, sophisticated and in some ways experimental piece of equipment, a situation which is particularly appropriate for an agreed upon allocation of commercial risk. Third, the [contract] is a commercial agreement negotiated between industrial giants of equal bargaining power and there is no reason to disturb the consensual allocation of business risk as between the parties."