Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable and Cold Storage Co.

United States Court of Appeals for the Sixth Circuit · Contracts

ContractsUCC remedieslimitation of remediesconsequential damagesunconscionabilitydiscovery supplementationUCC 2-719(2)UCC 2-719(3)

Facts

The parties entered a 1970 contract for Lewis to sell Sawyer an individually quick-frozen freezer. The typed portion warranted that the freezer could process 6,000 pounds of certain fruits per hour and would not exceed a stated Freon consumption rate, while paragraph 6A required Lewis to supply excess Freon for a period if the warranted rate was exceeded. The printed portion provided in paragraph B3 that if the machine failed to perform at warranted rates, Lewis could promptly repair or replace the malfunctioning part, with rescission as the only other available remedy, and paragraph B4 excluded consequential damages. Trial evidence showed Lewis was unable promptly to repair the freezer to meet the performance warranties, and Sawyer presented evidence that Lewis delayed or concealed the machine's inability to meet cherry-processing warranties until rescission had become financially destructive.

Issue

When a contract limits remedies to repair or rescission and separately excludes consequential damages, may a jury consider whether the repair-or-rescission remedy failed of its essential purpose under RCW 62A.2-719(2), and does that failure automatically permit consequential damages? Also, was a new trial required because Sawyer failed to supplement certain discovery responses?

Rule

Under RCW 62A.2-719(2), an exclusive or limited remedy fails of its essential purpose when circumstances make it impractical to carry out the essence of the agreed remedy, including where the seller is unable promptly to repair the product or where a defect is not effectively discoverable until rescission becomes impractical. Consequential damages are generally available under RCW 62A.2-714(3) and 62A.2-715(2) when foreseeable and not avoidable by cover, but a separate contractual exclusion of consequential damages is governed by RCW 62A.2-719(3) and remains valid unless the court, not the jury, determines it is unconscionable after allowing evidence on commercial setting, purpose, and effect. A new trial for failure to supplement discovery requires a showing of significant prejudice.

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Cascade Orchard Foods, a commercial processor in Yakima, Washington, bought a custom berry-sorting machine from Alder Peak Equipment under a contract stating that the buyer's exclusive remedies were prompt repair or rescission, and separately excluding consequential damages. After a full season of repeated service visits, the machine still could not reach the warranted hourly throughput, despite the seller's continuing attempts to fix it.

If Cascade sues for breach of warranty, which is the strongest argument that the exclusive repair remedy failed of its essential purpose?

Explanation. A limited repair remedy fails of its essential purpose when circumstances make the agreed remedy impractical in substance, including where the seller is unable promptly to repair the goods so they conform to the warranty. The buyer's losses or the existence of a separate consequential-damages exclusion do not themselves establish failure of essential purpose. Mere denial of liability is also not the governing test. (Derived from Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable and Cold Storage Co. (n.d.).)