Kearney & Trecker Corp. v. Master Engraving Co.

Facts

P is the manufacturer of the Milwaukee-Matic 180 (MM-180), a computer-controlled machine tool capable of performing automatically a series of machining operations on metal parts. D is engaged in the manufacture and engraving of component parts for industrial application. P and D entered into discussions for the purchase of a 180 machine. D got a sales brochure describing the 180: 'The new Milwaukee-Matic 180 combines simplicity with efficiency. It was designed using fewer parts. It is this simplicity of design that does much to explain the MM 180's amazing low maintenance requirements.' D purchase a unit with a price of $167,000. The written proposal included the following provision: 

WARRANTY, DISCLAIMER, LIMITATION OF LIABILITY AND REMEDY: Seller warrants the products furnished hereunder to be free from defects in material and workmanship for the shorter of (i) twelve (12) months from the date of delivery * * * or (ii) four thousand (4,000) operating hours * * *.

* * * 

THE WARRANTY EXPRESSED HEREIN IS IN LIEU OF ANY OTHER WARRANTIES EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IS IN LIEU OF ANY AND ALL OTHER OBLIGATIONS OR LIABILITY ON SELLER'S PART. UNDER NO CIRCUMSTANCES WILL SELLER BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR FOR ANY OTHER LOSS, DAMAGE OR EXPENSE OF ANY KIND, INCLUDING LOSS OF PROFITS ARISING IN CONNECTION WITH THIS CONTRACT OR WITH THE USE OF OR INABILITY TO USE SELLER'S PRODUCTS FURNISHED UNDER THIS CONTRACT. SELLER'S MAXIMUM LIABILITY SHALL NOT EXCEED AND BUYER'S REMEDY IS LIMITED TO EITHER (i) REPAIR OR REPLACEMENT OF THE DEFECTIVE PART OF PRODUCT, OR AT SELLER'S OPTION, (ii) RETURN OF THE PRODUCT AND REFUND OF THE PURCHASE PRICE, AND SUCH REMEDY SHALL BE BUYER'S ENTIRE AND EXCLUSIVE REMEDY.

The machine malfunctioned frequently during the first year of operation and was inoperable from 25% to 50% of the time available for its use, substantially more than the industry average of five percent 'downtime' for comparable machines. No specific defect was predominant. It was conceded that the machine's performance improved after the first year and that the machine was still in use at the time of trial, in September and October 1984. D did not attempt to return the machine to P and obtain a refund of the purchase price. P attributed most of the problems to operator error and the inability to program the machine properly. Also during the second year of operation, the MM-180 was operable approximately 98% of the time available for its use. P sued in July 1981 to recover the cost of two service calls made after the one-year warranty had expired; D counterclaimed, seeking the damages that are the subject of this appeal. At the conclusion of the trial, the trial court instructed the jury that it could award consequential damages notwithstanding the contractual exclusion if it found that P failed 'to make the machine as warranted.' The jury was not instructed concerning the proof necessary to demonstrate that the repair or replacement warranty had failed of its essential purpose. The jury returned a verdict in favor of D for $57,000. In answer to written questions on the verdict sheet, the jury found that although P had not sold a defectively-designed product, it had nevertheless breached its contract with D. In affirming, the Appellate Division interpreted the jury verdict to mean that the limited remedy of repair and replacement had failed of its essential purpose. The Appellate Division concluded that under the circumstance of this case 'the failure adequately to repair the machine rendered ineffective the exclusion of consequential damages.'

Issues

Rule of Law

Holding and Decision

Legal Analysis

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