Marr Enterprises, Inc. v. Lewis Refrigeration Co.
| Decision Date | 30 June 1977 |
| Docket Number | No. 75-3359,75-3359 |
| Citation | 556 F.2d 951 |
| Parties | 21 UCC Rep.Serv. 1322 MARR ENTERPRISES, INC., and Ben Paz, Plaintiffs-Appellants, v. LEWIS REFRIGERATION CO., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Appeal from the United States District Court for the Western District of Washington.
Before LUMBARD, * WRIGHT and ANDERSON, Circuit Judges.
Marr Enterprises, Inc. ("Marr"), an Oregon family corporation, operated the fishing vessel CARICA along the Oregon coast. In 1971, Marr decided to operate in Alaskan waters off Kodiak. Being unfamiliar with those fishing grounds, it entered into a "lease" of the CARICA on April 3, 1971 with Ben Paz, an Alaska citizen.
On May 6 of that year, Marr contracted with Lewis Refrigeration Co., ("Lewis"), a Washington corporation, for installation of a CO 2 brine refrigeration system aboard the CARICA. The injection of CO 2 into brine to combat the growth of bacteria was an experimental part of the system. Paz was aware of the negotiations between Marr and Lewis but was not a party to the contract.
The refrigeration system did not work properly and was disconnected by Paz in January 1972. Thereafter he fished in the conventional manner, icing down the shrimp in the hold of the CARICA until it reached port.
Marr brought suit in district court in Western Washington for breach of contract and for negligence on the part of Lewis, alleging as damages miscellaneous costs of repair to the vessel, removal of the system, and payment for installation of the defective system. Paz joined in the suit against Lewis claiming lost fishing profits on account of Lewis' negligence.
On summary judgment motions, the trial judge dismissed all claims of Marr against Lewis except that for repayment of the purchase price, because the court found that contractual disclaimers of liability and limitations of remedy were valid and enforceable. Summary judgment was also granted against Paz, the court holding that Paz had no greater rights against Lewis than did Marr. After trial, judgment was entered on the breach of contract claim in favor of Marr for $12,500, the amount paid for installation of the system. 1
Paz and Marr appeal the grants of summary judgment against them. We affirm.
I.
The contract consisted of three typed and five printed pages. This language appears on the first typed page The responsibility and liability of Lewis Refrigeration Co. shall be limited to the mechanical integrity of the refrigeration system per se within the limits of its standard warranty as detailed in the contract documents.
It is further agreed and understood that the price stated for the system herein described is a consideration in limiting Lewis Refrigeration Company's liability.
In the printed portion of the contract the following paragraph appeared in bold type as part of the standard warranty:
5. The warranties provided in Part B of this agreement and the obligations and liabilities of seller thereunder are the only warranties made by seller as to the equipment and seller makes no other warranties, by course of dealing, usage of trade or otherwise, express or implied, which extend beyond the description and warranties herein. It is agreed that said warranties are in lieu of and buyer hereby waives all other warranties, guaranties, conditions or liabilities, express or implied, arising by law or otherwise, including, but not limited to, any, warranty of merchantability or fitness under the Uniform Commercial Code, and any obligation of the seller with respect to consequential damages and whether or not occasioned by seller's negligence and shall not be extended, altered or varied except by a written instrument signed by seller and buyer; provided, that in the event this provision relieving seller from liability for its negligence should for any reason be held ineffective, the remainder of this paragraph B(5) shall remain in full force and effect.
By the terms of the contract, the seller warranted that the equipment would be mechanically free of defects in material or workmanship. In the event of breach of this warranty, the liability of the seller was limited to replacement of parts. If the seller did not replace the parts within a reasonable time, the purchaser's only remedy was to rescind the contract and receive any portion of the purchase price already paid.
All claims against the seller for damage to real or personal property, and for prospective profits resulting from a breach of any provisions of the contract were waived by the purchaser. The contract also provided that it would be interpreted, performed, and enforced in accordance with the provisions of the Washington Uniform Commercial Code.
As enacted in Washington, the UCC does not allow variation by agreement of the express and implied warranties arising under it. Wash.Rev.Code § 62A.1-102(3) (1971). Section 62A.2-316 allows for express negation or limitation of warranties if the language mentions merchantability, is large and conspicuous, and the contract is commercial in nature. The contract in this case meets these criteria.
Remedies for breach can also be limited in accordance with sections 62A.2-718 & 2-719. Section 2-718 allows for liquidated damages which are reasonable in light of the anticipated harm and not so large as to be void as a penalty. Section 2-719 provides that remedies for breach of warranty may be limited except where circumstances cause an exclusive or limited remedy to fail of its essential purpose. It also permits the limitation or exclusion of consequential damages, unless such exclusion or limitation is unconscionable.
Against this contractual and statutory backdrop Marr makes three arguments against the enforcement of the contractual limitation of liability:
(1) The contract failed of its essential purpose; 2
(2) There was a repudiation of the contract; (3) The allegations of negligence are not subject to contractual limitation.
(1) Essential Purpose.
The UCC provides that "(w)here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Title." Wash.Rev.Code § 62A.2-719(2) (1976). Comment 1 to this provision explains the principle behind it:
(I)t 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.
Limited remedies under the UCC have been held to fail of their essential purpose when defects in the goods are latent and not discoverable on reasonable inspection. E. g., Neville Chemical Company v. Union Carbide Corp., 294 F.Supp. 649 (D.Pa.1968), affirmed in part and vacated in part on other grounds, 422 F.2d 1205 (3rd Cir.), cert. denied, 400 U.S. 826, 91 S.Ct. 51, 27 L.Ed.2d 55 (1970).
Another line of cases holds the remedy as inadequate when the seller or other party required to provide the remedy, by inaction or its action, causes the remedy to fail. Typically, cases in this latter category are those in which the plaintiff's remedy was limited solely to repair or replacement of defective parts and the seller failed to replace or repair in a reasonably prompt and non-negligent manner. E. g., Adams v. J. I. Case Co., 125 Ill.App.2d 388, 261 N.E.2d 1 (1970); Jones & McKnight Corp. v. Birdsboro Corp., 320 F.Supp. 39 (D.Ill.1970).
In our case, if the seller did not replace the defective parts, the purchaser was entitled to refund of the purchase price. Thus, mere failure to replace or repair would not cause the court to read in the general remedy provisions of the UCC as in the cases cited above.
Marr does direct our attention, however, to one case in which the contract provided for alternate remedies of repair or refund of the purchase price. See Jorgensen Co. v. Mark Construction, Inc., 56 Haw. 466, 540 P.2d 978 (1975). There the court reversed and remanded a summary judgment determination, implying that it would be possible to find that a similar contractually limited remedy had failed of its essential purpose. In Jorgensen, however, the defects were alleged not to have been detectable until such a late time that under the totality of the circumstances the court felt a refund of the purchase price would have been totally inadequate.
The court in Jorgensen held that the record revealed the existence of genuine issues of material fact which, if resolved in appellant's favor, would entitle it to the array of remedies provided a buyer by the UCC. 540 P.2d at 988. The court did not identify these factual issues, however.
To obtain the relief it seeks, Marr must prove that the district court has overlooked a genuine issue of material fact or, alternatively, that it incorrectly decided that the remedy provided did not fail of its essential purpose as a matter of law. See generally, Adickes v. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Stansifer v. Chrysler Motors Corp., 487 F.2d 59 (9th Cir. 1973). In...
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