Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable and Cold Storage Co.
| Decision Date | 26 May 1983 |
| Docket Number | No. 80-1011,80-1011 |
| Citation | 709 F.2d 427 |
| Parties | 36 UCC Rep.Serv. 170 LEWIS REFRIGERATION COMPANY, a corporation, Plaintiff-Appellant, v. SAWYER FRUIT, VEGETABLE AND COLD STORAGE COMPANY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Henry L. Guikema (argued), Murray, Mroz & Guikema, Grand Rapids, Mich., for plaintiff-appellant.
Gregory Prasher (argued), Clary, Nantz, Wood & Van Orden, Grand Rapids, Mich., for defendant-appellee.
Before LIVELY and KEITH, Circuit Judges, and NEWBLATT, * District Judge.
This is an appeal in a diversity action originally brought on March 18, 1974 by Lewis Refrigeration Co. (hereinafter Lewis) against Sawyer Fruit, Vegetable and Cold Storage Cooperative Co. (hereinafter Sawyer). Lewis sued Sawyer to collect a balance allegedly due under an agreement in which Lewis sold Sawyer a freezer. Sawyer counterclaimed against Lewis asserting counts of breach of contract, breach of warranty and misrepresentation.
The case arose out of a 1970 contract between Sawyer and Lewis. The contract provided for Lewis to sell Sawyer an individually quick-frozen freezer. The typed portion of the contract covered contract pages 2-7; the printed portion covered contract pages 7-12.
The typed portion of the contract contained warranties that the freezer was capable of processing six thousand pounds of various fruits per hour and that the freezer would use no more than 1.8 liquid pounds of Freon per one hundred pounds of frozen products. Paragraph 6A of the typewritten portion of the contract contained a clause setting out a guarantee obligating Lewis to supply, for a given period of time, the Freon that the freezer consumed over the warranted rate. Paragraph B3 of the In addition to paragraph B3, the contract contained another remedy limitation. This limitation, found at paragraph B4 of the handwritten portion of the contract, excluded consequential damages. 1
printed portion of the agreement provided that, in the event the machine failed to perform at the warranted rates, Lewis would have the right to repair or replace promptly the malfunctioning part of the machine. Paragraph B3 provided that rescission was the only other available remedy.
A consent judgment eventually was entered in favor of Lewis for the claim for the balance due on the contract. Trial on Sawyer's counterclaim began on April 4, 1978. After denying Lewis's motions for a directed verdict and for judgment notwithstanding the verdict, the district court instructed and then sent the case to the jury. A verdict was returned for Sawyer in the amount of $25,823 in lost profits and $27,080 in excess Freon costs.
In this appeal, Lewis advances four arguments: (1) the district court erroneously allowed the jury to consider whether, under the state of Washington 2 version of UCC Sec. 2-719(2), the paragraph B3 repair and rescission limitation failed its essential purpose; (2) the district court erred by not generally disallowing consequential damages in favor of benefit of the bargain damages under Washington's version of UCC Sec. 2-714(2); (3) the district court should have granted a new trial on the ground that Sawyer failed to amend and supplement discovery responses as required by Rule 26(e)(2) of the Federal Rules of Civil Procedure; (4) the district court erroneously omitted making a judicial determination of whether the B3 consequential damages exclusion was unconscionable--in the absence of such a determination the consequential damages exclusion should have blocked the jury from awarding consequential damages.
We shall now consider each of the four arguments advanced by Lewis. For the reasons to follow, we affirm the district court as to the first three arguments and vacate and remand as to the fourth argument.
The first argument raised by Lewis involves the district court's treatment of RCW Sec. 62A.2-719(2), the state of Washington's statutory version of UCC Sec. 2-719(2). The statute provides:
"Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Title."
Lewis argues that the district court erroneously allowed the jury to reach the issue of whether the paragraph B3 repair and rescission exclusive remedy failed its essential purpose as described in section 2-719(2). Lewis contends that its motions for directed verdict 3 and judgment notwithstanding In opposing this argument, Sawyer contends that it presented enough evidence to permit a reasonable fact finder to determine that the exclusive remedy contractual provision failed its essential purpose. In deciding this issue, we shall separately consider the repair and rescission portions of the exclusive remedy.
the verdict should have been granted as to the issue of the repair and rescission remedy barring the award of any other damages. Lewis thus urges us to vacate the jury's verdict to the extent that it includes $25,823 in lost profit consequential damages. 4
Lewis appears to concede that the repair remedy failed its essential purpose. See p. 2 of Appellant's reply brief. We agree. In any event, there can be no doubt but that the record contains trial evidence adequate to support the conclusion that Lewis was unable to repair promptly the freezer to meet performance warranties. See e.g., Appendix at 151-157; 162-63.
Furthermore, we note that Washington appellate decisions clearly hold that a seller's inability to repair fully a product causes the repair and rescission remedy to fail of its essential purpose under RCW 62A.2-719(2). See Lidstrand v. Silvercrest Industries, 28 Wash.App. 359, 623 P.2d 710 (1981); Melby v. Hawkins Pontiac, 13 Wash.App. 745, 537 P.2d 807 (1975). We thus conclude that a jury could reasonably have determined that the repair remedy failed its essential purpose under section 2-719(2).
A much closer question obtains with respect to the rescission remedy. Sawyer contends that the jury could reasonably have determined that the rescission remedy failed its essential purpose because of either of the following two reasons: (1) Lewis would have been extremely reluctant to rescind the transaction or (2) Sawyer would have experienced severe financial loss in the event the contract was rescinded.
Sawyer's first contention must be rejected outright. The section 2-719(2) "essential purpose" language refers to circumstances that make it exceedingly impractical to carry out the essence of an agreed-upon remedy. Given that Lewis had categorically refused to rescind the transaction, the rescission provision could have been enforced As to the rescission remedy, Sawyer contends that there was enough evidence in the record to permit a reasonable jury to conclude that Lewis deliberately concealed the machine's inability to meet cherry processing warranties until sometime in 1972. By this time, Sawyer contends, it had made significant commitments with respect to frozen products. Sawyer further asserts that rescission and the concomitant removal of the freezer in 1972 would have been financially destructive in that it would have caused Sawyer to lose revenues and breach important commitments.
in a court action, and thus the essence of the remedy could have been carried out.
Having studied the record below, we believe that there was adequate evidence to support Sawyer's version as set out above. Letters and trial testimony indicate that Lewis was either unable or reluctant to promptly and effectively administer performance tests on the cherries. 5 This well could have prevented Sawyer from making an intelligent decision on rescission until 1972, by which time Sawyer had made numerous frozen product commitments. See Appendix at 145-147; 230-237.
We believe it was appropriate for the jury to consider these circumstances in connection with the issue of whether the rescission remedy failed of its essential purpose. Washington cases hold that an exclusive remedy fails its essential purpose where a conceded defect is not detectable until it is impractical to effectuate the exclusive remedy. 6 While the latent defect theory is most often applied in cases involving the repair remedy, 7 and while the facts of this case are not nearly as strong as Sawyer seems to believe, we find that it was not erroneous for the district court to allow the jury to consider whether Lewis concealed the facts until such time as a rescission would have caused severe financial damages to Sawyer. And given that this factual version was true, it was within the ambit of section 2-719(2) for the jury to find that the rescission remedy failed of its essential purpose. Thus, we reject appellant's contention that the district court erred by allowing the jury to consider the evidence in this case as applied to the issue of whether the repair and rescission remedy failed its essential purpose under RCW 62A.2-719(2).
Lewis next contends that, assuming arguendo that the repair and rescission remedy failed of its essential purpose, the district court should generally have prohibited the jury from awarding consequential damages. This argument is bottomed on Lewis's apparent belief that damages in breach of warranty actions are confined to the benefit of the bargain measure of damages set out in RCW 62A.2-714(2).
This contention is patently incorrect. RCW 62A.2-714(3) authorizes consequential damages in appropriate cases. RCW 62A.2-715(2) then provides that consequential damages from a seller's breach include losses reasonably foreseeable that cannot be mitigated by cover.
Cover is not an issue in this appeal. And since there is a good deal of evidence in the record indicating that the freezer was to be an important part of Sawyer's
production, we conclude that a reasonable jury...
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