Price Bros. Co. v. Charles J. Rogers Const. Co.

• Decision Date: 04 March 1981
• Docket Number: Docket No. 51605
• Citation: 104 Mich.App. 369,304 N.W.2d 584,31 UCC Rep.Serv. 579
• Parties: PRICE BROTHERS COMPANY, a Michigan corporation, Plaintiff-Appellee, Cross-Defendant, v. CHARLES J. ROGERS CONSTRUCTION COMPANY, a Michigan corporation, and the AetnaCasualty and Surety Company, a foreign corporation, Defendants-Appellants, Cross-Plaintiffs. 104 Mich.App. 369, 304 N.W.2d 584, 31 UCC Rep.Serv. 579
• Court: Court of Appeal of Michigan — District of US

Page 584

304 N.W.2d 584

PRICE BROTHERS COMPANY, a Michigan corporation Plaintiff-Appellee, Cross-Defendant, v. CHARLES J. ROGERS CONSTRUCTION COMPANY, a Michigan corporation, and the AetnaCasualty and Surety Company, a foreign corporation Defendants-Appellants Cross-Plaintiffs.

Docket No. 51605.

104 Mich.App. 369, 304 N.W.2d 584, 31 UCC Rep.Serv. 579

Court of Appeals of Michigan.

March 4, 1981.

Rehearing Denied April 24, 1981.

Released for Publication April 30, 1981.

[104 MICHAPP 371] Merle R. Jenkins, Southfield, for defendants-appellants, cross-plaintiffs.

Robert R. Nix, II, Detroit, for plaintiff-appellee, cross-defendant.

Before BRONSON, P. J., and J. H. GILLIS and BOSMAN, ^* JJ.

J. H. GILLIS, Judge.

The Charles J. Rogers Construction Company (Rogers) had engaged in a project to install sewer lines in Bay City. Price Brothers Company (Price) agreed to supply Rogers with the required sewer pipe, and The Aetna Casualty and Surety Company (Aetna) was Rogers' surety. On February 22, 1978, Price instituted suit against Rogers and Aetna for unpaid balances due pursuant to the agreements entered into. On July 31, 1978, Rogers filed a counterclaim. A bench trial was held, judgments were entered in favor of Price on April 28, 1980, and defendants appeal therefrom as of right.

The judgments from which defendants appeal provided as follows: (1) Rogers' counterclaim was barred by time limitations contained in the agreements between Rogers and Price; (2) Rogers' counterclaim was also barred by the warranty limitations[104 MICHAPP 372] in the parties' agreements; and (3) Aetna, in its capacity as labor and materials payment surety, was liable to Price for unpaid service charges Price claimed against Aetna's principal, Rogers.

Although defendants challenge each of these bases for judgment in plaintiff's favor, only the latter two will be discussed herein.

On January 14, 1976, plaintiff and Rogers entered into an agreement whereby plaintiff agreed to furnish certain open cut pipe to defendant. A similar contract, dated April 14, 1976, embodied plaintiff's agreement to furnish jack pipe to defendant. Open cut pipe is installed by creating a ditch by open excavation and lowering the pipe in place. Jack pipe is installed by excavating a shaft to the depth of the sewer line. A mining machine is then lowered into the shaft with a length of sewer pipe attached to it. The mining machine and each successive sewer pipe are pushed forward underground by hydraulic jacks. When a pipe breaks in the tunnel, the operation must cease immediately, and the broken pipe is then replaced. This repair operation may take from one to two-and-a-half weeks. In the instant case, three separate jack pipe breaks occurred, and plaintiff supplied replacement pipes in each instance. Rogers expended $60,315 to repair the jack pipe breaks, a figure which represents approximately five percent of its total principal cost for all pipe supplied by Price.

Rogers' counterclaim asserted that the jack pipe breaks resulted from defects in the pipes, and that plaintiff was liable for the $60,315 expended by Rogers in repairing the breaks by inserting new pipes in the underground sewer line. Plaintiff asserted in response that the contract limited Rogers' consequential damages to above-ground [104 MICHAPP 373] replacement of the broken pipes, and that it (plaintiff) had fulfilled this obligation. Rogers' claim of error on appeal is that the contract provision limiting Rogers' consequential damages to replacement of defective pipe failed of its essential purpose and, thus, the trial court erred in ruling that such provision barred Rogers' counterclaim.

At issue here is the meaning of M.C.L. § 440.2719; M.S.A. § 19.2719:

"(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages

"(a) the agreement may provide for remedies in addition to or in substitution for those provided in this article and may limit or alter the measure of damages recoverable under this article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and

"(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

"(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this act.

"(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not."

While defendants do not challenge plaintiff's right to limit its liability to repair and replacement of defective pipe, as authorized by § 2-719(1)(a), defendants do assert that such remedy has failed of its essential purpose, a result which would leave defendants free to pursue other remedies[104 MICHAPP 374] available under the Uniform Commercial Code. M.C.L. § 440.2719(2); M.S.A. § 19.2719(2).

The Official Comments to § 2-719(2) state as follows:

"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."

In White & Summers, Handbook on the Law Under the Uniform Commercial Code, pp. 380-383, some care is taken to point out that § 2-719(2) should be triggered only when the remedy fails of its essential purpose. That is, when unanticipated circumstances cause the seller to be unable to provide the buyer with the remedy to which the parties agreed, that remedy has failed of its essential purpose. It is a different question entirely if the remedy is unreasonable or unconscionable, for in such event it may not fail of its essential purpose although it leaves the buyer without an adequate remedy as to some part of the actions required to cure the problem.

In the instant case, the parties agreed that plaintiff would be liable for the above-ground repair and replacement of defective pipe. Plaintiff fulfilled this responsibility, but defendants assert that plaintiff should also bear the cost of placing the replacement pipe in the sewer line. Defendants' argument states that above-ground replacement "actually provides the buyer with no remedy at all". Several responses may be made to this argument.

First, even if the contracted-for remedy is, in fact, no remedy at all, it has not necessarily failed of its essential purpose. Defendant Rogers is a [104 MICHAPP 375] long-established sewer line contractor which has had previous experience with jack-pipe sewer installations. Defendant Rogers' project manager, Frederick Rozelle, testified at trial that, although he had never before worked on a project in which such pipe breaks occurred, it was his experience that jack-pipe breaks were not unforeseeable. Testimony on plaintiff's behalf indicated that, because pipe breaks were foreseeable, the above-ground repair or replacement provision was necessary to allocate the risks and keep the price of the pipe at a reasonable level. Thus, the purpose of the contract clause was fulfilled; the risk of replacing broken pipe with new pipe was reallocated so that the overall cost of the pipe could be maintained at a reasonable level. When the pipe broke, plaintiff did exactly what it had contracted to do, and defendant was not left without any remedy at all.

As previously noted, § 2-719(2) is triggered when unanticipated circumstances render the seller unable to provide the buyer with the contracted-for remedy. If, in this case, a latent defect in all the pipes caused them to break during installation, and the replacement pipes were similarly defective, such a situation would clearly have been caused by unanticipated circumstances. The breakage which occurred here, however, was not an unanticipated circumstance. As such, this is not a proper case for application of § 2-719(2). Rather, defendants' argument would be better addressed to the question of unconscionability, although we...