Ragen Corp. v. Kearney & Trecker Corp.

• Decision Date: 15 August 1990
• Docket Number: Nos. 89-5804,89-5832,s. 89-5804
• Parties: RAGEN CORPORATION, a Corporation of the State of New Jersey v. KEARNEY & TRECKER CORPORATION, a Subsidiary or Division of Cross & Trecker Corporation (Two Cases). Appeal of RAGEN CORPORATION. Appeal of KEARNEY & TRECKER CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

Page 619

912 F.2d 619

RAGEN CORPORATION, a Corporation of the State of New Jersey v. KEARNEY & TRECKER CORPORATION, a Subsidiary or Division of Cross & Trecker Corporation (Two Cases) Appeal of RAGEN CORPORATION Appeal of KEARNEY & TRECKER CORPORATION.

Nos. 89-5804, 89-5832.

United States Court of Appeals Third Circuit.

Argued May 24, 1990.

Decided Aug. 15, 1990.

Anthony J. Marchetta (argued) and Lawrence T. Neher, Hannoch Weisman, P.C., Roseland, N.J., for appellant/cross-appellee Ragen Corp.

Stephen N. Dermer (argued), Lowenstein, Sandler, Kohl, Fisher & Boylan, P.C., Roseland, N.J., and Jeff C. Miller, Malcolm D. Young, Young & White, Omaha, Neb., for appellee/cross-appellant Kearney & Trecker Corp.

Before COWEN, NYGAARD and ALDISERT, Circuit Judges.

ORDER VACATING PRIOR OPINION

The Court having granted rehearing before the original panel, it is ordered that the opinion and judgment entered on July 9, 1990 is vacated.

OPINION OF THE COURT

NYGAARD, Circuit Judge.

In this diversity case both parties appeal from a verdict of the court awarding damages for breach of warranty. During the period from 1978 to 1983 Kearney & Trecker Corporation (K & T) sold eight machines to Ragen Corporation (Ragen); agreed to retrofit four others Ragen previously purchased from K & T; and, Ragen placed orders for four new machines. When the machines failed to perform adequately, Ragen canceled the new orders and filed suit seeking to recover for breach of warranty, design defects in the machines, and fraud. K & T sought to recover damages it allegedly incurred when Ragen canceled its orders for the new machines. The district court denied K & T any recovery and compensated Ragen only for direct damages resulting from the breach of warranty.

Ragen claims the district court erred by denying it any consequential damages; by miscalculating its direct damage award for K & T's breach of warranty; by failing to rule on its fraud claim; and, by failing to rule on its claims regarding the retrofitted machines.

K & T claims the breach of warranty award to Ragen is not supported by proof of any damage; the statute of limitations bars Ragen's claims on the first three machines purchased; and, the court erred by rejecting K & T's claim for damages as a lost volume seller.

I.

Ragen is a New Jersey Corporation which manufactures component parts for computers and nuclear reactors. K & T is a Wisconsin Corporation which manufactures high-speed machining equipment. These two companies have enjoyed a business relationship which dates back to 1955.

In 1976, K & T began manufacturing the MM800. It is a fully automated, computerized machining center designed to drill, bore and mill metal pieces and castings. In April, 1978, after two years of discussions, K & T submitted a proposal to Ragen to sell it an MM800. The proposal provided a detailed description of the MM800, the base price, a price list for available options, and the terms and conditions of the proposed sale. The following terms and conditions of the proposal are relevant:

PRICE: ... Prices quoted are F.O.B. Point of Origin, are firm for thirty days from the date hereof providing Buyer's order is received within such period and are subject to change without notice on any order received thereafter....

DELIVERY: The quoted delivery date is approximate and a more specific date will be established upon Seller's acceptance of Buyer's order ...

TERMS OF PAYMENT: Subject to Home Office approval, terms of payment are thirty (30) days net without cash discount. Special terms of payment must be specifically negotiated.

WARRANTY, DISCIAIMER, 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 delivery date F.O.B. Point of Origin 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 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 OR PRODUCT, OR AT SELLER'S OPTION, (ii) RETURN OF THE PRODUCT AND REFUND OF THE PURCHASE PRICE; AND SUCH REMEDY SHALL BE THE BUYER'S ENTIRE AND EXCLUSIVE REMEDY.

ACCEPTANCE OF ORDERS: Orders are subject to acceptance by Seller only at its home office.

. . . . .

INTERPRETATION: Any contract resulting from this quotation shall be governed by and construed on accordance with the laws of the State of Wisconsin.

In response, Ragen submitted a written purchase order. The order contains the following relevant provisions:

AGREEMENT: This Order, including the terms and conditions on the face and reverse side thereof, contains the complete and final agreement between Buyer and Seller. Reference to Sellers bids or proposals, if noted on this Purchase Order, shall not affect the terms and conditions hereof, unless specifically provided to the contrary herein, and no other agreement or condition in any way modifying any of said terms and conditions will be binding upon the Buyer unless made in writing, and signed by Buyer's authorized representative....

WARRANTY: Seller warrants that all of the articles and materials furnished under this order shall be free from defects in material and workmanship and will conform to applicable specifications ... supplied and that articles and materials of sellers design will also be free from defects in design. Said warranties shall remain in effect for a period of one year from receipt at Buyer's plant.... In case of breach, buyer shall have the right to request that the articles be corrected and Seller agrees to comply promptly at its own cost and expenses including transportation. Buyer may effect correction itself but at cost and expense of Seller. In view of the foregoing, Buyer may in its discretion elect to accept and retain the defective articles at a reduction in price corresponding to the decreased value.

K & T then responded by sending Ragen an acknowledgment form. In addition to the same warranty provisions as the proposal, the acknowledgment form contains the following relevant provision:

Thank you for your order which is accepted upon and only upon the terms and conditions hereof and any contrary or additional terms or conditions are hereby rejected. If you object to any of the terms and conditions hereof, it is essential that you notify us thereof specifying your objections within fifteen days after receipt of this acceptance.

These same forms were exchanged for each of the eight MM800 machines purchased by Ragen from K & T.

Ragen began experiencing problems with the first two machines soon after they were installed in January, 1979. After two more machines were installed in late 1979, the defects of the MM800s became apparent to Ragen. The MM800s malfunctioned in four main areas: (1) the axis motor; (2) the ball screws bearings; (3) the tool changers; and (4) the spindles. Pursuant to its warranty, K & T spent more than 7,000 hours repairing and servicing the MM800s at Ragen's plant over a period of nearly five years. This time and these repairs provided only temporary solutions. The recurring malfunctions caused a high rate of mechanical failure and the machines did not operate at, or near, capacity.

In January, 1981, the parties agreed to an action plan whereby K & T would make several modifications to the MM800s and would provide top-priority services and repairs, and Ragen would hire and adequately train additional maintenance personnel. Ragen initially complied, but as the additional maintenance personnel left Ragen's employ, Ragen did not replace them.

During this time, Ragen also encountered defects in Eb/1624 machining centers which had been retrofitted by K & T to operate like MM800s. Then, in November, 1980 Ragen canceled orders it had placed with K & T for two MM160s and, in March, 1982 canceled orders for two MM600 machining centers.

In August, 1981, Ragen threatened to cancel its orders for the remaining three MM800s. K & T offered to help Ragen keep the MM800s operating at 85% capacity if Ragen performed certain preventive maintenance functions. Ragen accepted the offer and did not withdraw its orders. By 1982 it became clear that K & T could not get the MM800s to operate at 85% capacity. Ragen also failed to perform its preventive maintenance function. After amicable negotiations failed, Ragen severed its business relations with K & T.

Ragen filed this lawsuit in July, 1983. Ragen asserted breach of warranty claims, design defect claims and fraud claims against K & T regarding the MM800s and the Eb/1624s. In its answer to Ragen's suit, K & T counterclaimed that Ragen breached the purchase contracts for the MM160s and MM600s. The issues were tried before the district court in May, 1987, but it issued no verdict until September, 1989. The court awarded compensation to Ragen for only the direct damages it sustained from K & T's breach of warranty on the MM800s.

The court examined the contract documents and found that K & T's proposal was an offer and Ragen's purchase order was an acceptance of that offer. Based upon these findings, the court concluded that Ragen's contractual remedy was limited to repair or replacement of the machines, and that a recovery for consequential damages was specifically excluded by the contract documents. The court also held that enforcement of the consequential damages exclusion of the contract...