Reynolds Metals Co. v. Westinghouse Elec. Corp

Facts

P solicited bids for the sale of certain electrical equipment. D responded to the solicitation with a series of bids that were finalized in a full proposal to Reynolds offering to manufacture the desired equipment -- a large electric transformer unit -- for approximately $250,000.00. This price included not only the machinery itself but also a 'competent Westinghouse service engineer' who was to be present 'for two full days . . . during equipment check or start-up.' The proposal warranted the machinery for one year from the date of shipment and made those warranty terms the exclusive remedy of the purchaser; that is, D disclaimed all warranties not expressed in its proposal and excluded any liability to P for 'special, indirect, incidental or consequential damages' that might be sustained in the event of a breach of the sales contract or warranty. P accepted the D proposal with a purchase order whose warranty terms conflicted to some extent with those offered by D. The proposal and purchase order were in all other respects compatible, however, and D acknowledged the order and began work. P then requested an extension of the one-year warranty. D agreed and extended the warranty for an additional twelve months 'based upon storage during the first twelve months, . . . [for] a net total price of $2,637.00.' The warranty extension at this price was made dependent upon several conditions, including 'inspection of all equipment prior to start-up, and start-up supervision by D.' The cost of such supervision was to be borne by P in addition to the warranty extension price, with credit to be given P for cost of the two days of start-up assistance provided for in the original agreement. The equipment was shipped and two years later ready to be installed. P hired a local electrical contractor to perform most of this work under the supervision P's engineer, Ken Younger, and installation was substantially completed by late February. D's engineer arrived at the plant for final inspection and start-up of the equipment. He had a degree in electrical engineering but lacked extensive experience with transformer units of the type being installed, and more importantly, considered it his responsibility to 'technically assist' rather than to 'supervise.' He worked with P's engineer over the following two months until most problems with the unit were resolved, and the equipment was placed in service in late April. D's engineer failed to properly install the system for detection of ground current in the transformer. Only one of the grounding cables was routed through the alarm system that was supposed to alert the equipment operator when significant amounts of current were being grounded from the transformer. Thus, internal problems in the equipment that might otherwise be made apparent by the ground alarm system could go undetected. D's engineer also followed D guidelines in setting the sensitivity on the alarm for detection of ground current. Given the configuration of the grounding pads, that setting was assertedly too low to detect amounts of ground current that might otherwise indicate a problem with the transformer. The equipment had an expected life-span of twenty to thirty years. It failed less than a year later. P claims it failed from an improper design of a compression ring in the transformer and the improper installation of the ground detection system. P made a warranty claim to D based on the failure of the equipment. D denied the claim on the ground that its warranty had expired. The bill totaled $109,284.82 and P paid it. P then sued D and D removed to federal court based on diversity. The case proceeded to trial under theories of warranty and contract. The primary dispute was whether warranty protection commenced on the date of shipment of the equipment in 1971 or upon completion of the installation of the equipment in 1973. The district court granted an instructed verdict in favor of D on nearly all issues. The court substantially agreed with D's version of the formation of the contract and applied UCC 2.207 to strike from the agreement all conflicting warranty terms. The court replaced the struck provisions with pertinent implied Code warranties, but then concluded that any warranties on the equipment, whether provided by the Code or the agreement, were barred by applicable statutes of limitation. All warranties commenced running on the date the equipment was shipped and were thus expired when the equipment failed in April 1974. The court concluded that D's general disclaimer of implied warranties of merchantability and fitness survived and that this provision effectively disclaimed any implied or express warranties for services provided incidental to the sale of the equipment. The court also concluded that the term in the proposal excluding liability for special, indirect, incidental or consequential damages was a part of the contract. The court concluded that these warranty disclaimers did not necessarily bar a breach of contract claim based on the services of D's engineer. A jury could conclude that D had completely failed to fulfill its contractual obligation to provide a competent service engineer to supervise installation of the purchased equipment. The deficiencies in that service arguably constituted a total failure of performance. The jury found D failed to send a competent service engineer as required by the contract, and that this failure was a proximate cause of all of P's damages. The district court then entered judgment in favor of P in the amount of $109,284.82, with pre-judgment interest. D appealed.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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