Case Law Summaries

Colonial Speciality Foods, Inc. v. County of Cape May

• Opinion Date: December 7, 2001
• Business Law
• E-Mail

UCC; WARRANTIES; REMEDIES—A supplier of goods may expressly limit a buyer’s remedies and may expressly disclaim warranties, but if an exclusive or limited remedy fails of its essential purpose, remedy may be had under the remedy provisions of the UCC.

A painting contractor was engaged to recoat a concrete floor with a sealant. The sealant took too long to dry and its fumes damaged food products stored by the building’s occupant. The building contractor settled with the building’s occupant, and sought to recover damages from the sealant’s manufacturer. In doing so, it sought to characterize its claim as one under tort principles and not one strictly under the Uniform Commercial Code. If the painting contractor’s losses were purely economic losses, the UCC would apply. If it included damage to the property of third parties, the contractor may have been entitled to sue in tort for all of its consequential damages. Essentially, the painting contractor alleged two theories. First, because the fumes damaged the occupant’s stored food, such harm constituted damages to third party property. The Court rejected that theory because the food product was not the painting contractor’s property and that suffering a loss by reason of a settlement with the occupant did not give rise to a direct claim for such a loss. Essentially, the alleged loss from odors was not the painter’s loss and because the painting contractor had an agreement with the sealant supplier, the nature of the painting contractor’s claim was to be handled under a contract theory, and thus under the UCC. The painter also contended that when it was required to recoat the floor, its sandblasting operation caused direct damage to the floor. Here, the Court noted that it was expected that removal of a prior coating by sandblasting was expected to remove a thin layer of concrete and therefore, the removal of the thin layer of concrete belonging to the “third party,” was part of the process of replacing the floor, and not an act of damage. Further, there was no indication that removal of a thin layer of concrete caused permanent damage to the ultimate condition of the floor. This then left the painter’s claims exclusively under the UCC.
It was undisputed that the sealant company’s documents contained provisions limiting that company’s liability “in the event that its products failed to perform in accordance with their representations. The documents [contained] a general disclaimer of warranties under the Code but [did] not contain an express exclusion of consequential damages.” Specifically, the sealant manufacturer’s documents stated that it “MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCT AND DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE. Any liability ... arising out of the sale, use or application of [the] Product shall be limited to replacement of the Product used.” Further, still other documents from the sealant company stated that the company assumed no responsibility for coverage, performance or injuries resulting from use. “Liability, if any, [was] limited to replacement of products.” The UCC allows recovery for damages, including incidental and consequential damages, but also recognizes “that the parties may contract to limit the remedies available to each of them upon a breach.” As to a limitation, however, 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 Act.” A comment to the UCC explains that if a warranty-limiting provision operates in an unconscionable manner, it 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, ... 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.” The Court recognized that the “repair and replacement ‘warranty’ is the most common means by a which a seller seeks to limit the remedies available to the buyer upon the seller’s breach.” A “repair and replacement warranty” obligates a seller to attempt to repair defective equipment, but if repeated repair attempts fail to correct the problem, such remedy may be considered to have failed to fulfill its essential purpose. Nonetheless, “it is not in every case that the failure of the limited remedy to fulfill its essential purpose will permit a buyer to obtain consequential damages.” The Court stated that it was generally recognized “that a consequential damage disclaimer clause and a clause limiting a supplier’s liability to repair or replacement upon its breach of warranty ‘are two discrete ways of attempting to limit recovery for breach of warranty.’ Accordingly, “the reasonable expectations of the parties and their intent should be examined before a limitation of remedy clause is invalidated or accepted. Among the pertinent considerations of such an evaluation are the circumstances of the transaction, including the seller’s breach, whether the relevant documents contain an express exclusion of consequential damages, whether the limited remedy clauses contained in product information sheets rather than in a contract that was ‘the product of mutual negotiation and cooperative draftsmanship,’ ..., and whether the alleged ‘defect’ relates not just to the product, but to the ‘services’ and accompanying documents that provide instructions and directions with respect to its use.” The Court believed that the lower court did not consider any of these issues and reversed and remanded the matter. Nonetheless, it warned the lower court that this was not a case where the evidence “is so one-sided that one party must prevail as a matter of law.” Lastly, the Court disagreed with the lower court’s characterization of the painter’s claims as arising out of its subrogation rights, rather than “contribution or indemnity claims.” Instead, it held that the painter’s rights, if any, did not arise under principles of subrogation, “but under principles of indemnity… .” Nothing in the UCC precludes a party from obtaining common law indemnification from the primary wrongdoer. Moreover, indemnification is permitted for monies paid in settlement of a lawsuit. “Subrogation, on the other hand, is a right that is derivative of the right of the person who is harmed. ... Although [the painter] relied on the existence of [the building occupant’s] direct damages to support its allegation of physical property damage, that reliance did not convert [the painter’s] claims for contribution and indemnification into claims in which [the painter] became the subrogee of [the building occupant’s] direct claims.”

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