Download Clarkson-11e: Case Problem with Sample Answer

Clarkson-11e: Case Problem with Sample Answer
Chapter 22: Performance and Breach of Sales and Lease
Contracts
22–6. Case Problem with Sample Answer
Eaton Corp. bought four air-conditioning units from Trane Co., an operating division of
American Standard, Inc., in 1998. The contract stated in part, “NEITHER PARTY
SHALL BE LIABLE FOR . . . CONSEQUENTIAL DAMAGES.” Trane was responsible
for servicing the units. During the last ten days of March 2003, Trane’s employees
serviced and inspected the units, changed the filters and belts, and made a material list
for repairs. On April 3, a fire occurred at Eaton’s facility, extensively damaging the units
and the facility, although no one was hurt. Alleging that the fire started in the electric
motor of one of the units, and that Trane’s faulty servicing of the units caused the fire,
Eaton filed a suit in a federal district court against Trane. Eaton asserted a breach of
contract, among other claims, seeking consequential damages. Trane filed a motion for
summary judgment, based on the limitation-of-remedies clause. What are consequential
damages? Can these be limited in some circumstances? Is the clause valid in this
case? Explain. [Eaton Corp. v. Trane Carolina Plains, 350 F.Supp.2d 699 (D.S.C.
2004)]
Sample Answer:
Consequential damages are foreseeable damages that result from a party’s breach of
contract but are caused by special circumstances beyond the contract. Under UCC 2–
719, the parties to a contract can agree to modify or limit the recovery of consequential
damages as long as the limitation is not unconscionable. In this case, the factors for
making this determination include any disparity in the parties’ bargaining power—which
would be influenced by the relative size of their business organizations and related
business sophistication—and the conspicuousness and clarity of the clause in the
contract. Here, the limitation of remedies provision is not unconscionable. Eaton is a
substantial business concern that negotiated the contract at arm’s length with Trane,
another sophisticated party. Also, there was no surprise regarding the limitations clause,
which was clear and conspicuously printed in large, bold capital letters. Thus, under the
limitation-of-remedies clause in the parties’ agreement, the court should grant Trane’s
motion for summary judgment on Eaton’s breach-of-contract claim.