21-3. Limited Remedies. In 1968, Canal Electric Co. purchased a steam turbine ge

Question

21-3. Limited Remedies. In 1968, Canal Electric Co. purchased a steam turbine gen­era­tor from Westinghouse Corp. In 1983, Canal purchased some new rotating blades from Westinghouse to use in the generator. The contract covering the 1983 sale of the blades warranted that Westinghouse would repair or replace any defective parts for a one-year period and limited Westinghouse’s total liability under the contract to the pur­chase price of the blades, which was $40,750. Liability for incidental and consequential damages was specifically disclaimed. A few months later, the blades developed cracks, and Canal had to shut down operations for 124 days while the blades were being re­placed. As a result, Canal incurred costs (which were significantly higher than the purchase price of the blades) to obtain replacement power during this period. Ultimately, Canal sued Westinghouse for breach of warranty and negligence. Westinghouse claimed that its lia­bility to Canal was limited to the purchase price of the blades, $40,750. Will the court en­force the limitation-of-liability clause? What factors will the court consider in deciding the issue? Discuss fully. [ Canal Electric Co. v. Westinghouse Electric Corp., 756 F.Supp. 620 (D.Mass. 1991)]

Explanation / Answer

A limitation of liability clause limits the amount and types of damages that one party can recover from the other party.

Canal purchased new rotating blades from Westinghouse to use in the generator. There was a warranty that Westinghouse would repair or replace any defective parts for a one-year period.

The limited liability under the contract to the pur­chase price of the blades was $40,750. Liability for incidental and consequential damages was specifically disclaimed.

Will the court en­force the limitation-of-liability clause?

Yes, the court can en­force the limitation-of-liability clause.

What factors will the court consider in deciding the issue?

The limited liability under the contract to the pur­chase price of the blades was $40,750.The court needs to consider the potential damages that the company is exposed. The blades developed cracks a few months later from the day of purchase. Canal had to shut down operations for 124 days. As a result, Canal incurred costs (which were significantly higher than the purchase price of the blades) to obtain replacement power during this period.

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