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Figgie International, Inc. v. Destileria Serralles, Inc.

United States Court of Appeals for the Fourth Circuit
190 F.3d 252 (1999)
ELI5:

Rule of Law:

Under the Uniform Commercial Code (UCC), a well-established usage of trade can supplement a commercial sales agreement to impose an exclusive remedy of repair, replacement, or refund. Such a remedy does not fail its essential purpose if the seller, after failing to repair the goods, provides the buyer with a full refund of the purchase price.


Facts:

  • In June 1993, Destilería Serralles, Inc. (Serralles), a rum bottler, entered into a written agreement to purchase bottle-labeling equipment from Figgie International, Inc. (Figgie).
  • The equipment was intended to place clear labels onto clear rum bottles within a raised glass oval.
  • Figgie installed the equipment at Serralles's plant in April 1994, but it immediately experienced problems and failed to perform satisfactorily.
  • For several months, from April to November 1994, Figgie repeatedly attempted to repair the equipment.
  • When the repair attempts proved unsuccessful by November 1994, Figgie refunded the full purchase price to Serralles, and Serralles returned the equipment.
  • Serralles subsequently demanded that Figgie pay for additional losses allegedly caused by the equipment's failure.
  • The reverse side of Serralles's copy of the sales agreement, where general terms and conditions were supposed to be, was blank, and Figgie could not produce its original copy of the agreement.

Procedural Posture:

  • Figgie International, Inc. initiated a declaratory judgment action against Destilería Serralles, Inc. in federal district court.
  • Figgie filed a motion for summary judgment, and Serralles filed a cross-motion for partial summary judgment.
  • The district court granted Figgie's motion for summary judgment and denied Serralles's motion for partial summary judgment.
  • Serralles, as the appellant, appealed the district court's judgment to the United States Court of Appeals for the Fourth Circuit.

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Issue:

Under the Uniform Commercial Code, does a well-established usage of trade that limits remedies to repair, replacement, or refund supplement a sales agreement, and if so, does this limited remedy fail its essential purpose when the seller provides a full refund after repair attempts are unsuccessful?


Opinions:

Majority - Traxler, Circuit Judge

Yes, a well-established usage of trade can supplement a sales agreement with an exclusive remedy, and no, that remedy does not fail its essential purpose when the seller provides a full refund after unsuccessful repair attempts. Under the UCC, an 'agreement' includes terms implied from usage of trade. Figgie presented uncontradicted evidence that the custom in the bottle-labeling industry limits a buyer's remedies to repair, replacement, or refund and excludes consequential damages. This usage of trade supplements the parties' contract and establishes an exclusive remedy under UCC § 2-719. This limited remedy did not fail its essential purpose because it was a multi-part remedy of 'repair, replacement, or return.' While the 'repair' option failed, Figgie fulfilled the 'return' option by refunding the purchase price, thereby giving Serralles the substantial value of its bargain and precluding access to other UCC remedies.



Analysis:

This decision reinforces the power of 'usage of trade' under the UCC to supply essential contract terms, including exclusive remedies, even when not explicitly written in the parties' agreement. It clarifies that a limited remedy offering multiple options (e.g., repair or refund) does not fail its essential purpose as long as one of the options remains viable and provides the buyer with the substantial value of the bargain. This precedent protects sellers in industries with strong customs from liability for consequential damages, provided they honor the terms of the limited remedy, such as by offering a full refund when repairs fail.

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