Middletown Concrete Products, Inc. v. Black Clawson Co.
802 F. Supp. 1135 (1992)
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Rule of Law:
A seller's post-contract conduct that appears to recognize performance obligations not contained in the final written agreement can operate as a waiver of both a no-oral-modification clause and a warranty disclaimer. A contractual exclusion of consequential damages is analyzed independently from a limited remedy and will be enforced unless found to be unconscionable, even if the limited remedy fails of its essential purpose.
Facts:
- In 1988, Middletown Concrete Products, Inc. (MCP), a company formed by experienced businessmen, began negotiations with Hydrotile Machinery Company (Hydrotile) to purchase a concrete pipe manufacturing system.
- During negotiations, Hydrotile provided MCP with promotional materials and an 'Acceptable Performance Letter' that specified certain production rates for its new, untested 'Neptune' machine.
- MCP expressed concern about the Neptune's lack of a track record and repeatedly requested that Hydrotile guarantee the production rates and include a 'buy-back' provision if the system underperformed.
- Hydrotile explicitly refused to guarantee the production rates from its literature, would not agree to a buy-back provision, and instead provided the lower, estimated rates in the Acceptable Performance Letter without making them part of the final deal.
- In March 1989, MCP signed three written contracts for the system. The contracts each contained merger clauses stating they were the entire agreement and warranty provisions that disclaimed all warranties (including for fitness and merchantability) except for a 90-day promise to repair or replace defective parts.
- After the system was delivered and installed in 1990, it failed to achieve the production rates outlined in the pre-contract Acceptable Performance Letter.
- MCP notified Hydrotile of numerous defects and performance failures. Over several months, Hydrotile sent specialists to investigate, acknowledged certain defects, and engaged in a joint effort with MCP, including a 'school' for MCP's personnel, to improve the system's performance.
- Post-contract correspondence from both parties referred to the system's failure to perform 'as promised' and to meet 'acceptable levels for pipe quantity or quality.'
Procedural Posture:
- Middletown Concrete Products, Inc. (MCP) filed a complaint against Black Clawson Co. and Hydrotile Machinery Company in the U.S. District Court for the District of Delaware, a federal trial court.
- MCP filed a motion for summary judgment on its breach of contract and warranty claims.
- The defendants, Black Clawson and Hydrotile, filed a cross-motion for summary judgment on all counts asserted by MCP.
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Issue:
Does a seller's post-contract conduct, including repair efforts and correspondence related to performance benchmarks not included in an integrated written contract, create a genuine issue of material fact as to whether the seller waived the contract's warranty disclaimers and its clause prohibiting non-written modifications?
Opinions:
Majority - Murray M. Schwartz
Yes. While the parol evidence rule bars the admission of the pre-contract 'Acceptable Performance Letter' to contradict the final written contracts' warranty disclaimers, the seller's post-contract conduct creates a triable issue of fact as to whether it waived those disclaimers and the contract's no-oral-modification clause. The court reasoned that although the written contracts were a 'final expression' of the parties' agreement under UCC § 2-202, the performance guarantees in the letter would contradict the explicit warranty disclaimers, making them inadmissible to prove the original terms of the contract. However, under UCC § 2-209(4), an attempt at modification that fails because it is not in writing can still operate as a waiver. A jury could reasonably infer from Hydrotile's extensive post-contract repair efforts and correspondence addressing performance failures that Hydrotile intended to waive the contract's limitations and honor the performance promises. This genuine issue of material fact precludes summary judgment for the defendants. The court also held that even if the limited 'repair or replace' remedy failed its essential purpose, the contract's separate clause excluding consequential damages would still be enforceable because it is not unconscionable, adopting the 'independent' view of UCC § 2-719(2) and (3).
Analysis:
This decision illustrates the significant role of post-contract conduct in commercial disputes under the UCC, particularly the power of waiver under § 2-209(4) to overcome an otherwise clear merger clause and no-oral-modification provision. It establishes that even where the parol evidence rule bars the inclusion of prior promises into a contract, a party's subsequent actions can potentially revive those obligations through waiver, creating a factual question for a jury. Furthermore, the court's prediction of Iowa law solidifies the modern trend of treating consequential damage exclusions as independent risk-allocation tools. This 'independent' approach provides significant protection to sellers in commercial transactions by ensuring that even if their limited remedy (like 'repair or replace') fails, they will not automatically be exposed to liability for the buyer's lost profits unless the exclusion itself is unconscionable.
