Mississippi Chemical Corp. v. Dresser-Rand Co.
287 F.3d 359 (2002)
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Rule of Law:
When a sales contract contains an exclusive 'repair or replace' remedy for a breach of warranty, the statute of limitations does not begin to run upon tender of delivery. Instead, the cause of action accrues, and the statute of limitations begins to run, when the exclusive remedy fails its essential purpose.
Facts:
- In 1989, Mississippi Chemical Corporation (MCC) purchased a specially designed gas compressor train from Dresser-Rand Company (Dresser) for use in its ammonia production plant.
- The sales contract contained an express warranty that the equipment would be free from defects, with an exclusive remedy requiring Dresser to promptly correct any defects at its own expense.
- In April 1990, the high case compressor failed. Dresser repaired the component and assured MCC that all defects were cured.
- In December 1992, the low case compressor began to experience excessive vibrations, which by May 1993 forced MCC to reduce the compressor train's speed, resulting in lost ammonia production.
- Between September 1993 and December 1996, Dresser identified fractures and recommended modifications for various components in the low case compressor due to recurring vibration issues.
- In December 1996, Dresser informed MCC that similar repairs would also be necessary for the impeller components of the high case compressor.
Procedural Posture:
- In March 1997, Mississippi Chemical Corporation (MCC) filed suit against Dresser-Rand Company (Dresser) in federal district court, alleging negligent design and breach of express and implied warranties.
- Dresser filed a motion to dismiss, arguing the warranty claims were barred by the statute of limitations, which the district court denied.
- After discovery, Dresser filed a motion for summary judgment on the same grounds, which the district court also denied.
- During trial, the court granted Dresser's motion for judgment as a matter of law on MCC's negligent design claim, dismissing it under the 'economic loss' doctrine.
- The warranty claims proceeded to a jury, which found in favor of MCC, concluding that the exclusive 'repair and replacement' remedy had failed its essential purpose.
- The jury awarded MCC $4,422,876.92 in damages for lost profits.
- The district court denied Dresser's post-verdict motions for judgment as a matter of law and for a new trial or remittitur.
- Dresser (appellant) appealed the denial of its post-verdict motions to the U.S. Court of Appeals for the Fifth Circuit, with MCC (appellee) as the responding party.
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Issue:
Does the statute of limitations for a breach of express warranty claim begin to run from the date of the product's delivery when the contract's exclusive remedy is to repair or replace the product, and that remedy subsequently fails its essential purpose?
Opinions:
Majority - E. Grady Jolly
No. The statute of limitations does not begin to run until the exclusive 'repair or replace' remedy fails its essential purpose. The court distinguished between the underlying warranty (that the goods would be free from defects) and the exclusive remedy for its breach (the promise to repair). Under the UCC, a buyer must first seek the exclusive remedy. Only when that remedy fails its essential purpose may the buyer bring a contract action for damages. Here, the remedy of repair did not fail until the problems with the compressor train resurfaced and persisted after Dresser's initial 1990 repair attempt. The earliest this failure could have occurred was December 1992, when the low case compressor began to malfunction. Because MCC filed suit in March 1997, within the six-year statute of limitations from the date the remedy failed, its express warranty claim was not time-barred.
Analysis:
This decision clarifies the application of the UCC statute of limitations in cases involving an exclusive 'repair or replace' remedy. It establishes that the cause of action accrues not at the initial delivery, but at the point where the seller's attempts to honor the remedy prove ineffective. This prevents a seller from 'running out the clock' on the statute of limitations with repeated, unsuccessful repair attempts. The ruling provides greater protection for buyers of complex machinery, ensuring they have a viable path to seek damages when the promised remedy fails to provide them with a functional product.
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