Princess Cruises, Inc. v. General Electric Co.
143 F.3d 828 (1998)
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Rule of Law:
When the predominant purpose of a maritime or land-based contract that involves both goods and services is the rendering of services, the Uniform Commercial Code (UCC) is inapplicable. Instead, courts must apply common-law contract principles to interpret the agreement.
Facts:
- Princess Cruises, Inc. (Princess) scheduled its cruise ship, the SS Sky Princess, for routine inspection and repair services.
- Princess issued a Purchase Order to General Electric Company (GE) with a proposed price of $260,000 and its own set of terms and conditions.
- GE responded with a Final Price Quotation for $231,925, which included GE's own terms and conditions that expressly rejected Princess's terms, disclaimed warranties, and limited GE's liability for consequential damages.
- During a telephone call, Princess gave GE permission to proceed with the work based on the price set forth in GE's Final Price Quotation.
- While performing the services, GE's technicians improperly cleaned the ship's main turbine rotor, removing good metal and rendering it unbalanced.
- The damage and subsequent repair attempts caused significant delays, forcing Princess to cancel a ten-day Christmas cruise and a ten-day Easter cruise.
- Despite the issues, Princess paid GE the full amount stated in GE's Final Price Quotation: $231,925.00.
Procedural Posture:
- Princess filed a complaint against GE in U.S. District Court alleging breach of contract, breach of warranty, and negligence.
- The district court granted GE summary judgment on the negligence claim.
- The case proceeded to a jury trial on the contract and warranty claims.
- The district court, applying UCC § 2-207 principles, instructed the jury that it could award consequential damages, such as lost profits.
- The jury returned a verdict in favor of Princess for $4,577,743.00.
- GE filed a renewed motion for judgment as a matter of law, arguing the court should vacate the consequential damages award because common law, not the UCC, governed the services contract.
- The district court denied GE's renewed motion.
- GE, as appellant, appealed the district court's denial to the U.S. Court of Appeals for the Fourth Circuit, with Princess as the appellee.
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Issue:
Does the Uniform Commercial Code (UCC) apply to a mixed maritime contract for goods and services when the contract's predominant purpose is the rendering of services?
Opinions:
Majority - Judge Goodwin
No, the UCC does not apply to a mixed maritime contract when its predominant purpose is the rendering of services. To maintain uniformity and predictability in admiralty law, courts should apply the same 'predominant purpose' test used for land-based contracts. This test requires an analysis of the contract's language, the supplier's business nature, and the intrinsic worth of the materials. Here, the contract was predominantly for services, as evidenced by the documents describing the work as 'engineering services' and the gravamen of the complaint being GE's deficient performance, not deficient parts. Therefore, common law principles govern. Under the common law's 'mirror image rule,' GE's Final Price Quotation was a counteroffer because it materially altered Princess's Purchase Order. Princess accepted this counteroffer by its conduct—authorizing the work to begin and paying the price stipulated by GE. Consequently, GE’s terms, which disclaimed liability for consequential damages like lost profits, are controlling.
Analysis:
This decision formally integrates the land-based 'predominant purpose' test into maritime law for mixed goods and services contracts, promoting consistency across commercial law. It solidifies the distinction between the UCC's treatment of conflicting forms under § 2-207 and the common law's stricter 'mirror image rule' for service contracts. The case serves as a critical reminder that the classification of a contract as one for goods versus services can have dispositive effects on liability, particularly concerning the enforceability of damage limitation clauses. By siding with the common law framework, the court affirmed that parties in service transactions can rely on their counteroffers being accepted through performance, thereby protecting their contractual liability limitations.
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