Opinion ID: 552797
Heading Depth: 2
Heading Rank: 1

Heading: The Pliable Template

Text: 5 The following facts, found by the district court, are undisputed. On March 19, 1984, the thrust block on the main engine of the SERENA fractured during a voyage to New Orleans. The thrust block is that part of the shaft assembly that absorbs the thrust from the vessel's propeller. It consists of a large steel block which measures approximately 8 to 9 feet across by 4 to 5 feet high by 3 to 4 feet deep. It is fastened to the aft facing of the engine bed plate by a series of bolts, and secured by thrust pads to cushion the force received. Nathaniel Shipping, Inc., the owner of the SERENA, contracted with Louisiana Gulf Shipyards, Inc. (LGS), to repair the thrust block. Nathaniel ordered a new block from the original manufacturer, without bolt holes, because Nathaniel and LGS decided to use the old thrust block as a guide to exactly match the placement of the bolt holes on the new block. 6 LGS subcontracted the drilling of the holes in the new thrust block to General Electric Company (G.E.) at a cost of $4400. LGS and G.E. discussed the purpose of the work and the means by which G.E. was to perform the drilling, and G.E. understood that it was to match the holes in the new block as closely as possible to the alignment in the old block. However, when the old block was delivered to G.E.'s workshop, its machinist fashioned a template from steam gasketing material, which is pliable, rather than from a less flexible material, such as steel. In the process of making the template and transferring it to the new block, the measurement of the holes became distorted, and hence the holes G.E. drilled in the new block were not properly aligned. The result was that extensive repair measures were required, involving additional expenditures by both Nathaniel and LGS, including a loss to the vessel which the district court calculated to be 56 days' time. 7 The parties then filed various complaints against each other, all of which were settled before trial, save Nathaniel's and LGS's claims against G.E. After a bench trial, the district court found that G.E. had negligently drilled the bolt holes, and awarded damages, including attorney's fees, to both Nathaniel and LGS. The district court also made the following legal conclusions regarding the red letter clause, contained in paragraph 8 of the proverbial small print on the back of G.E.'s contract with LGS. 3 First, the clause was inapplicable to Nathaniel because Nathaniel was not a party to the contract. Second, the costs incurred by LGS were recoverable under paragraph 1 of the contract, in which G.E. warranted to repair, rebuild or modify its work if it was not of the kind or quality specified in the contract. Third, the clause was invalid as vague, as well as void as against public policy because the amount of the limitation of damages, $4400, was an insufficient deterrent to negligence by G.E. 8 In this appeal, G.E. does not contest the district court's factual findings or computation of damages. But it challenges the district court's legal interpretation and the validity and scope of the red letter clause, as applied to both Nathaniel's and LGS's claims, G.E. specifically challenges liability under East River for Nathaniel's damages. Nathaniel cross-appeals on the amount of damages awarded to it by the district court. 9