Opinion ID: 552797
Heading Depth: 2
Heading Rank: 3

Heading: LGS's Claim: When Clauses Collide

Text: 52 G.E. advances several overlapping arguments to the effect that, regardless of the efficacy of the red letter clause against Nathaniel, the clause is nevertheless effective to bar, or at least limit, its liability to LGS. As noted, the district court held in the alternative that the clause did not bar LGS's claim because its costs were recoverable under the warranty in paragraph 1 of the LGS/G.E. contract, that the limitation was void as vague when read in conjunction with paragraph 1, and that the clause was invalid as against public policy because it did not sufficiently deter G.E.'s negligence. Applicable portions of the clause are set out in the margin. 33 53 We first consider the effect of the express warranty, paragraph 1 of the LGS/G.E. contract, relevant portions of which are set out in the margin. 34 G.E.'s response to the district court's finding regarding this warranty clause is that any recovery is limited by the amount stated in paragraph 8, that the 'repair or replace' provision was the exclusive warranty remedy, and that G.E. did in fact comply with its warranty because it satisfactorily repaired the thrust block. Under this theory, LGS is entitled to no recovery at all, since G.E. stayed within the terms of its warranty. 54 G.E. doth protest too much. In general, [c]lauses that purport to limit a party's legal responsibility are strictly construed and to be given effect must clearly express the intent of all parties whose liability is altered by the agreement. 35 Where, as here, an express warranty and a disclaimer of liability potentially conflict, we must harmonize the two, construing ambiguities contra proferentem and in favor of warranty coverage. 36 55 Even if we were not guided by these principles, we would agree with the interpretation adopted by the district court, which held that LGS's repair costs were not incidental or consequential damages under either paragraphs 8(a) or (b). In support of this view, we note that G.E.'s own actions belie its self-serving interpretation: under G.E.'s theory, it could have expended $4400 on repair efforts and then walked away from the job, citing the red letter clause. Yet G.E., in support of its argument that it met its obligation, now makes much of the fact that it spent more than twice the amount of the contract value in its repair efforts. This does not amount to a waiver, of course, but it nevertheless comports with the district court's more realistic reading of the warranty clause, which we adopt, under which the costs incurred by G.E. in meeting its repair or replace warranty were not limited by the red letter clause. 37 56 This brings us to G.E.'s second argument, which is that no costs were recoverable by LGS because G.E. in fact met its warranty obligation. It is true that the thrust block was eventually made serviceable--56 days' of lost use after G.E.'s negligence was discovered--and after significant expense by LGS in assisting G.E. in the effort. A repair or replace warranty provision is not a license to hold a customer hostage; it implies that the breach will be remedied as promptly as possible under the circumstances. The district court found, and G.E. does not dispute, that the costs incurred by LGS were for repairs necessary to make the thrust block serviceable, saving G.E. from either greater expense or a finding that it had breached its warranty. Hence G.E. cannot disclaim liability for LGS's costs on the theory that it met its obligations under the warranty. 57 G.E.'s final, partial, line of defense is that, [p]ursuant to the LGS/G.E. Contract, LGS agreed to pay all 'in' and 'out' costs associated with warranty correction work. The contract contains no such general cost-shifting provision, and we decline to read such a disclaimer into it. 38 In sum, the red letter clause was no doubt designed to disclaim as much liability as was legally possible, but the district court correctly held that it did not bar LGS's recovery of the costs incurred by its efforts to help G.E. repair the thrust block. 58 Because we hold that the terms of the warranty provision were sufficient to affirm the district court's judgment in favor of LGS ($27,373.59), we do not reach the other grounds of decision relied on by the district court in its judgment. 59