Court Opinion

ID: 2967060
Source: CourtListenerOpinion
Date Created: 2015-09-22 01:50:21.819188+00
Date Added: 2024-06-11T12:48:49.821514
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FIGGIE INTERNATIONAL, INCORPORATED,
Plaintiff-Appellee,

v.
                                                                     No. 98-1739
DESTILERIA SERRALLES,
INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Charleston.
Falcon B. Hawkins, Senior District Judge.
(CA-96-330-1-2)

Argued: May 7, 1999

Decided: August 20, 1999

Before WIDENER, MOTZ, and TRAXLER, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Judge Traxler wrote the opinion, in
which Judge Widener and Judge Motz joined.

_________________________________________________________________

COUNSEL

ARGUED: Harold Alan Oberman, OBERMAN & OBERMAN,
Charleston, South Carolina, for Appellant. James Earle Reeves,
BARNWELL, WHALEY, PATTERSON & HELMS, L.L.C.,
Charleston, South Carolina, for Appellee. ON BRIEF: Marvin I.
Oberman, OBERMAN & OBERMAN, Charleston, South Carolina;
A. Arthur Rosenblum, Charleston, South Carolina, for Appellant. B.
Craig Killough, BARNWELL, WHALEY, PATTERSON & HELMS,
L.L.C., Charleston, South Carolina, for Appellee.

_________________________________________________________________

OPINION

TRAXLER, Circuit Judge:

This action arises out of a sales agreement between Destileria Ser-
ralles, Inc. ("Serralles"), a bottler of rum, and Figgie International,
Inc. ("Figgie"), a manufacturer of bottle-labeling equipment. Follow-
ing Figgie's unsuccessful attempts to provide satisfactory bottle-
labeling equipment to Serralles under the agreement, Serralles
returned the equipment and received a refund of the purchase price.

When a dispute arose as to whether Serralles was entitled to dam-
ages for breach of the agreement, Figgie instituted this declaratory
judgment action, seeking a determination that Serralles is limited
under the agreement to the exclusive remedy of repair, replacement,
or return of the equipment. See S.C. Code Ann. § 36-2-719 (Law. Co-
op. 1976). Serralles, on the other hand, contends that it is entitled to
the full array of remedies provided by the South Carolina Uniform
Commercial Code (the "UCC" or "Code"). See S.C. Code Ann. §§ 36-
2-712, -714, and -715 (Law. Co-op. 1976). The district court granted
Figgie's motion for summary judgment and denied Serralles' motion
for partial summary judgment. Finding no error in the district court's
judgment, we affirm.

I.

Serralles, a distributor of rum and other products, operates a rum
bottling plant in Puerto Rico. In June 1993, Serralles and Figgie
entered into a written agreement under which Figgie was to provide
bottle-labeling equipment capable of placing a clear label on a clear
bottle of "Cristal" rum within a raised glass oval. When the bottle-
labeling equipment was installed in the Serralles plant in April 1994,
however, problems arose immediately. Over the course of the next
several months, Figgie attempted to repair the equipment to achieve
satisfactory performance. However, by November 1994, the equip-

                    2
ment still did not work properly, prompting Figgie to refund the pur-
chase price and Serralles to return the equipment.

Additionally, Serralles requested that Figgie pay for alleged losses
caused by the failure of the equipment to perform as expected and by
the delay in obtaining alternative equipment. Unable to reach a com-
promise, Figgie instituted this declaratory judgment action, asserting
that it owed no further obligations to Serralles under the agreement
because Serralles' remedy for breach was limited to repair, replace-
ment, or refund -- both under the written terms and conditions of the
sales agreement and pursuant to usage of trade in the bottle-labeling
industry.

With regard to the alleged limitation of remedy in the sales agree-
ment, Figgie asserts that standard terms and conditions accompanying
the sales agreement contained the following language:

          Buyer's exclusive remedies for all claims arising out of this
          agreement and the transaction to which it pertains shall be
          the right to return the product at buyer's expense, and, at
          seller's option, receive repayment of the purchase price plus
          reasonable depreciation for the repair and/or replacement of
          the product. . . . Seller shall not be subject to any other obli-
          gations or liabilities whatsoever with respect to this transac-
          tion, and shall under no circumstances be liable for delays,
          or for any consequential, contingent or incidental damages.

J.A. 13. Figgie, however, has been unable to produce the original
sales agreement, asserting that it was lost during a business reorgani-
zation. Hence, Figgie is forced to rely upon standard terms and condi-
tions that purportedly accompanied every sales agreement entered
into during the time that the Serralles agreement was executed. Serral-
les, on the other hand, has produced its copy of the agreement, the last
page of which stated that "[t]his quotation is made subject to the addi-
tional general terms and conditions of sale printed on the reverse
hereof," but the reverse side of the page is blank. Figgie asserts that
the absence of the general terms and conditions on Serralles' copy is
most certainly a copying mistake, whereas Serralles asserts that they
were never part of the agreement.

                     3
Although conceding at oral argument that a factual dispute exists
as to whether the written standards and conditions accompanied the
original sales agreement, Figgie asserts that it is nevertheless entitled
to summary judgment because, under the UCC, usage of trade in the
bottle-labeling industry would supplement the sales agreement with
the identical limited remedy of repair, replacement, or refund. See
S.C. Code Ann. § 36-1-205(3) (Law. Co-op. 1976). Serralles, of
course, disputes that usage of trade imposes this limitation and, alter-
natively, asserts that because the limited remedy has "fail[ed] of its
essential purpose," S.C. Code Ann. § 36-2-719(2), it is entitled to the
full array of remedies provided by the UCC.

II.

We review the district court's judgment below de novo. See
Halperin v. Abacus Tech. Corp., 128 F.3d 191, 196 (4th Cir. 1997).
Rule 56(c) of the Federal Rules of Civil Procedure provides that sum-
mary judgment "shall be rendered forthwith if the pleadings, deposi-
tions, answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law." The rule requires that the court enter summary judg-
ment against a party who, "after adequate time for discovery . . . fails
to make a showing sufficient to establish the existence of an element
essential to that party's case, and on which that party will bear the
burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). In determining whether there is a genuine issue of material
fact, we view the facts in the light most favorable to the non-moving
party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

III.

We first address Serralles' contention that the district court erred
in granting Figgie's motion for summary judgment. Specifically, the
district court concluded that usage of trade in the bottle-labeling
industry supplemented the agreement between Figgie and Serralles
with the limited remedy of repair, replacement, or return in the event
of a breach. Serralles disputes that usage of trade supplies such a lim-
ited remedy and, in any event, contends that the limited remedy failed
of its essential purpose.

                     4
Because the crux of this appeal centers on whether the agreement
between the parties limited Serralles' remedy for breach to repair,
replacement, or refund of the purchase price, we begin with the lan-
guage of S.C. Code Ann. § 36-2-719, which governs modifications or
limitations to the remedies otherwise provided by the UCC for the
breach of a sales agreement. Section 36-2-719 provides that:

          (1) Subject to the provisions of subsections (2) and (3) of
          this section and of the preceding section (§ 36-2-318) on liq-
          uidation of damages,

          (a) the agreement may provide for remedies in
          addition to or in substitution for those provided in
          this chapter and may limit or alter the measure of
          damages recoverable under this chapter, as by lim-
          iting the buyer's remedies to return of the goods
          and repayment of the price or to repair and
          replacement of nonconforming goods or parts; and

          (b) resort to a remedy as provided is optional
          unless the remedy is expressly agreed to be exclu-
          sive, in which case it is the sole remedy.

          (2) Where circumstances cause an exclusive or limited rem-
          edy to fail of its essential purpose, remedy may be had as
          provided in this act.

          (3) Consequential damages may be limited or excluded
          unless the limitation or exclusion is unconscionable. Limita-
          tion of consequential damages for injury to the person in the
          case of consumer goods is prima facie unconscionable but
          limitation of damages where the loss is commercial is not.

Under these provisions, parties to a commercial sales agreement may
provide for remedies in addition to those provided by the UCC, or
limit themselves to specified remedies in lieu of those provided by the
UCC. An "[a]greement" for purposes of the UCC is defined as "the
bargain of the parties in fact as found in their language or by implica-
tion from other circumstances including course of dealing or usage

                    5
of trade. . . ." S.C. Code Ann.§ 36-1-201(3) (Law. Co-op. 1976)
(emphasis added). In turn, the Code provides that"[a] course of deal-
ing between parties and any usage of trade in the vocation or trade in
which they are engaged or of which they are or should be aware give
particular meaning to and supplement or qualify terms of an agree-
ment." S.C. Code Ann. § 36-1-205(3); see also Weisz Graphics v.
Peck Indus. Inc., 403 S.E.2d 146, 150 (S.C. Ct. App. 1991) (holding
that industry standard supplemented the express provisions of a writ-
ten contract).

"Usage of trade" is defined as "any practice or method of dealing
having such regularity of observance in a place, vocation or trade as
to justify an expectation that it will be observed with respect to the
transaction in question. . . ." S.C. Code Ann. § 36-1-205(2) (Law. Co-
op. 1976). Where possible and reasonable, an applicable course of
dealing or usage of trade will be construed as consistent with the
agreement's express terms. See S.C. Code Ann. § 36-1-205(4) (Law.
Co-op. 1976).

A.

Serralles contends that the district court erred in concluding that
usage of trade in the bottle-labeling industry supplemented the agree-
ment between these parties with the limited remedy of repair, replace-
ment, or refund. We disagree.

In support of its motion for summary judgment, Figgie submitted
several affidavits of persons with extensive experience in the bottle-
labeling and packaging industry, attesting that sellers in the industry
always limit the available remedies in the event of a breach to repair,
replacement, or return, and specifically exclude consequential dam-
ages. While Serralles asserts that it did not "acquiesce" in this prac-
tice, it has offered no evidence to contradict the affidavits submitted
by Figgie. Accordingly, the district court correctly concluded that
usage of trade would limit Serralles to the exclusive remedy of repair,
replacement, or return.

Serralles also contends that it cannot be limited to the remedy of
repair, replacement, or return because the written agreement does not
"explicitly" state that this remedy is exclusive. As noted previously,

                    6
S.C. Code Ann. § 36-2-719(1)(b) states that"resort to a remedy as
provided [for under subsection (1)(a)] is optional unless the remedy
is expressly agreed to be exclusive, in which case it is the sole rem-
edy." Relying upon the case of Myrtle Beach Pipeline Corp. v. Emer-
son Elec. Co., 843 F. Supp. 1027 (D.S.C. 1993), aff'd, 46 F.3d 1125
(4th Cir. 1995) (unpublished), which held that "[t]he [UCC] requires
that the exclusivity of a limited remedy be made explicit . . . and fail-
ure to do so will result in the limited remedy's being construed as an
optional additional remedy and will not preclude the availability of
other remedies under the Code," id. at 1041, Serralles contends that
a limited remedy imposed or implied by trade usage cannot be an
exclusive remedy because it is neither "expressly agreed to" nor "ex-
plicit." We disagree.

Section 36-2-719 provides that the "agreement" between the parties
may limit remedies. Section 36-1-201(3) defines"[a]greement" as
including terms "impli[ed] from other circumstances including course
of dealing or usage of trade," and § 36-1-205 reiterates that usage of
trade will supplement and qualify the terms of an agreement provided
it can be reasonably construed as being consistent with the written
terms. It seems clear to us that, pursuant to these provisions, usage of
trade will supplement agreements and may indeed impose an exclu-
sive remedy in the event of a breach. In so holding, we agree with
those circuits which have rejected the contention that a limited rem-
edy cannot be exclusive if imposed by usage of trade. See Western
Indus. Inc. v. Newcor Canada Ltd., 739 F.2d 1198, 1204-05 (7th Cir.
1984) (rejecting contention that trade custom cannot limit liability
because § 2-719(1)(b) of the UCC provides that resort to a remedy is
optional unless expressly agreed to be exclusive); Transamerica Oil
Corp. v. Lynes, Inc., 723 F.2d 758, 766 (10th Cir. 1983) (holding that,
under the UCC, "[u]sage of trade may add an exclusive remedy to an
agreement"); Posttape Assoc. v. Eastman Kodak Co., 537 F.2d 751,
756-57 (3d Cir. 1976) (holding that "[t]he totality of the agreement
. . . must include a provision, present in the trade usage, or otherwise
expressed, that the limited remedy is an exclusive one"). And we note
that Myrtle Beach Pipeline is not to the contrary. In that case, the dis-
trict court held that it would not construe a remedy-- provided for
by the written terms of the agreement -- as being exclusive unless
such exclusivity was explicitly set forth in the same agreement.

                     7
Myrtle Beach Pipeline neither addressed nor involved the imposition
of an exclusive or limited remedy by usage of trade.

B.

Having determined that usage of trade supplemented the agreement
between the parties with the exclusive remedy of repair, replacement,
or return, we turn to Serralles' contention that the limited remedy
"fail[ed] of its essential purpose," entitling it to nevertheless pursue
the full array of UCC remedies. See S.C. Code Ann. § 36-2-719(2).
We conclude that it did not.

Section 36-2-719(1)(a) specifically contemplates that parties to an
agreement may, as they did in this case, limit available remedies in
the event of a breach to "return of the goods and repayment of the
price or to repair and replacement of nonconforming goods or parts."
Section 36-2-719(2), however, provides that the general remedies of
the UCC will apply, notwithstanding an agreed-upon exclusive rem-
edy, if the "circumstances cause [the remedy] . . . to fail of its essen-
tial purpose." Under this provision, "where an apparently fair and
reasonable clause because of circumstances fails in its purpose or
operates to deprive either party of the substantial value of the bargain,
it must give way to the general remedy provisions of[the Code].'"
Bishop Logging Co. v. John Deere Indus. Equip. Co. , 455 S.E.2d 183,
190 (S.C. Ct. App. 1995) (quoting S.C. Code Ann.§ 36-2-719, Offi-
cial Comment 1). In the instant case, however, there is no evidence
that the limited remedy of repair, replacement, or return has failed of
its essential purpose or that the contracting parties have been deprived
of the substantial value of the bargain.

Serralles argues that Figgie, by first attempting to repair the equip-
ment, elected to pursue repair as the exclusive remedy and, thereby,
forgo enforcement of the remedy of return and reimbursement. From
this premise, Serralles contends that Figgie's failure to repair the
machines resulted in the remedy failing of its essential purpose. We
find no support in the language of the UCC or in the cases interpret-
ing it for this novel argument, and no evidence that this contemplated
remedy of return and refund, once invoked, failed of its essential pur-
pose.

                     8
While Serralles is correct that a limited remedy of repair or
replacement can fail of its essential purpose where the seller's repair
or replacement is unsuccessful, see Bishop Logging, 455 S.E.2d at
192-93, Serralles' remedies were limited to repair, replacement, or
return, see Marr Enter., Inc. v. Lewis Refrigeration Co., 556 F.2d 951
(9th Cir. 1976) (holding that a limited remedy of repair or refund did
not fail of its essential purpose). Figgie installed the bottle-labeling
equipment in April and, over the course of the next several months,
attempted to find solutions to resolve the problems encountered. In
November, when attempts to fix the equipment had so far failed, the
equipment was returned and the purchase price refunded. Hence, the
remedies invoked were exactly those envisioned by§ 36-2-719(1)(a)
and contemplated by the agreement.

Serralles' contention that a seller eliminates the remedy of "refund"
simply by electing to attempt repair or replacement is unpersuasive.
On the contrary, one would expect a manufacturer or seller to first
attempt to repair or replace equipment in order to meet its contractual
obligations to the purchaser, and only resort to a return and refund if
unsuccessful in doing so -- particularly in the context of an agree-
ment between two commercial entities for the purchase of sophisti-
cated equipment.1 Accordingly, the district court correctly concluded
that the limited remedy of repair, replacement, or return did not fail
of its essential purpose.

C.

Serralles' final contention is that Figgie made various representa-
tions and guarantees during the months following initial installation
of the equipment that should be construed as new agreements not sub-
ject to a limited remedy, or as modifications to or waivers of the lim-
_________________________________________________________________
1 We do not suggest, of course, that a limited remedy of repair, replace-
ment, or refund can never fail of its essential purpose. For example, the
court in Marr indicated that such a remedy may indeed fail of its essen-
tial purpose if defects or problems are "not . . . detectable until such a late
time that under the totality of the circumstances . . . a refund of the pur-
chase price would have been totally inadequate." Id. at 955. Serralles,
however, was aware of the problems from the outset and actively partici-
pated in the attempts to repair.

                    9
ited remedy provision in the original agreement. For example,
Serralles relies upon Figgie's assurances that it was "committed 100%
to the success of the . . . project," that it would continue efforts to
meet the obligations under the agreement, that it expected to work out
the labeling problems, that it "guarantee[d] and [took] full responsi-
bility" for resolving the problems, and that it remained committed to
"ensure completely satisfactory performance of the . . . equipment . . .
as soon as possible."

Having reviewed the communications, we find no evidence of an
intent on the part of either party to modify the existing contractual
relationship or to create a new one. Rather, it is clear that all of the
communications relied upon by Serralles took place while Figgie was
attempting to repair the equipment in accordance with the limited
remedy available under the original sales agreement. Serralles has
directed us to no statement or promise by Figgie which could reason-
ably be interpreted as specifying additional remedies which would be
available in the event Figgie was unsuccessful in its attempts to first
repair the equipment. Nor is there any evidence of an agreement by
Figgie to waive the existing limitation of remedy in exchange for the
opportunity to repair the equipment.2

IV.

Serralles' also appeals the district court's denial of its motion for
partial summary judgment. Specifically, Serralles asserts that the
bottle-labeling equipment did not perform as required by the agree-
ment, that Figgie was given a reasonable time to repair the equipment,
that the agreement did not include a provision limiting the available
remedies in the event of a breach, and that Figgie promised to repair
the equipment but failed. Alternatively, Serralles asserts that, even if
_________________________________________________________________
2 The district court held that, even assuming "there was a meeting of
the minds in the written communications between the parties and that
each new promise or guarantee created a contract to provide a working
labeling machine," Figgie was entitled to summary judgment because
any such new contracts would also be subject to the limited remedy sup-
plied by trade usage. Because it is clear to us that no new contracts were
created as a matter of law, we need not decide whether usage of trade
would supply a limited remedy to subsequent contracts to repair.

                    10
the original agreement contained a limited remedy provision, subse-
quent agreements and guarantees contained no such limitation. The
district court denied Serralles' motion, finding several genuine issues
of material fact which precluded summary judgment on these issues.

In light of our determination that Figgie is entitled to summary
judgment, Serralles' motion for partial summary judgment must fail.
We note, however, that, although there appears to be no dispute that
the bottle-labeling equipment supplied by Figgie had not performed
properly when it was returned, the district court correctly concluded
that genuine issues of material fact existed regarding whether Figgie
had a reasonable amount of time to correct the problems and whether
the original agreement included the standard terms and conditions.
Accordingly, we conclude that the district court properly denied Ser-
ralles' motion for partial summary judgment.

V.

For the foregoing reasons, we conclude that the district court did
not err in denying Serralles' motion for partial summary judgment or
in granting Figgie's motion for summary judgment. Accordingly, the
judgment below is affirmed.

AFFIRMED

                    11