Conflicting Contract Terms Leads Sixth Circuit to Find Breach of Contract Claim, Despite Express Limitation of Expired Warranty.

February 11, 2003.  Even though the parties' contract stated that the 12-month warranty was "exclusive and in lieu of all other warranties of quality and performance and results," the U.S. Court of Appeals for the Sixth Circuit (applying Ohio law) has reversed summary judgment for the defendant system-maintenance company regarding the buyer's post-warranty period claim for breach of contract.  Mead Corporation v. ABB Power Generation, Inc.

    Mead Corporation hired ABB Power Generation to repair a turbine in Mead's power system, and ABB warranteed its work and material for 12 months.  The warranty expired on March 12, 1997.

    On January 4, 1998, the turbine failed because of an improper pin fitting in a fan blade -- 10 months after the expiration of the warranty.

    The warranty expressly provided:

     "Except for seller's performance warranty stated below, the foregoing warranties are exclusive and in lieu of all other warranties of quality and performance and results, written, oral, or implied and except for seller's performance warranty stated below, all other warranties including any warranty of merchantability or fitness for a particular purpose are hereby disclaimed by seller and all equipment manufacturers."

    Despite this limitation, Mead sued for breach of contract, but the claim was dismissed by the U.S. District Court for the Southern District of Ohio.

    In reversing the grant of summary judgment, the Sixth Circuit emphasized that the parties' contract also stated that Mead's rights and remedies under the contract "shall not be exclusive of, but shall be in addition to, any other rights or remedies available at law or in equity or granted in any other part of the Contract."  Accordingly, the Court held that the warranty provision's limitations did not undermine Mead's right to maintain a claim for breach of contract.

    Addressing the apparent inconsistency between the Court's acknowledgment of the limited warranty period and its holding that the buyer was entitled to maintain an action for a failure that occurred after expiration of the warranty period, the Court said,

     "We recognize that initially it may seem problematic to permit a contracting party to recover for acts that would have been covered by an expired warranty where the parties expressly intend a warranty to be 'exclusive and in lieu of all other warranties.' Recognizing such an action for breach of contract ostensibly permits the parties to do an end-run around the contract's express limitations of liability. But, although '[i]t is a basic principle of contract law that parties by an express agreement may contract for an exclusive remedy that limits their rights, duties and obligations,' the parties must clearly indicate in the contract their intent "to make the stipulated remedy exclusive."