General and subcontractors purchase large quantities of critical materials from manufacturers or suppliers. Often they make assumptions as to responsibility for defective goods that are far different than what the law may allow.
Suppose an experienced metal window subcontractor purchased several dozen windows from a window manufacturer for a school project. The subcontractor installed those windows in a good and workmanlike manner and everyone, including the owner, loved them. Then it rained, and the windows leaked because of defective seals, causing tens of thousands of dollars in damage to the paint, drywall and newly installed hard wood flooring. The general contractor made claim against the subcontractor for these damages and for the resulting delay. The subcontractor could surely assess all costs not covered by insurance against the window manufacturer, right?
Not necessarily. Let's suppose here the window subcontractor sought verbal quotes from several manufacturers. The subcontractor then sent a written purchase order to the manufacturer with the lowest quote.
That purchase order didn't mention anything other than price, quantity, and shipment terms. The manufacturer then promptly sent the subcontractor written confirmation which had the same terms as the subcontractor's purchase order except for the phrase in large bold print "No claim of any kind. . . shall be greater in amount than the purchase price of the materials in respect of which damages are claimed". The subcontractor never responded. The windows were then shipped, accepted by the subcontractor, installed, and the leaking began.
Of course, the subcontractor demanded that the manufacturer pay for new windows, pay for the labor to install the non-defective windows and reimburse it for the tens of thousands of dollars in backcharges assessed by the general contractor against the subcontractor. The manufacturer said it would only furnish replacement windows or refund the purchase price of the windows. The parties argued back and forth with no resolution. The subcontractor filed suit.
Who wins? Since this dispute involves the sale of goods, a Massachusetts court would look to the statutory Uniform Commercial Code (UCC), and to court decisions interpreting it, in deciding the dispute. Among other things, the UCC contains provisions intended to resolve conflicts between buyers' and sellers' written forms. In this dispute, a court applying the UCC would find the subcontractor's damages against the manufacturer were limited to its purchase price unless the subcontractor could prove the damage limitation clause worked a "material alteration" to the contract, or was "unconscionable" or "failed of its essential purpose" (tough legal burdens). This is so even if the subcontractor never read the manufacturer's written confirmation, and would never have agreed to such a term had it known of it. The controlling fact is that the subcontractor received the manufacturer's written confirmation containing the damage limitation clause and never objected to it.
There is no question this is a harsh result for the subcontractor in this example. Even if the subcontractor had insurance to cover the property damage, it still would have to bear the labor costs to install new windows and face delay damages assessed against it by the general contractor even though it did nothing wrong. Those damages could easily exceed the entire subcontract price.
While escaping most of the consequential damages it caused, the window manufacturer could rightly point out its price would have been much higher if its potential damages weren't capped by the purchase price. The lesson here is clear. Contractors and their suppliers must review carefully all writings involving the purchase and sale of goods. Their failure to do so could be disastrous. No less than the assumption of risk for product failure is at stake. n Next Issue - Battle of the Forms Round Two: How to Get Your Terms and Keep Theirs Out.
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