Law School Case Brief
Soo L. R. Co. v. Fruehauf Corp. - 547 F.2d 1365 (8th Cir. 1977)
Under Minnesota law, parties to a contract may limit or alter the measure of damages recoverable, as by limiting the buyer's remedies to repair and replacement of nonconforming goods or parts. Minn. Stat. Ann. § 336.2-719(1). A limited remedy to repair or replace goods which are initially defective but are promptly remedied by the seller will normally be enforceable, as codified in section 336.2-719. Nevertheless, limitations on remedies and damages permissible under section 2-719(1) are subject to section 2-719(2), which states: Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter.
Plaintiff Soo Line Railroad Company (“Soo Line”) contracted with defendant manufacturer Fruehauf Corporation (“Fruehauf”) for the purchase of 500 railcars. The contract contained terms of design and uniform standards by which the railcars would be built. The contract also provided that acceptance of the railcars was contingent upon inspection and contained a one-year warranty provision. That provision limited the liability of Fruehauf to repair or replacement of defective parts, excluding indirect or consequential damages. The cars were delivered and started to exhibit defects. Fruehauf refused to repair the defects, claiming that the railroad's design specifications were faulty. Soo Line repaired the damages at its cost and then filed suit in district court under theories of negligence and breach of warranties. The jury found for Soo Line. Fruehauf appealed.
Did the district court err in rendering a judgment against defendant railcar manufacturer Fruehauf for negligence and breach of warranties, and awarding plaintiff railroad Soo Line a recovery for damages arising from the defective manufacture of the railroad cars?
Manufacturer Fruehauf contended on appeal that it was exonerated from liability because the contract disclaimed liability for implied warranties and negligent manufacture and barred recovery in the event of Soo Line's failure to inspect the railroad cars during manufacture. The United States Court of Appeals affirmed the verdict from the district court, finding that the disclaimer, the inspection clause, and the remedial limitation contained within the contract did not bar the recovery of damages arising from defective manufacture of the railroad cars. The Court found it clear that the inspection clause in the contract does not bar liability in this case. Next, the Court held that the district court did not err in admitting the expert testimony with respect to the diminution in value of the railroad cars resulting from their structural collapse. Under Minnesota law, the measure of damages applicable to breach of contract is the difference between the actual value of the cars at the time of acceptance and the value they would have had if they had been as warranted. The Court explained that, on review, the admission or exclusion of expert testimony was a matter within the sound judicial discretion of the trial court, and the trial court's decision should not be reversed unless found to be "manifestly erroneous."
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