## Facts

- Riegel Power Corporation and Mount Vernon Mills, Inc. purchased a hydroelectric turbine from Voith Hydro, Inc. under a written contract dated February 12, 1982.
- The contract provided an express warranty limiting Voith’s obligation to repair or replace defective parts and excluded other liability, including consequential damages.
- The warranty term was 18 months from delivery or tender of delivery.
- Voith tendered delivery in January 1983; at Riegel’s request, shipment of major components was delayed.
- Riegel did not install the turbine until June 11, 1984; Voith offered a paid warranty extension, which Riegel declined.
- In July 1984, during the warranty period as measured from tender, the turbine shut down due to a defect; Voith repaired it and the turbine was operational when the warranty expired.
- From 1984 to 1987, the turbine experienced three more shutdowns; Voith promptly repaired each occurrence without charging Riegel.
- Riegel sought damages for lost operating time during shutdowns, arguing that repeated malfunctions meant the limited remedy “failed of its essential purpose.”

## Issues

1. Whether the contract’s exclusive or limited remedy of repair or replacement failed of its essential purpose under U.C.C. § 2-719(2), permitting recovery of broader U.C.C. remedies.
2. Whether the contract’s exclusion of consequential damages was enforceable under U.C.C. § 2-719(3), including where the buyer alleged the limited remedy failed.

## Decision

- The Fourth Circuit affirmed summary judgment for Voith.
- The court held the repair-or-replace remedy did not fail of its essential purpose because Voith performed timely and effective repairs and the turbine was restored to working order after each malfunction.
- The court enforced the contractual limitation of remedies and the exclusion of consequential damages, barring recovery for lost operating time.

## Legal Principles

- A repair-or-replacement remedy generally serves its essential purpose when the seller, upon defect, provides the promised repairs within a reasonable time so the buyer ultimately receives a functioning product.
- Repeated breakdowns and associated downtime do not, by themselves, establish failure of essential purpose when the seller’s repair performance is prompt and effective.
- Under U.C.C. § 2-719, a limitation of remedy and an exclusion of consequential damages are analytically distinct; an exclusion of consequential damages may remain enforceable unless invalidated on grounds such as unconscionability.
- In arm’s-length commercial transactions between sophisticated parties, courts generally enforce negotiated allocations of risk through remedy limitations and consequential-damages exclusions absent a showing of unconscionability.

## Conclusion

Because Voith consistently repaired the turbine and restored it to working condition, the limited repair-or-replace remedy did not fail of its essential purpose, and the contract’s exclusion of consequential damages barred Riegel’s claim for lost operating time.


Riegel Power Corp. v. Voith Hydro, 888 F.2d 1043 (4th Cir. 1989)