## Facts

- U.S. Fibres, Inc. (Fibres) formed to manufacture resinated cotton pads for automotive sound-deadening applications and pursued business tied to meeting Ford Motor Company specifications.
- Fibres contracted with Proctor & Schwartz, Inc. (Proctor) to purchase two specially designed ovens and related equipment for a manufacturing process both sides understood was new and not yet proven in commercial production.
- The parties’ writings included express warranty language against defects in materials or workmanship.
- The contract documents also included broad warranty disclaimers and specific statements that machine performance could not be guaranteed because results depended on multiple production factors.
- The documents described expected performance characteristics, including a design expectation that the ovens would produce pads within a one‑thirty‑second‑inch thickness tolerance, but the parties treated this as an engineering target rather than a firm guarantee of output in all conditions.
- After installation and attempted operation, Fibres contended the ovens did not perform as expected and that it could not reliably produce saleable pads meeting the required thickness and uniformity.
- Fibres brought a diversity action in the Eastern District of Michigan asserting breach of express warranty and implied warranties (and, as developed in the district court proceedings, related theories including negligence and fraud) and sought damages including consequential losses and lost profits.
- Proctor relied on its disclaimer and limitation language and also filed a third‑party claim against U.S. Equipment Co., which had been involved in supplying/installing components.
- After a bench trial and published district court opinions, judgment was entered for Fibres with a substantial damages award, and judgment was entered in favor of U.S. Equipment on Proctor’s third‑party claim.
- Proctor appealed to the Sixth Circuit.

## Issues

1. Whether the district court clearly erred in finding that Proctor was liable to Fibres for the failure of the special ovens to perform as represented and required for Fibres’ intended use.
2. Whether Proctor’s disclaimers and performance‑uncertainty language negated or limited liability for breach of express or implied warranties under Michigan’s U.C.C.
3. Whether any contractual limitation of remedy or exclusion of damages barred Fibres from recovering consequential damages, including lost profits, or instead failed of its essential purpose.
4. Whether the evidence supported an award of lost profits and other consequential damages with reasonable certainty and within the parties’ contemplation at contracting.
5. Whether the district court properly rejected Proctor’s third‑party claim against U.S. Equipment Co.

## Decision

- The Sixth Circuit affirmed the district court’s judgment largely in favor of Fibres and rejected Proctor’s principal challenges to liability and damages.
- The court upheld the district court’s treatment of Proctor’s disclaimer/limitation provisions, agreeing they did not defeat Fibres’ recovery on the record presented.
- The court sustained the award of consequential damages, including lost profits, concluding the losses were foreseeable in light of Proctor’s knowledge of Fibres’ intended production and customer requirements and were supported by sufficient proof.
- Applying deferential review to the bench trial findings, the court declined to reweigh the evidence on causation and performance and left the district court’s findings intact.
- The court affirmed judgment for U.S. Equipment Co. on Proctor’s third‑party claim.

## Legal Principles

- Under Michigan’s U.C.C., an express warranty may arise from a seller’s affirmations, descriptions, or promises that become part of the basis of the bargain; general disclaimer language cannot erase an express warranty once made.
- Warranty disclaimers and remedy limitations are construed strictly; they must comply with U.C.C. requirements (including conspicuousness where required) and are ineffective when inconsistent with express warranty terms or when they do not operate as written in the parties’ actual transaction.
- A limited remedy (such as repair or replacement) does not bar other U.C.C. remedies when the limited remedy fails of its essential purpose, including when the goods never function as required within a reasonable time.
- Consequential damages, including lost profits, may be recovered for breach of warranty when the seller had reason to know the buyer’s particular needs and the damages are proven with reasonable certainty rather than left to speculation.
- On appeal from a bench trial, factual findings on breach, causation, and damages are reviewed for clear error; an appellate court will not substitute its view of the evidence where the record supports the trial court’s findings.

## Conclusion

The Sixth Circuit sustained the district court’s determination that Proctor supplied special ovens that did not work as required for Fibres’ contemplated production, and it upheld a substantial consequential-damages award, including lost profits, because Proctor’s disclaimer and limitation language did not bar recovery under Michigan’s U.C.C. on the facts found after trial.


U.S. Fibres, Inc. v. Proctor & Schwartz, Inc., 509 F.2d 1043 (1975)