Contract Provision Limiting Damages Unenforceable When

On November 16, 2023, Justice Crane of the New York County Commercial Division issued a decision in Medea Inc. v. Honeywell Safety Prods., USA, Inc., 2023 NY Slip Op. 34091(U), holding that a contract provision limiting damages was unenforceable because it failed in its essential purpose, explaining:

Honeywell argues that Medea cannot recover the monetary damages it is seeking because the Distribution Agreement limits remedies to repair or replacement. Contractual provisions limiting remedies generally are enforceable unless they are unconscionable. However, a limited remedy provision is occasionally not enforceable when it fails of its essential purpose. A remedy fails of its essential purpose if the circumstances existing at the time of the agreement have changed so that enforcement of the limited remedy would essentially leave plaintiff with no remedy at all.

Medea has alleged that the limitation of remedies has failed of its essential purpose. In particular, Medea alleges that Kirk Heyde, Honeywell’s General Manager for Sales and Marketing, emailed Medea’s President on January 7, 2022 and advised that Honeywell did not have any inventory positions of significance (i.e.,> IM units) with respect to the N95 Masks and that Heyde emailed again on January 28, 2022 stating that they had sold through the inventory they had built up. Medea also alleges that Heyde informed Medea that Honeywell was unable to give any reassurances that the defect would be or could be corrected. The amended complaint, that Medea’s Chief Executive Officer verified, further alleges that Honeywell advised Medea that it did not know how to correct the N95 Mask defects even if it could provide Medea with replacement N95 Masks, and that Honeywell could provide a different product to replace, rather than correct or repair, the 4 million defective N95 Masks that it sold to Medea.

Thus, Medea has alleged facts which, if true, would establish that it did not receive the benefit of its bargain. The Terms and Conditions state that if it is “determined that any component of such product … is defective due to faulty workmanship or defective materials, then such Product shall be returned to [Honeywell]” and that upon receipt, Honeywell shall, “in [its] sole
discretion, repair or replace such Product.” Medea’s allegations that Honeywell explicitly admitted that it would not be able to replace all of the masks with other N95 masks or guarantee that the defect had been fixed, raise an issue of fact as to whether strict adherence to the remedy limitation would have left Medea with no remedy at all. That is, there is a factual issue as to whether Medea would have been left with neither adequate masks nor with the money it paid for them. Therefore, given the issue of fact as to whether the exclusive remedy provision fails of its essential purpose, the motion to dismiss the breach of contract and breach of warranty causes of action is denied.

(Internal quotations and citations omitted).

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