Reference no: EM131657992

Question: McKinnon Bridge Company was a general contractor primarily involved in heavy construction and bridge construction. Trinity Industries, Inc., a steel fabricator, was the supplier of structural steel to McKinnon for use in building the bridge at issue in the case described below. The relationship between the parties began after the state of Tennessee awarded McKinnon a contract to build a bridge over the Tennessee River. Soon after McKinnon was awarded this contract, Trinity presented McKinnon with a bid (i.e., an offer) to supply fabricated steel for the bridge in return for payments totaling $2,535,000 from McKinnon. McKinnon's president, acting on behalf of the firm, accepted Trinity's offer and thereby caused the parties' contract to come into being. During construction, McKinnon discovered that several girders and cross-frame stiffeners supplied by Trinity contained misaligned holes, which prevented proper construction and assembly of the bridge. After McKinnon notified Trinity of the problem, the parties agreed on a remedial plan that was approved by the state. Trinity's representatives went to the job site and redrilled the holes. The redrilled holes were approved by McKinnon. In the litigation described below, McKinnon claimed that it later encountered other problems with the steel such as incorrect length, lack of proper curvature, dimensional and fitting errors, and poor quality. None of the steel received from Trinity had been rejected by McKinnon, however, as of May 16, 1995. On that date, the partially constructed bridge collapsed.

After the collapse of the bridge, McKinnon Bridge retained experts, some of whom concluded that the steel provided by Trinity was defective and caused or contributed to the structure's collapse. McKinnon therefore ceased payment on the contract for that steel. At approximately the same time, the state informed McKinnon's president that the firm could reconstruct the bridge with Trinity-supplied steel that was in storage, as long as certain modifications were made to the steel. The state agreed to pay for these changes. McKinnon, however, ordered replacement steel from another supplier without asking Trinity to repair or replace the allegedly defective steel. When asked why his company did not use the steel from Trinity, McKinnon's president stated that it would have been necessary for the steel to have been picked up [and] taken to Carolina where it was fabricated-and all that freight and allowance, and I made a decision not to use it. Cost was some consideration. It just wasn't worth it, to get in all of the trouble you could have if it didn't work. I would be responsible. They have already put the responsibility on McKinnon Bridge Company's back for that to work, and I didn't want the responsibility. Trinity filed suit in a Tennessee state court against McKinnon, seeking the remaining $1.6 million due under the steel subcontract.

McKinnon counterclaimed and sought damages from Trinity because of Trinity's alleged breach of contract in furnishing steel that did not conform to the contract terms and specifications. Trinity moved for summary judgment on McKinnon's counterclaim. Trinity asserted that the parties' contract expressly limited McKinnon's remedies to repair or replacement of any defective goods (and thus, in Trinity's view, eliminated money damages as a possible remedy). The court granted Trinity summary judgment on McKinnon's counterclaim. A trial was later held on Trinity's breach of contract claim against McKinnon. After concluding that none of the nonconformities or defects in the Trinity-supplied steel caused or contributed to the collapse of the bridge, the court held in favor of Trinity for all sums still owed by McKinnon under the contract. McKinnon appealed to the Tennessee Court of Appeals, arguing that it should have prevailed on its counterclaim because, in its view, the contract's limitation of remedy clause-the repair-or-replace clause-should have been treated by the lower court as unconscionable or as having failed of its essential purpose. Was the limited remedy clause unconscionable? Did it fail of its essential purpose?