benefit of the bargain when there is a delay in repair, or when there is a "total inability to repair." Id.; see also Philip M. Damashek, P.C. v. Wang Labs., Inc., 150 A.D.2d 151, 153, 540 N.Y.S.2d 429, 432 (1st Dep't 1989) (limited warranty may be avoided when warrantor fails to correct the defect within reasonable period of time).
Marvik contends that the computer system was "never properly or completely installed," that it was "defective," and that Linotype "failed and refused to honor its express warranty to repair and replace defective components free of charge." (Def. 1991 Mem. at 12) Siemens and Linotype argue that the system performed to published specifications (Pl. 1993 Rep. at 29) and that Marvik's remedies did not fail in their essential purpose. (Pl. & 3d-Party Def. 1993 Rep. at 19-21) Because a material issue of fact exists as to whether the express warranty failed in its essential purpose, summary judgment is denied with respect to Marvik's claims against Linotype for breach of implied warranties.
If Marvik proves at trial that the express warranty failed in its essential purpose, then Marvik will be entitled to sue for damages for breach of implied warranty under N.Y.U.C.C. § 2-714(2). That section provides that the proper measure of damages for breach of warranty is "the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted unless special circumstances show proximate damages of a different amount." N.Y.U.C.C. § 2-714(b) (McKinney 1993). Marvik may attempt to prove at trial that special circumstances in this case justify recovery other than the difference between the value warranted and the value received. However, Marvik may not recover consequential damages in any event because, as discussed, its waiver of this form of recovery was valid.
B. Exclusion of Claims Against Assignee
In the Agreement, Marvik agreed to waive all defenses and counterclaims against Linotype's assignee, and agreed that the assignee would not be responsible for any obligations or liabilities of Linotype. (Complt Ex. A § 15) To establish the validity of this waiver, Siemens cites cases decided under N.Y.U.C.C. § 9-206(1), which provides that an agreement not to assert defenses against an assignee is enforceable by an assignee who takes her assignment for value, in good faith and without notice of a claim or defense. (Pl. & 3d-Party Def. 1991 Mem. at 6)
Section 9-206 is part of Article 9 of the N.Y.U.C.C., which deals with secured transactions. An argument can be made that § 9-206(1) is not relevant here because § 9-206(2) states that that section does not apply where the seller "retains a purchase money security interest in goods." In such cases, Article 2, which governs sales, determines the validity of any disclaimers. As discussed above, Article 2 requires only that the bargained-for remedies may not be unconscionable or fail in their essential purpose. Here, Linotype, the seller, took a purchase money security interest in the computer system, and assigned it to Siemens. The issue is whether the provision in the Agreement waiving assignee liability should be analyzed under § 9-206(1), or under Article 2.
Although no courts have yet interpreted the language of § 9-206(2) of the N.Y.U.C.C., courts in other jurisdictions with analogous statutes have held that where a seller immediately assigns the purchase money security interest to a third party, that seller did not "retain" the purchase money security interest. See J.I. Case Credit Corp. v. Skjoldal, 296 N.W.2d 514, 516 (S.D. 1980) (provision with wording identical to that of N.Y.U.C.C. § 9-206(2) "applies only when the purchase money security interest is held by the 'seller' so that the entire transaction retains the character of a sale"); Agristor Credit Corp. v. Lewellen, 472 F. Supp. 46, 49 (N.D. Miss. 1979) (where seller assigned security interest in property, it did not "retain a purchase money security interest" in goods). Under this reasoning, Article 9 applies to the present case instead of Article 2 because Linotype assigned the purchase money security interest to Siemens. Thus, the assignee of a purchase money security interest is entitled to enforce an agreement not to assert defenses against the assignee, provided that the assignment was made for value, in good faith and without notice of claims and defenses.
Siemens has provided a copy of the Assignment of Chattel Paper as Exhibit B to the Complaint. However, this document is insufficient in itself to establish that Linotype's assignment of the Agreement was made for value, in good faith and without notice of claims and defenses. Because Siemens has failed to provide affidavits or other evidence supporting its motion for summary judgment dismissing Marvik's counterclaims, that motion is denied.
Addendum D of the Agreement gave Marvik a right of rescission exercisable within six months. That addendum provides as follows:
[Linotype] hereby agrees that the equipment . . . will perform to published specifications. Should the equipment fail to perform to said specifications the Customer reserves the right to cancel this contract at no cost to the Customer at any time up to six months after completion of equipment's performance to specifications . . .
(Complt Ex. A at Addendum D)
It is undisputed that Marvik sought to cancel the Agreement pursuant to Addendum D on January 31, 1991, but continued to use the computer system after that date. (Def. 1991 Mem. at 9) Siemens and Linotype argue that Marvik's continued use of the equipment contradicts the purported cancellation, making the cancellation invalid. (Pl. & 3d-Party Def. 1993 Mem. at 16-17; Pl. & 3d-Party Def. 1991 Mem. at 9-10) However, Marvik responds that Siemens effectively prevented Marvik from exercising the right of cancellation by refusing to comply with the provision that the cancellation would be at "no cost" to Marvik. (Def. 1991 Mem. at 10) Marvik asserts that it was not obligated to return the equipment until Siemens refunded Marvik's deposit and reimbursed Marvik for its installation costs. (Def. 1991 Mem. at 10; Def. 1993 Mem. in Opp. at 19)
The effectiveness of Marvik's rescission is rendered even more uncertain by the ambiguity of Addendum D itself. The parties dispute whether the computer system "performed to published specifications," (Def. 1993 Mem. at 19-20; Pl & 3d-Party Def. 1993 Rep. at 30) and dispute also the meaning of the language allowing cancellation within "six months after completion of the equipment's performance to specifications." (Def. 1993 Mem. at 17-18; Pl & 3d-Party Def. 1993 Rep. at 26-27) Thus, because there are several material issues of fact regarding the validity of the cancellation, Siemens' and Linotype's motion to dismiss the rescission claim is denied.
Marvik alleges that Linotype made "fraudulent misrepresentations" in order to induce Marvik to order the computer system. (3d-Party Complt at PP 51-57) On December 19, 1991, the court ruled that it would consider fraud claims only with respect to items that did not and could not exist at the time they were contracted to be delivered. (Dec. 19, 1991 Tr. at 10-11) Linotype now moves to dismiss Marvik's fraud claims because there is no evidence of fraud and because the fraud claims merely restate Marvik's contract claims. (Pl. 1993 Mem. at 17, 22)
Marvik satisfactorily distinguishes its fraud claim from its contract claims, asserting that
representations made by [Linotype] in March, 1989 which induced Marvik to execute [the] Agreement were false 'representations of a present fact' -- i.e., the existence of fully tested, turnkey system; not of a prospective promise -- i.e., something that might have come up later or which interfered with [Linotype's] ability to perform.