# Question 1: The Pharmaceutical Packaging Line

## Your role

You represent LumaBio, a pharmaceutical manufacturer, after a dispute with PrecisionFill over a packaging line. LumaBio must decide whether to pay the final contract installment, pursue litigation, or negotiate a commercial resolution.

## Governing law

Assume the following Commercial Code rules apply:

1. A factual affirmation, description, promise, model, or sample that becomes part of the basis of the bargain creates an express warranty. Formal words such as “warranty” are unnecessary. General praise and sales opinion do not create a warranty.

2. A completely integrated written agreement excludes prior or contemporaneous agreements that contradict it. Consistent explanatory evidence may still be used if the writing is only partially integrated. Course of performance may explain ambiguous terms and may support waiver.

3. A merger clause and a clause stating that a party did not rely on prior representations are relevant to reasonable reliance. They do not automatically defeat a fraud claim based on an intentionally false factual representation concerning information peculiarly within the speaker’s knowledge.

4. A buyer accepts goods when, after a reasonable opportunity to inspect, it signifies acceptance or fails to make an effective rejection. A buyer may revoke acceptance only if a nonconformity substantially impairs the goods’ value and the original acceptance was reasonably induced by difficulty discovering the defect or by the seller’s assurances. Revocation must occur within a reasonable time and before a substantial change not caused by the defect.

5. Continued use after attempted revocation may undermine revocation, although limited use necessary to avoid serious loss does not automatically defeat it.

6. The buyer must notify the seller of breach within a reasonable time after discovering or when it should have discovered the breach. Actual seller knowledge may affect whether formal notice was sufficient.

7. An exclusive repair or replacement remedy fails of its essential purpose if the seller cannot or will not provide an effective cure within a reasonable time. A separate exclusion of consequential damages remains enforceable unless unconscionable or expressly made dependent on the exclusive remedy. Consequential-damage exclusions between sophisticated commercial parties are ordinarily enforceable.

8. Direct damages may include the difference between the value promised and the value delivered. Incidental and consequential damages require foreseeability, causation, reasonable certainty, and mitigation.

9. A buyer may deduct damages from an unpaid price after notifying the seller of its intention to do so.

10. Fraud requires a material false statement of present or past fact, knowledge or reckless disregard of falsity, intent to induce reliance, reasonable reliance, and resulting loss. A promise about future performance is actionable only if the speaker had no present intention to perform or misrepresented an existing technical capability.

11. A party must preserve relevant evidence when litigation is reasonably anticipated. Negligent loss may justify measures curing proven prejudice. An adverse inference requires intent to deprive the opposing party of the evidence.

## Contract

LumaBio agreed to pay $4.8 million for a sterile vial-packaging line. The contract contains the following provisions:

* “Rated throughput: 300 vials per minute.”
* Site acceptance requires a four-hour test averaging at least 285 vials per minute, with no more than 3 percent rejected units.
* The test must occur at 35 to 45 percent relative humidity.
* The test must use LumaBio’s packaging film, provided that the film meets the variance specifications in Schedule B.
* PrecisionFill warrants for twelve months that the line will conform to the written specifications and be free from defects in materials and workmanship.
* Repair or replacement is the exclusive remedy.
* PrecisionFill disclaims implied warranties of merchantability and fitness.
* PrecisionFill’s total liability is capped at the purchase price.
* PrecisionFill is not liable for lost profits, lost production, customer penalties, or other consequential damages.
* The liability limitations do not apply to fraud, gross negligence, or willful misconduct.
* The consequential-damage exclusion remains effective even if the exclusive remedy fails of its essential purpose.
* The writing is the complete agreement, and LumaBio states that it did not rely on statements not contained in the contract.

Before signing, PrecisionFill’s vice president emailed LumaBio’s project leader:

> “This line will run 300 all day in your facility on your current film. If it cannot, we will take it back and make you whole.”

LumaBio’s project leader forwarded the email internally and wrote:

> “Their contract only guarantees a 285 acceptance test. We should add the 300 commitment, but procurement wants this signed today.”

No change was made.

## Facts

At PrecisionFill’s factory, the line averaged 302 vials per minute using PrecisionFill’s film. At LumaBio’s facility, it averaged 287 vials per minute with a 2.6 percent rejection rate during a four-hour test at 42 percent humidity. LumaBio signed a certificate stating:

> “Site acceptance completed, subject to punch-list items and sustained production validation.”

The certificate did not identify the sustained-production criteria.

During the next three weeks, the facility humidity ranged from 52 to 60 percent because LumaBio’s HVAC project was incomplete. The line averaged between 238 and 260 vials per minute and repeatedly jammed. PrecisionFill’s technician blamed the humidity.

After the HVAC system was repaired, the line operated at 39 to 43 percent humidity but averaged only 270 vials per minute. PrecisionFill then discovered a feed-control software problem. It delivered a patch six weeks later. After the patch, the line averaged 286 to 289 vials per minute during ordinary production. It occasionally reached 300 for periods of several minutes.

Approximately 18 percent of LumaBio’s film lots exceeded Schedule B’s permitted thickness variance. LumaBio possessed pre-contract quality-control data showing that some lots exceeded the limits, but no one gave that data to PrecisionFill. The line performed worse when those lots were used, although it still rarely exceeded 290 with compliant lots.

A PrecisionFill engineer wrote in an internal chat before signing:

> “Sales keeps telling them 300. With their film, this architecture probably tops out around 288 unless we redesign the feeder.”

Another engineer responded:

> “Three hundred is technically possible with perfect film and enough tuning. Do not put 288 in writing.”

LumaBio incurred overtime, temporary labor, and expedited-shipping expenses. It also lost a major customer order. PrecisionFill knew before contracting that LumaBio intended to use the line for that customer, but the contract expressly excludes lost-customer and lost-profit damages.

LumaBio first sent a formal breach notice 75 days after sustained production began. PrecisionFill’s technicians had been working on the performance problem since the first week. LumaBio continued using the line for eight months and withheld the final $900,000 installment.

PrecisionFill’s system automatically overwrote raw diagnostic telemetry after 30 days. LumaBio sent an email on day 25 stating that it was “considering all contractual and legal remedies.” The raw telemetry was overwritten on day 30. PrecisionFill preserved summary reports but did not suspend the automatic deletion.

## Assignment

Analyze:

* Whether PrecisionFill breached an express warranty or another contractual obligation.
* Whether the pre-contract email is admissible or independently actionable as fraud.
* The significance of the 285-vial acceptance standard, the 300-vial rated-throughput term, the acceptance certificate, and the parties’ subsequent conduct.
* Whether LumaBio could reject or revoke acceptance.
* Whether notice was timely.
* Whether the repair remedy failed of its essential purpose.
* Which claimed damages are recoverable.
* Whether LumaBio properly withheld the final installment.
* Whether the deleted telemetry supports sanctions or an adverse inference.
* The strongest defenses based on humidity, film variance, contract language, reliance, causation, and mitigation.
* Whether LumaBio should litigate, pay the withheld amount, demand additional engineering work, or negotiate a commercial settlement.

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