Prime Equipment Inc. (“Prime”) is a company engaged in the business of supplying heavy equipment used the oil exploration and drilling industry.

Prime had become aware that Conventional Oil Company Ltd. (“Conventional”) required a contractor to design, manufacture, supply and install specialized gear boxes. The gear boxes would be used to drive a number of bucket wheel conveyor belts that transported sand at Convention’s oil extraction tar sands plant in Alberta. Prime decided to tender on the Conventional contract.

In order to tender on the contract, Prime set out to purchase the gear boxes. Prime was contacted by a representative of MachineWorks Ltd, a company which manufactured similar equipment. After visiting Conventional’s site and examining the conveyors, the representative of MachineWorks became familiar with the requirements of the gearboxes. MachineWorks represented to Prime that MachineWorks would be able to design and manufacture the specialized gear boxes and that the gear boxes would be suitable for the purpose intended. On the basis of these representations, MachineWorks and Prime entered into a contract. MachineWorks agreed that if Prime were successful in its tender to Conventional, MachineWorks would prive the equipment for a price of $300,000. The contractor also contained a provision limiting MachineWorks’ total liability to $300,000 for any loss, damage or injury resulting from MachineWorks’ performance of its services under the contract.
Based on the information provided by the MachineWorks representative, Prime prepared and submitted its tender to Conventional. Conventional accepted the tender and entered into a contract with Prime for the gear boxes.

The gear boxes were installed at Conventional’s site by employees of Prime according to MachineWorks’ installation procedures. Shortly after the gear boxes were put into service, main gears inside them failed. As a result of this failure, the conveyors were damaged and it was impossible for Conventional to operate its conveyors. MahcineWorks made several unsuccessful attempts to correct the gear boxes. In order to meet its obligations under the Convention contract, Prime hired another supplier to correct the defects in the gear boxes. For an additional $400,000 Prime was able to correct the problem by replacing the gear boxes with gearboxes manufactured by another company and by repairing the damage to the conveyors. The total amount which had been paid by Prime to MachineWorks prior to discovering the defects was $250,000.

Explain and discuss what claim Prime can make against MachineWorks in the circumstances. Would Prime be successful in its claim? Why? In answering please include a summary of the development of relevant case precedents.

Provide an answer that addresses the following:
1. What is the main Legal Principal is the question about?
2. Identify parties in the scenario, their role, and how they are involved
3. What did each party do to end up in this mess
4. What should they have done (to avoid this mess)
5. What will likely eventually happen to them if they don’t act or change their actions soon
6. What do they need to do in order to get out of this mess?
7. Who is liable for what?
8. What are the relevant legal principals and cases that support your answer?