Opinion ID: 419203
Heading Depth: 2
Heading Rank: 2

Heading: Contractual Limitation on Remedies.

Text: 19 The contract term governing CDT's warranty rights (quoted in note 5, above) contained two important limitations: (1) the buyer's remedies were restricted to repair of the defective equipment, and (2) the recovery of certain consequential damages was excluded. ADDS contends that each of these limitations should preclude CDT from recovering contract damages in this case. 20 Turning first to the remedy limitation, we conclude that it does not restrict ADDS's liability in this case because it did not leave CDT with any effective remedy. Despite ADDS's good faith efforts to correct the continuing problems with the Regent 100 terminals, none of the terminals ever operated at the rate of 19,200 baud as warranted. In this situation, the remedy limitation was negated by N.Y. U.C.C. Sec. 2-719(2) (McKinney's 1964), which states that [w]here circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. Where warranted goods fail to perform according to specifications as warranted despite the seller's efforts to repair, a limited repair remedy fails of its essential purpose. (9th Cir.1978) (construing substantially identical California statute). For this reason, CDT is entitled to other remedies available for breach of contract under the New York U.C.C. (1968); (N.Y.Cir.Ct.1977). 21 Among the breach of contract remedies ordinarily available to a buyer are incidental and consequential damages. N.Y. U.C.C. Sec. 2-715 (McKinney's 1964). ADDS contends, however, that even if the remedy limitation does not apply, CDT should still be precluded from recovering consequential damages by the separate exclusion of such damages incorporated in the distributorship agreement. ADDS bases this argument on N.Y. U.C.C. Sec. 2-719(3) (McKinney's 1964), which permits the exclusion of consequential damages unless unconscionable, and , in which this court held that recovery of consequential damages may be excluded even though a limited remedy fails of its essential purpose. We conclude that these authorities do not control the present case, because the contract did not in fact preclude recovery of the consequential damages suffered by CDT. 22 The limiting language incorporated in the contract was that ADDS will not be liable for any consequential damages, loss or expense arising in connection with the use of or the inability to use its products or goods for any purpose whatsoever. As we read it, this provision does not exclude all consequential damages, but rather only such damages as result from loss of use of defective equipment. Under this provision, a buyer could not, for example, recover profits lost because of business impairment resulting from the inability to use a Regent 100 terminal for a period of time. The consequential damages suffered by CDT were of a wholly different nature, however. As discussed below, these damages consisted of a loss of customer goodwill resulting from CDT's sale of shoddy ADDS terminals, together with the expenses incurred by CDT in trying to recapture that goodwill. These consequential damages did not arise in connection with the use of or the inability to use [ADDS] products or goods, but were instead caused by the wholesale failure of ADDS Regent terminals to operate properly and to conform to specifications. Since the contract did not exclude recovery of this type of consequential damages, it is unnecessary for us to consider whether under U.C.C. Sec. 2-719(3) or the analysis of S.M. Wilson & Co. the failure of a limited remedy to achieve its essential purpose may vitiate an exclusion of recovery for consequential damages. 23