Opinion ID: 444210
Heading Depth: 4
Heading Rank: 3

Heading: The court's decision was correct on the merits.

Text: 17 Fruehauf also makes the related argument that the court incorrectly decided, on the merits, that Fruehauf's limited remedy failed of its essential purpose. However, under any standard of review, the court's conclusion was correct. Denial of responsibility to repair is a failure of a limited remedy in the most basic sense. 18 In Lidstrand v. Silvercrest Industries, 28 Wash.App. 359, 365, 623 P.2d 710, 714 (1981), a Washington appeals court said that [u]nreasonable delays in repairing or inability to repair a product where the manufacturer has promised such repairs causes a limited remedy to 'fail of its essential purpose' [within the meaning of Sec. 62A.2-719(2) ]. See also Marr Enterprises, Inc. v. Lewis Refrigeration Co., 556 F.2d 951, 955 (9th Cir.1977) (citing with approval cases which hold that a remedy fails of its essential purpose where the seller fail[s] to replace or repair in a reasonably prompt and non-negligent manner). 19 Here, the court found that Fruehauf arbitrarily decline[d] to made necessary repairs, and thus arbitrarily and unreasonably declined to live up to its contractual promises. The court compared this case to Soo Line Railroad Co. v. Fruehauf Corp., 547 F.2d 1365 (8th Cir.1977), which held that under the Minnesota version of the UCC (which contains language identical to Sec. 62A.2-719(2)), a limited remedy fails of its purpose whenever the seller fails to repair goods within a reasonable time. Soo Line, 547 F.2d at 1371 n. 7. 20 The evidence in the record overwhelmingly supports the trial court's conclusion. Fiorito first notified Fruehauf of problems with the dump bodies orally, shortly after delivery, but received no response. Fiorito wrote Fruehauf in October, 1977, setting out a list of problems in the hydraulic, mechanical, and electrical systems. Fruehauf responded by letter on Nov. 4, 1977, stating that some of the complaints had to be inspected, that some had already been inspected, and suggesting ways in which the other problems could be corrected. When Fruehauf's service manager came to Fiorito's shop to inspect the bodies, he denied that the bodies were covered under warranty. This service manager admitted at trial that he is not an engineer, has no knowledge of the effects of hauling wet cement, and did not seek to gain any such knowledge. 21 In April, 1980, Fiorito again wrote to Fruehauf, stating that Fiorito had had to repair the bodies itself since Fruehauf had refused to do so. Fruehauf responded by letter dated May 27, 1980, stating that we have lived up to our warranty obligations as stated on the reverse side of our sales order. In June, 1980, Fiorito wrote to Fruehauf, demanding a full refund or replacement of the bodies. A July 10, 1980 letter from Fruehauf to Fiorito stated that Fruehauf had concluded an investigation which revealed that the product was misused. At trial, however, Fruehauf admitted that there was no such investigation. 22 Based on these facts, the district court correctly concluded that Fruehauf's limited repair or replace remedy had failed of its essential purpose as a matter of Washington law. 23 C. The court correctly concluded that the failure of the limited remedy invalidated Fruehauf's disclaimer of consequential damages. 24 Fruehauf next claims that the court erred in holding that under the circumstances of this case the failure of the limited remedy invalidated the disclaimer of consequential damages. The April, 1977 sales order contains a clause stating that seller shall have no liability for any ... consequential damages arising out of this order. The trial court concluded that under the facts of this case, the failure of the remedy rendered the consequential damages clause unenforceable. 25 Resolution of this issue requires an examination of the interrelationship of subsections (2) and (3) of Wash.Rev.Code Sec. 62A.2-719. Subsection (2) 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 Title. Consequential damages are authorized by Wash.Rev.Code Sec. 62A.2-714(3) and 2-715(2). Subsection (3) of 2-719 states that [c]onsequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. 26 The parties and the trial court agree that the Washington courts have not spoken directly to this issue. In such a situation, our task is to use our own best judgment in predicting how the state's highest court would decide the case. Takahashi v. Loomis Armored Car Service, 625 F.2d 314, 316 (9th Cir.1980). Washington courts have held that failure of the essential purpose of a limited remedy makes consequential damages available pursuant to Sec. 62A.2-719(2). See, e.g., Lidstrand v. Silvercrest Industries, 28 Wash.App. 359, 623 P.2d 710 (1981). But no Washington court has been faced with a situation in which the seller has both a limited-remedy clause and a separate clause disclaiming consequential damages, then asserts that failure of the limited remedy does not affect the validity of the damages clause under Sec. 62A.2-719(3). While each side makes a plausible argument on the issue, we prefer Fiorito's position, which was accepted by the court below. 27 Fruehauf claims that under subsection (3), the consequential damages clause is always valid unless unconscionable, even if the remedy clause fails of its essential purpose. It cites cases from the Third, Sixth, and Ninth Circuits in support of its broad proposition. Upon examination, however, the majority of the cases support Fiorito's position that each case and each contract must be judged on its own merits. For example, S.M. Wilson & Co. v. Smith International, Inc., 587 F.2d 1363 (9th Cir.1978), held that a separate consequential damages clause remained valid despite the failure of a remedy clause, but stated that its holding is based upon the facts of this case ... and is not intended to establish that a consequential damage bar always survives a failure of the limited repair remedy. Each case must stand on its own facts. 587 F.2d at 1375-76. In Wilson, the court found that the parties had expressly bargained for both clauses and that the seller did not ignore his obligation to repair; he was simply unable to perform it. 587 F.2d at 1375. Neither factor is present here. Similarly, the court in Chatlos Systems v. National Cash Register Corp., 635 F.2d 1081 (3d Cir.1980), cert. dismissed, 457 U.S. 1112, 102 S.Ct. 2918, 73 L.Ed.2d 1323 (1982), while stating that it saw no reason to hold, as a general proposition, that the failure of the limited remedy ..., without more, invalidates a wholly distinct term in the agreement excluding consequential damages, also recognized that circumstances resulting in failure of performance [could] make[ ] it unconscionable to enforce the parties' allocation of risk. 635 F.2d at 1086-87. 28 Fruehauf relies most strongly on Lewis Refrigeration v. Sawyer Fruit, Vegetable & Cold Storage Co., 709 F.2d 427 (6th Cir.1983), a diversity case decided under Washington law. There, the court reasoned that section 2-719(3) is meant to allow freedom in excluding consequential damages unless a consumer is involved in the contract. 709 F.2d at 435. The court concluded that a consequential damage limitation should be enforced unless unconscionable, even where a limited repair remedy failed of its essential purpose. 709 F.2d at 431, 435. We are not bound by Lewis Refrigeration, of course, and decline to follow it. The Washington courts, we believe, will opt for the case-by-case determination method of resolving this issue, as called for in Wilson and Chatlos. Judging each case and each contract on its own merits will better allow courts to give effect to the parties' intentions regarding risk allocation and will lead less frequently to unjust results. 29 Judge McGovern's approach in this case is both logically sound and supported by the weight of authority. In its order denying Fruehauf's motion for a new trial, the trial court explained its reasoning, with which we agree: 30 [The approach] that the Washington courts can be expected to follow, is to examine individually the provisions of each contract to ascertain the intent of the parties. Under the circumstances of each contract, are the exclusive-remedy and damage-exclusion terms separable elements of risk allocation, ... [o]r are they inseparable parts of a unitary package of risk-allocation? In the current case, it does not make sense to view the exclusive-remedy and consequential-damage provisions independently. The purpose of the parties in agreeing to this exclusive-remedy provision was to [i]nsure that the Plaintiff would not suffer from down time and other such consequential harms that follow from defective conditions in the trucks.... It cannot be maintained that it was the parties' intention that Defendant be enabled to avoid all consequential liability for breach by first agreeing to an alternative remedy provision designed to avoid consequential harms, and then scuttling that alternative remedy through its recalcitrance in honoring the agreement. 31 (Emphasis added.) 32 A number of cases interpreting other states' versions of the UCC support this reasoning. For example, in Soo Line Railroad Co. v. Fruehauf Corp., 547 F.2d 1365, 1373 (8th Cir.1977), the Eighth Circuit said that the fundamental intent of section 2-719(2) reflects that a remedial limitation's failure of essential purpose makes available all contractual remedies, including consequential damages authorized pursuant to sections 2-714 and 2-715. Similarly, the court in Jones & McKnight Corp. v. Birdsboro Corp., 320 F.Supp. 39, 43-44 (N.D.Ill.1970), reasoned that a seller could not be allowed to shelter itself behind one segment of the warranty when it has allegedly repudiated and ignored its very limited obligations under another segment of the same warranty. 33 The Official Comments to 2-719 also support the trial court's reasoning and conclusion. The Official Comments on the Uniform Commercial Code provide, under the heading Purposes: 34 Under this section parties are left free to shape their remedies to their particular requirements and reasonable agreements limiting or modifying remedies are to be given effect.... [A]ny clause purporting to modify or limit the remedial provisions of this Article in an unconscionable manner is subject to deletion and in that event the remedies made available by this Article are applicable.... [U]nder subsection (2), where an apparently fair and reasonable clause because of circumstances fails in its purpose ... it must give way to the general remedy provisions of this Article. 35 The Official Washington Comments further explain that subsection 2 relates to contractual arrangements which become oppressive by change of circumstances; [subsection 3], to contracts oppressive at inception. Here, the trial court correctly found that circumstances during performance rendered the damages limitation clause oppressive and invalid. The court did not believe that the clause was oppressive at inception; in fact, the trial judge stated in his order denying a new trial that the clause was not unconscionable, because of the parties' relatively equal bargaining positions, sophistication, etc. (emphasis in original). 36 In summary, the trial court correctly held that in this case, the failure of the exclusive-remedy clause rendered the consequential-damages clause unenforceable. 37