Court Opinion

ID: 9615197
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:32:27.662183+00
Date Added: 2024-06-11T18:03:43.189410
License: Public Domain

STEWART, Justice
(Concurring and Dissenting):
I agree with the majority opinion that Utah’s U.C.C. § 70A-2-719(2) does not mandate that consequential damages be allowed every time a limited warranty fails of its essential purpose. However, there may be circumstances in which the failure of a limited warranty will also result in the failure of a clause limiting consequential damages. The question is primarily one of contract interpretation, in my view, rather than one of statutory construction, as both *1118the majority and Justice Howe in his opinion seem to suggest.
Section §70A-2-719(l) authorizes a limited or exclusive remedy. Section 70A-2-719(2) provides that if “circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this act.” The phrase “as provided in this act” does not invalidate an otherwise valid contractual provision. The true question is whether, based on an interpretation of the contract, the failure of an exclusive or limited remedy also causes the failure of a consequential damages limitation. The answer to this question depends on the contract rather than the U.C.C. In other words, if the contract is interpreted in such a way that the consequential damages limitation must fail with the limited remedy, then incidental and consequential damages may be recovered as provided in the U.C.C. On the other hand, if the failure of the limited remedy does not cause the failure of the consequential damages limitation, then that limitation must be evaluated under the unconscionability standard of § 70A-2-719(3).
Sustaining an otherwise valid consequential damages limitation, even though a limited remedy has failed of its essential purpose, is entirely consistent with the terms and framework of the U.C.C. Under the U.C.C., a seller may limit consequential damages without otherwise limiting a buyer’s remedies. See, e.g., Adams Laboratories, Inc. v. Jacobs Eng’g Co., 486 F.Supp. 383, 388 (N.D.Ill.1980). There is no reason to hold that a seller and a buyer may not enter into a contract which provides for the limitation of consequential damages, so long as it is not unconscionable, in the event that a limited remedy fails of its essential purpose. The U.C.C. certainly does not mandate such a conclusion. Although generally the failure of the essential purpose of a limited remedy will also invalidate a consequential damages limitation, there are cases when it will not.
Our holding in Devore v. Bostrom, 632 P.2d 832 (Utah 1981), does not conflict with this analysis. In Devore, there was a limited remedy but not an express consequential damages limitation. As Justice Howe notes, the limited remedy necessarily excluded consequential damages. However, when the limited remedy failed of its essential purpose, there was no longer any contractual limitation of consequential damages. Thus, as Devore correctly held, when a limited remedy fails, all remedies provided in the statutory scheme, including consequential damages, can appropriately be recovered. 632 P.2d at 835.
Case law from other jurisdictions, including that cited in the majority opinion, if not expressly following this reasoning, at least does so implicitly. Those cases allowing consequential damages in spite of an express limitation have done so either because the seller repudiated the warranty and therefore could not rely on the warranty’s limitation of consequential damages or because the two limitations were so interrelated that the failure of one necessarily caused the failure of the other. See, e.g., Jones & McKnight Corp. v. Birdsboro Corp., 320 F.Supp. 39, 43 (N.D.Ill.1970) (court “would be in an untenable position if it allowed the defendant 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”); Clark v. International Harvester Co., 99 Idaho 326, 343, 581 P.2d 784, 801 (1978) (both limitations were “integral parts of the provision, reciprocal to one another, and together they represented the agreed allocation of risk between the parties”); Adams v. J.I. Case Co., 125 Ill.App.2d 388, 402, 261 N.E.2d 1, 7 (1970) (“[Ljimitations of remedy and of liability are not separable from the obligations of the warranty. Repudiation of the obligations of the warranty destroy its benefits.”); Kelynack v. Yamaha Motor Corp., USA, 152 Mich.App. 105, 115, 394 N.W.2d 17, 21 (1986) (“repair and replace remedy and the exclusion of consequential damages are integral and interdependent parts of the warranty”; seller cannot “repudiate its limited obligation under the warranty while shielding itself behind another provision of the very warranty it has repudiated”); Ehlers v. Chrysler Motor Corp., 88 S.D. 612, 620, 226 N.W.2d *1119157, 161 (1975) (seller cannot “repudiate its obligation under the warranty” and at the same time attempt “to shield itself behind the beneficial limitation clause” of the same warranty).
On the other hand, many courts are willing to enforce a completely separate and otherwise valid consequential damages limitation provision. See, e.g., Chatlos Sys., Inc. v. National Cash Register Corp., 635 F.2d 1081, 1086 (3d Cir.1980) (“limited remedy of repair and a consequential damages exclusion are two discrete ways of attempting to limit recovery”; the consequential damages limitation is “valid unless it is unconscionable”); AES Technology Sys., Inc. v. Coherent Radiation, 583 F.2d 933, 941 (7th Cir.1978) (court rejected “the contention that failure of the essential purpose of the limited remedy automatically means that a damage award will include consequential damages”; “purpose of the courts in contractual disputes is not to rewrite contracts by ignoring parties’ intent; rather it is to interpret the existing contract as fairly as possible when all events did not occur as planned”); V-M Corp. v. Bernard Distrib. Co., 447 F.2d 864, 869 (7th Cir.1971) (court “not persuaded that Section 2-719(2) ... requires the negation of the specific limitations of the contract”); American Elec. Power Co. v. Westinghouse Elec. Corp., 418 F.Supp. 435, 458 (S.D.N.Y.1976) (“totally separate provision” limiting consequential damages does not fail with limited remedy; limited remedy which “fails of its essential purpose ... may be ignored, and other clauses in the contract which limit remedies for breach may be left to stand or fall independently of the stricken clause. Section 2-719 was intended to encourage and facilitate consensual allocations of risks”); Stutts v. Green Ford, Inc., 47 N.C.App. 503, 516, 267 S.E.2d 919, 926 (1980) (failure of limited remedy does not invalidate a “contractual limitation on the recovery of consequential damages”).
Although, as a practical matter, the various courts deciding these cases might not agree on how to interpret a particular set of facts, the principle derived from the cases is well-reasoned. In sum, if a consequential damages limitation is not so integrally related to a limited remedy that the failure of the essential purpose of that remedy, or its repudiation by the seller, necessarily invalidates the damages limitation, the consequential damages limitation should be upheld if not unconscionable.
Finally, although unconscionability is more likely to be found in consumer contracts than in commercial contracts, the language of the majority opinion should not be read as creating a presumption of un-conscionability in consumer contracts. The majority states: “[A] trial court will generally find that provisions limiting incidental and consequential damages are unconscionable in consumer settings and conscionable in commercial settings.” This statement should only be read as descriptive of the usual outcome of these issues and should not be considered as indicative of what the trial court must do.