Is this repair-or-replace-only clause with a consequential-damages exclusion going to hold in Illinois?
Conditionally, and the Illinois answer turns on a doctrinal choice the statute does not make for you. Under 810 ILCS 5/2-719, headed Contractual modification or limitation of remedy, the agreement may limit the buyer's remedies “to repair and replacement of non-conforming goods or parts”, and “resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy”; where circumstances cause an exclusive or limited remedy “to fail of its essential purpose, remedy may be had as provided in this Act”; and consequential damages “may be limited or excluded unless the limitation or exclusion is unconscionable”, with limitation for injury to the person in the case of consumer goods prima facie unconscionable and commercial-loss limitation not. The question the statute leaves open is whether the consequential-damages exclusion dies with the failed repair remedy, and in Razor the supreme court answered it: it adopted the INDEPENDENT approach, holding “the independent approach is the better-reasoned and more in accordance with the plain language of the UCC”, so that “Contractual limitations or exclusions of consequential damages will be upheld unless to do so would be unconscionable, regardless of whether the contract also contains a limited remedy which fails of its essential purpose.” The jury there had found Hyundai's repair-or-replace remedy failed of its essential purpose and Hyundai did not challenge that finding: "Hyundai neither challenges the jury's conclusions regarding causation *614 nor contends that plaintiff failed to prove that the warranty failed of its essential purpose", and the consequence under § 2-719(2) followed: "Because the limited remedy failed of its essential purpose, plaintiff was entitled to pursue the other remedies afforded by the UCC." even so, “the mere fact that the jury found the limited remedy to have failed of its essential purpose does not destroy the provision in the warranty excluding consequential damages”. The exclusion “must be judged on its own merits”. So the two clauses are two separate walls, and a buyer has to climb the second one by proving unconscionability. On those facts the buyer climbed it. Razor held the consequential-damages exclusion in the consumer's new-car warranty procedurally unconscionable where the buyer testified she never saw the clause and there was no basis for concluding she could have seen it before entering the sale contract, and the court affirmed the refusal to enforce it along with the $3,500 of consequential damages. The disposition was SPLIT, though: the same opinion reversed the separate $5,000 warranty-damages award for insufficient proof of the car's value and remanded for a new trial on that issue alone.
The trap
Do not assume the exclusion falls with the warranty. That is the dependent approach, and Illinois rejected it: a failed repair-or-replace remedy gets the buyer to § 2-719(2), but the consequential-damages exclusion survives unless the buyer separately proves it unconscionable under § 2-719(3). A seller's exclusion therefore does real work precisely in the case where its primary remedy has already broken down. The Illinois-specific way to break that exclusion is delivery, not drafting. In Razor's consumer setting, capital letters and plain language were beside the point: “These aspects of the disclaimer are irrelevant, however, in the case of a limitation of liability withheld from the buyer until after the purchase contract has been signed”, and “that label must apply to a situation such as the case at bar where plaintiff has testified that she never saw the clause”, and because Illinois does not require BOTH procedural and substantive unconscionability, that alone took the exclusion out. Note how narrow the ground was: the court said in terms it was NOT holding that the consumer setting, the bargaining disparity and the pre-printed form, alone or in combination, made the clause unconscionable; it was the absence of evidence that the warranty had been made available at or before signing that tipped the balance. Razor decided a consumer new-car sale under the UCC and Magnuson-Moss; whether the same follows for an exclusion in a negotiated commercial contract is not established by the Illinois authorities reviewed here. Remember too what § 2-719(3) itself says on that split: a limitation of consequential damages for injury to the person in consumer goods is prima facie unconscionable, while a limitation “where the loss is commercial is not”. And if the clause is not expressly exclusive, § 2-719(1)(b) makes it merely an extra remedy for the buyer rather than a cap. Finally, winning the clause fight is not winning the money: in Razor the buyer kept the $3,500 of consequential damages and lost the $5,000 warranty award to a retrial, because she had not proved the car's value with reasonable certainty.
15 authorities
- statute810 ILCS 5/2-719enacted 1961
The words that state the rule
(b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.
The words that state the rule
Surely, whatever other context there might be in which a contractual provision would be found to be procedurally unconscionable, that label must apply to a situation such as the case at bar where plaintiff has testified that she never saw the clause; nor is there any basis for concluding that plaintiff could have seen the clause, before entering into the sale contract.
- statute810 ILCS 5/2-719enacted 1961
The words that state the rule
(810 ILCS 5/2-719) (from Ch. 26, par. 2-719) Sec. 2-719. Contractual modification or limitation of remedy. (1) Subject to the provisions of subsections (2) and (3) of this Section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.
The words that state the rule
These aspects of the disclaimer are irrelevant, however, in the case of a limitation of liability withheld from the buyer until after the purchase contract has been signed. It simply does not matter how large the type was or how clearly the disclaimer was expressed if the consumer did not have the opportunity to see the language before entering into the contract to purchase the car.
The words that state the rule
Unconscionability can be either "procedural" or "substantive" or a combination of both.
The words that state the rule
However, we need notand we do nothold that these general circumstances alone or in combination render the clause unconscionable. An additional fact particular to this case tips the balance in plaintiff's favor. That is the lack of evidence that the warranty, which contained the disclaimer of consequential damages, had been made available to the plaintiff at or before the time she signed the sale contract.
The words that state the rule
In this case, Hyundai's limited warranty contained both a limitation of remedy and an exclusion of consequential damages. The warranty expressly limited the buyer's remedies to repair and replacement of nonconforming parts, as permitted under section 2-719(1)(a). However, the warranty additionally provided that incidental or consequential damages were "not covered," as permitted under section 2-719(3).
The words that state the rule
We conclude that the independent approach is the better-reasoned and more in accordance with the plain language of the UCC. This conclusion is buttressed by the fact that a majority of jurisdictions to consider the issue have adopted the independent approach.
The words that state the rule
Contractual limitations or exclusions of consequential damages will be upheld unless to do so would be unconscionable, regardless of whether the contract also contains a limited remedy which fails of its essential purpose.
The words that state the rule
Accordingly, the mere fact that the jury found the limited remedy to have failed of its essential purpose does not destroy the provision in the warranty excluding consequential damages. However, this does not mean that the exclusion of consequential damages will necessarily be upheld. Rather, that provision must be judged on its own merits to determine whether its enforcement would be unconscionable.
The words that state the rule
The primary question is whether the circuit court acted properly in refusing to enforce a contractual clause prohibiting the award of consequential damages. There is also a sufficiency of the evidence challenge to the court's award of warranty damages. We affirm in part, reverse in part, and remand.
The words that state the rule
To enforce the clause in these circumstances, we conclude, would indeed be unconscionable. See Frank's Maintenance, 86 Ill.App.3d at 991 n. 2, 42 Ill.Dec. 25 , 408 N.E.2d 403 ("a limitation of liability given to the buyer after he makes the contract is ineffective"). Accordingly, we affirm the circuit court's order to that effect, as well as the $3,500 which represents that portion of the jury verdict intended to recompense plaintiff for the consequential damages she incurred.
The words that state the rule
Therefore, pursuant to our authority under Supreme Court Rule 366(a)(5) (155 Ill.2d R. 366(a)(5)), we reverse and remand for a new trial solely on the question of the warranty damages to which plaintiff is entitled.
The words that state the rule
Hyundai neither challenges the jury's conclusions regarding causation *614 nor contends that plaintiff failed to prove that the warranty failed of its essential purpose.
The words that state the rule
Because the limited remedy failed of its essential purpose, plaintiff was entitled to pursue the other remedies afforded by the UCC.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.