Is our 'repair or replace is the sole remedy' clause good in North Carolina?
Yes as written, until it fails. N.C.G.S. § 25-2-719(a) does not begin with the grant of power: it begins 'Subject to the provisions of subsections (b) and (c) of this section and of the preceding section [G.S. 25-2-718] on liquidation and limitation of damages', so everything in (a) is already qualified before it starts. Within that opening, (a)(1) lets the agreement provide for remedies in addition to or in substitution for those Article 2 provides and limit or alter the measure of damages recoverable, 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 (a)(2) makes resort to a remedy optional 'unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy'. Subsection (b) is the escape: 'Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter.' Consequential damages are governed separately by subsection (c): they 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 cross-reference in (a)'s opening is worth following, because it caps the clause from a different direction: § 25-2-718(a) allows damages to be liquidated 'but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy', and 'a term fixing unreasonably large liquidated damages is void as a penalty'. And because a repair-or-replace promise is usually a warranty remedy, note § 25-2-316(d): 'Remedies for breach of warranty can be limited in accordance with the provisions of this article on liquidation or limitation of damages and on contractual modification of remedy (G.S. 25-2-718 and 25-2-719).'
The trap
Exclusivity is not the default: § 25-2-719(a)(2) requires the remedy to be EXPRESSLY agreed to be exclusive, so a clause that lists a repair remedy without saying it is the only one leaves the buyer the Article 2 remedies as well. The consumer-goods sentence in (c) creates a presumption, not a prohibition: it makes a limitation of consequential damages for personal injury in consumer goods PRIMA FACIE unconscionable, and says in the same sentence that a commercial loss limitation is not. Article 2 also says what follows from a finding of unconscionability, and it is not automatic nullity: § 25-2-302 applies to 'the contract or any clause of the contract' found unconscionable 'at the time it was made' and lets the court refuse to enforce the contract, enforce the remainder without the unconscionable clause, or so limit the clause's application as to avoid an unconscionable result, while § 25-2-302(b) entitles the parties to a reasonable opportunity to present evidence of commercial setting, purpose and effect. So this is decided on a record, not on the face of the clause. Watch the two different moments as well: § 25-2-302 asks about the time the contract was made, while § 25-2-719(b) looks at later circumstances that cause an exclusive remedy to fail of its essential purpose. And the drafting consequence most often assumed is not established here: whether a consequential-damages exclusion under (c) survives the failure of an exclusive remedy under (b) is a question no North Carolina decision was examined to answer. Treat that as unread rather than unanswered: ten North Carolina opinions mention § 25-2-719 and five mention § 25-2-718, and none of them was read for this answer.
5 authorities
- statuteN.C.G.S. § 25-2-719enactment date not established
The words that state the rule
Subject to the provisions of subsections (b) and (c) of this section and of the preceding section [G.S. 25-2-718] on liquidation and limitation of damages, (1) 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 nonconforming goods or parts; and (2) 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.
- statuteN.C.G.S. § 25-2-719enactment date not established
The words that state the rule
Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this chapter. (c) 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.
- statuteN.C.G.S. § 25-2-718enactment date not established
The words that state the rule
(a) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
- statuteN.C.G.S. § 25-2-302enactment date not established
The words that state the rule
(a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
- statuteN.C.G.S. § 25-2-316enactment date not established
The words that state the rule
(d) Remedies for breach of warranty can be limited in accordance with the provisions of this article on liquidation or limitation of damages and on contractual modification of remedy (G.S. 25-2-718 and 25-2-719).
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.