Is this repair-or-replace-only remedy clause going to hold, and does it cap consequential damages?
Conditionally. The agreement may provide remedies in addition to or in substitution for those in the chapter and may limit or alter the measure of damages: for example 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. But resort to a stated remedy 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 the title. Separately, 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. All of this is subject to § 2.718 on liquidation and limitation of damages, under which damages may be liquidated in the agreement 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 non-feasibility of otherwise obtaining an adequate remedy, and a term fixing unreasonably large liquidated damages is void as a penalty.
The trap
A two-stage failure that drafters routinely walk into. First, if the contract does not say the remedy is EXCLUSIVE, it is merely one more option added to the buyer's statutory remedies (the stated remedy is merely optional) though a measure-of-damages limit under (a)(1) and a consequential-damages exclusion under (c) do not depend on exclusivity and are unaffected. Second, even a properly exclusive remedy is undone by § 2.719(b) when it fails of its essential purpose, the classic case being a repair-or-replace promise for a defect that cannot be repaired. Whether a consequential-damages exclusion survives when the exclusive remedy fails of its essential purpose is not answered by any authority in this rule; drafting the two as independent clauses is the convention, not a holding. Failure of essential purpose is not self-executing either: it 'is a matter properly pled and submitted to the jury when contested' (Dickenson), and the classic instance is the repair-or-replace remedy where 'the warrantor does not correct the defect within a reasonable time'.
5 authorities
- statuteTex. Bus. & Com. Code § 2.719enacted 1967-09-01
The words that state the rule
(a) Subject to the provisions of Subsections (b) and (c) of this section and of the preceding section on liquidation and limitation of damages, (1) the agreement may provide for remedies in addition to or in substitution for those provided in this chapter and may limit or alter the measure of damages recoverable under this chapter, 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 (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. (b) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this title. (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.
- statuteTex. Bus. & Com. Code § 2.718enacted 1967-09-01
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 non-feasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. (b) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds (1) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with Subsection (a), or (2) in the absence of such terms, twenty percent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
- caseMercedes-Benz of N. Am., Inc. v. Dickenson (Tex. App. Nov. 6, 1986)Mercedes-Benz of North America, Inc. v. DickensonTex. App.decided 1986
The words that state the rule
However, the limited remedy fails of its essential purpose and deprives the buyer of the substantial value of the bargain when the warrantor does not correct the defect within a reasonable time.
- caseMercedes-Benz of N. Am., Inc. v. Dickenson (Tex. App. Nov. 6, 1986)Mercedes-Benz of North America, Inc. v. DickensonTex. App.decided 1986
The words that state the rule
The failure of a limiting clause’s essential purpose is a matter properly pled and submitted to the jury when contested.
- statuteTex. Bus. & Com. Code § 2.302enacted 1967-09-01
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.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.