Will a Washington court enforce our exclusion of consequential damages or cap at the purchase price?
In a commercial transaction, usually. Limitations on consequential damages are generally valid under the UCC unless they are unconscionable, and whether a limitation is unconscionable is a question of law. Exclusionary clauses in purely commercial transactions are prima facie conscionable and the burden of establishing unconscionability is on the party attacking it; the fact that an unfortunate result occurs after contracting (a latent defect) does not render an otherwise standard limitation of remedies clause substantively unconscionable (Mortenson). The Berg two-prong test (explicitly negotiated and set forth with particularity) governs consumer transactions involving warranty disclaimers, and commercial transactions for the sale of goods where there is sufficient evidence of unfair surprise; clauses limiting consequential damages in commercial transactions for services without such evidence get a totality-of-the-circumstances analysis, on four nonexclusive factors (conspicuousness, negotiation, trade usage, course of dealing). Both cases ended in enforcement: Mortenson's limitation of remedies clause was enforceable and summary judgment of dismissal was upheld, and in Puget Sound Financial the Court of Appeals was reversed, the liability limitation held conscionable as a matter of law, and recovery capped at the $25 fee.
The trap
Consumer deals are different: the clause has to have been explicitly negotiated and stated with particularity, and a printed exclusion that satisfies a commercial buyer can fail against a consumer. Also, the commercial presumption is only a presumption, and the totality analysis has four nonexclusive factors, not two: the conspicuousness of the clause, the presence or absence of negotiations, the custom and usage of the trade, and any policy developed between the parties during the course of dealing, read with American Nursery's three surrounding circumstances (how the parties entered the contract, whether they had a reasonable opportunity to understand the terms, and whether the important terms were hidden in a maze of fine print). And a win on conscionability is not automatically a win on the number: Unisearch's clause held, and the buyer's recovery was capped at the $25 search fee.
10 authorities
- case140 Wash. 2d 568M.A. Mortenson Co. v. Timberline Software Corp.Wash.decided 2000read it at the source ↗
The words that state the rule
Limitations on consequential damages are generally valid under the U.C.C. unless they are unconscionable. RCW 62A.2-719(3). Whether a limitation on consequential damages is unconscionable is a question of law.
- case140 Wash. 2d 568M.A. Mortenson Co. v. Timberline Software Corp.Wash.decided 2000read it at the source ↗
The words that state the rule
“Exclusionary clauses in purely commercial transactions . . . are prima facie conscionable and the burden of establishing unconscionability is on the party at *586 tacking it.” American Nursery Prods., 115 Wn.2d at 222 . If there is no threshold showing of unconscionability, the issue inay be determined on summary judgment.
- case140 Wash. 2d 568M.A. Mortenson Co. v. Timberline Software Corp.Wash.decided 2000read it at the source ↗
The words that state the rule
We find the result in Tacoma Boatbuilding an accurate analysis of Washington’s law of substantive unconscionability and adopt it here. In a purely commercial transaction, especially involving an innovative product such as software, the fact an unfortunate result occurs after the contracting process does not render an otherwise standard limitation of remedies clause substantively unconscionable.
- case146 Wash. 2d 428Puget Sound Financial, L.L.C. v. Unisearch, Inc.Wash.decided 2002read it at the source ↗
The words that state the rule
In American Nursery this court made another modification and extension of the Berg/Schroeder analysis. In that case we confirmed the use of the two-prong Berg analysis for consumer transactions involving warranty disclaimers and in commercial transactions for the sale of goods where there is sufficient evidence of unfair surprise. 115 Wn.2d at 223-24 . We thus also confirmed the Schroeder totality of the circumstances analysis for clauses excluding (or limiting) *440 liability for consequential damages in commercial transactions for services where there is insufficient evidence of unfair surprise. Id. at 222-23; see also Cox v. Lewiston Grain Growers, Inc., 86 Wn. App. 357, 367-70 , 936 P.2d 1191 (1997). Finding no indicia of unfair surprise, this court then specifically applied the Schroeder analysis to a contract for services between commercial parties. Am. Nursery, 115 Wn.2d at 224-25 . In applying the Schroeder totality of the circumstances analysis to determine conscionability, we referenced RCW 62A.2-719(3), which states, “Limitation of other consequential damages is valid unless it is established that the limitation is unconscionable.”
- case140 Wash. 2d 568M.A. Mortenson Co. v. Timberline Software Corp.Wash.decided 2000read it at the source ↗
The words that state the rule
The court rejected this theory: Comment 3 to [U.C.C.] § 2-719 generally approves consequential damage exclusions as “merely an allocation of unknown or undeterminable risks.” Thus, the presence of latent defects in the goods cannot render these clauses unconscionable. The need for certainty in risk-allocation is especially compelling where, as here, the goods are experimental and their performance by nature less predictable. Tacoma Boatbuilding, 28 U.C.C. Rep. Serv. at 35 (citation omitted).
- case140 Wash. 2d 568M.A. Mortenson Co. v. Timberline Software Corp.Wash.decided 2000read it at the source ↗
The words that state the rule
We find Mortenson’s unconscionability claim unpersuasive and, therefore, find the limitation of remedies clause to be enforceable. CONCLUSION Mortenson has failed to set forth any material issues of fact on the issue of contract formation, and has also failed to make a threshold showing of unconscionability sufficient to avoid summary judgment. We affirm the Court of Appeals, upholding the trial court’s order of summary judgment of dismissal and denial of the motions to vacate and amend.
- case146 Wash. 2d 428Puget Sound Financial, L.L.C. v. Unisearch, Inc.Wash.decided 2002read it at the source ↗
The words that state the rule
In Schroeder we recognized the following nonexclusive factors to consider in assessing the unconscionability of a liability exclusionary clause: (1) the conspicuousness of the clause in the agreement, (2) the presence or absence of negotiations regarding the clause, (3) the custom and usage of the trade, and (4) any policy developed between the parties during the course of dealing. Schroeder, 86 Wn.2d at 259-61 . Additionally, in American Nursery, we noted that “[ujnconscionability is determined in light of all the surrounding circumstances, including (1) the manner in which the parties entered into the contract, (2) whether the parties had a reasonable opportunity to understand the terms of the contract, and (3) *442 whether the important terms were hidden in a maze of fine print.” 115 Wn.2d at 222
- case146 Wash. 2d 428Puget Sound Financial, L.L.C. v. Unisearch, Inc.Wash.decided 2002read it at the source ↗
The words that state the rule
We thus hold, as a matter of law, that the totality of the circumstances support the conscionability and enforceability of the liability limitation clause in the contract for services between Factors and Unisearch. We reverse the Court of Appeals decision and affirm the trial court’s grant of summary judgment limiting Unisearch’s liability, if any, to the amount of the fee charged for its service.
- case146 Wash. 2d 428Puget Sound Financial, L.L.C. v. Unisearch, Inc.Wash.decided 2002read it at the source ↗
The words that state the rule
All of the search reports included the statement, “The responsibility for maintaining public records rests with the filing officer, and Unisearch, Inc. will accept no liability beyond the exercise of reasonable care.” 1 Unisearch charged $25 for each search, and every invoice contained the statement “Liability Limited to Amount of Fee.”
- case146 Wash. 2d 428Puget Sound Financial, L.L.C. v. Unisearch, Inc.Wash.decided 2002read it at the source ↗
The words that state the rule
According to the decision in Berg , warranty disclaimers in a contract must be both (1) explicitly negotiated and (2) set forth with particularity. Id. at 196 . The presumption leans against the warranty disclaimer, and the burden lies on the party seeking to include the disclaimer to prove its legality. Id. at 194 .
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.