Razor v. Hyundai Motor America

Docket No. 98813.
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
SHANTE RAZOR, Appellee, v. HYUNDAI MOTOR AMERICA,
Appellant.
Opinion filed February 2, 2006.
JUSTICE FREEMAN delivered the judgment of the court, with
opinion.
Chief Justice Thomas and Justices McMorrow, Fitzgerald,
Kilbride, Garman, and Karmeier concurred in the judgment and
opinion.
OPINION
This appeal involves the federal Magnuson-Moss
WarrantyBFederal Trade Commission Improvement Act (Act) (15
U.S.C. '2301 et seq. (2000)) and the Illinois Uniform Commercial
Code (UCC) (810 ILCS 5/1B101 et seq. (West 2000)). The only
issues raised concern the propriety of the damages awarded to the
plaintiff. 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.
BACKGROUND
Plaintiff Shante Razor purchased a new Hyundai Sonata from
Gartner Buick, Inc. (Gartner), on August 4, 2001. At the time she
purchased the car, plaintiff also bought an optional remote starter and
alarm system from an Aoptions@ booklet shown to her by the Gartner
salesman. Gartner subcontracted the installation of this starter to
Professional Sound Installers (ProSound). ProSound did not install it
on the date plaintiff purchased her vehicle, but a few weeks later, on
August 30, 2001.
The Sonata was the first new car plaintiff had ever purchased. It
came with a five-year, 60,000-mile warranty, a copy of which was
introduced into evidence. In pertinent part, the warranty provided as
follows:
AWHAT IS COVERED
Repair or replacement of any component originally
manufactured or installed by Hyundai Motor Company or
Hyundai Motor America (HMA) that is found to be defective
in material or workmanship under normal use and
maintenance, except any item specifically referred to in the
section >What is Not Covered.=
***
WHAT IS NOT COVERED
* Damage or failure resulting from:
BNegligence of proper maintenance as required in the
Owner=s Manual.
BMisuse, abuse, accident, theft, water/flooding or fire.
***
B Any device and/or accessories not supplied by Hyundai.
***
*INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, LOSS OF TIME,
INCONVENIENCE, LOSS OF USE OF THE VEHICLE, OR
COMMERCIAL LOSS.
*The duration of any implied warranties, including those
for MERCHANTABILITY and FITNESS FOR A
PARTICULAR PURPOSE, are limited to the duration of this
limited warranty.
Some states do not allow limitations on how long an
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implied warranty lasts, or the exclusion or limitation of
incidental and consequential damages, so the limitations or
exclusions set forth regarding this limited warranty may not
apply to you. You may also have other rights which vary
from state to state.@
In late September 2001, plaintiff began experiencing difficulties
with the vehicle. On September 26, plaintiff had the vehicle towed to
Gartner for service because it failed to start when she turned the key.
She experienced the same problem and again had the vehicle towed
to Gartner for service on October 6, October 16, and October 25. On
the latter occasion, Gartner kept the vehicle for more than two weeks,
providing plaintiff with a rental car to use during the time the vehicle
was out of her possession. Nevertheless, the problem happened again
on November 21, the day before Thanksgiving, when plaintiff had
taken the day off from work to go shopping for the holiday. After a
technician came to her home and was himself unable to start the car,
the vehicle was yet again towed to Gartner for attempted repairs.
Sometimes after being towed to Gartner the vehicle started
normally, other times it did not. Gartner technicians attempted
various different repairs on the different occasions that the car
appeared before them, including replacing the starter, replacing the
AECU power relay,@ replacing the remote starter with an updated
system, and replacing the Atrans range switch@ and Astarter relay.@
Additionally, after the October 25 no-start, when the vehicle was kept
for more than two weeks, ProSound removed the remote starter it had
originally installed on plaintiff=s vehicle and replaced it with an
updated model. Plaintiff was not charged for any of the attempted
repairs.
In December 2001, plaintiff filed suit against defendant, Hyundai
Motor America (Hyundai). Plaintiff made claims against Hyundai
pursuant to the Magnuson-Moss Warranty Act (15 U.S.C. '2301 et
seq. (2000)) for breach of written warranty and breach of implied
warranty of merchantability. Plaintiff also alleged that Hyundai had
violated the Illinois New Vehicle Buyer Protection Act (815 ILCS
380/1 et seq. (West 2000)).
The case initially went to arbitration. The arbitration panel found
in plaintiff=s favor, and entered an award of $6,500, plus attorney fees
and costs. Hyundai rejected this award and demanded trial.
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The case went to trial in February 2003. Plaintiff was the sole
witness for her case, and most of the above undisputed facts are
drawn from her testimony. In addition, plaintiff testified that she
never saw the actual warranty until after she had purchased the car,
because the warranty was contained in the owner=s manual, which she
saw for the first time in the glove box of her vehicle when she drove
it off the lot. Plaintiff=s purchase contract, a copy of which was
introduced into evidence, does not appear to contain or refer to the
vehicle warranty. When asked on cross-examination if she had seen
the warranty on a placard at Gartner Hyundai, plaintiff testified that
she had not. Plaintiff testified that she had performed all required
maintenance on her car, had never been in an accident or been the
victim of vandalism, and that no one other than Gartner Hyundai had
ever performed any repairs on the vehicle.
During plaintiff=s direct examination, defense counsel objected
when plaintiff=s counsel inquired regarding her purchase of prior
automobiles. During a lengthy sidebar, counsel explained that he was
attempting to lay a foundation in order to ask her how much the car=s
value to her had decreased because of the problems she had with it.
The court ruled that plaintiff could not answer such a question. The
court indicated that plaintiff could testify Aas to what her feelings
were, what her frame of mind was and the impact of the slow [sic]
start situation on her personal feelings. *** But as to >the value of the
vehicle would have been such and such because of the no start
conditions,= I don=t see how you=re going to go that far with it.@
Plaintiff was permitted to testify that the purchase price of her Sonata
was $16,522, and that she would eventually have paid a total of
$21,249 for the car, including finance charges.
Plaintiff testified that the vehicle did not provide her the type of
transportation she expected. She testified, A[I]t=s a brand new car. I
expected it to be perfect, flawless or minimal problems, certainly not
the ones that I encountered here.@ She testified that she would not
purchase the same vehicle today, because it was Aproven unreliable,@
and she would not today pay the price she had originally paid for the
vehicle, because Agiven the problems that this vehicle B that I have
had with this vehicle or the problems the vehicle has had, that=s like a
used car. I would not pay that for a new car with used problems as it
were.@ Plaintiff also testified that the problems she had with the car
had caused her considerable inconvenience, including missing days
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of work. However, on cross-examination, plaintiff admitted she was
still driving the car at the time of trialBMay 2003Band had not
experienced any difficulties with it since December 2001.
Plaintiff offered her exhibits into evidence and rested. Hyundai
moved for a directed verdict, which the court denied in its entirety.
During argument on the motion, the court initially ruled that
Hyundai=s disclaimer of incidental and consequential damages was
not unconscionable, but shortly thereafter the court reversed itself and
ruled that the disclaimer was unconscionable and would not be
enforced. When defense counsel inquired of the court as to the basis
for its ruling that the disclaimer was unconscionable, the court
responded:
ATHE COURT: The number of attempts that the plaintiff
attempted for repairs. The fact that the plaintiff needed, used
or intended to use the vehicle for transportation to and from
work. The fact that the plaintiff was unable to use the vehicle
for the time period in question for it=s [sic] intended use.@
After the court denied Hyundai=s motion for a directed verdict,
the defense called its sole witness, Randy Wood. Wood is treasurer
and part owner of ProSound, the company which installed plaintiff=s
alarm and remote starter system. He testified that ProSound had
inspected the system installed on plaintiff=s vehicle on more than one
occasion, and no problem was ever found. Although ProSound did
replace plaintiff=s system with the newest model, this was for
customer satisfaction purposes only, because ProSound never found
anything wrong with plaintiff=s system. He did admit on redirect
examination that plaintiff=s vehicle Amay have@ had a weak signal
coming through its Atack [sic] wire,@ and if that condition existed it
could cause problems for the ProSound system. Wood also testified
that the system could itself prevent the car from starting, if one
attempted to start it with the key after locking the car with the remote
control.
After the defense rested, Hyundai renewed its motion for a
directed verdict, including specifically arguing that the court should
not have reversed its initial conclusion regarding the enforceability of
the consequential damages disclaimer. The court denied Hyundai=s
motions and submitted the case to the jury.
The jury returned a verdict for plaintiff on the breach of warranty
claims, awarding her $5,000 in warranty damages for the diminished
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value of the Sonata due to the defects, and $3,500 in consequential
damages for aggravation and inconvenience and loss of use. The jury
also answered Ayes@ to a special interrogatory which asked, ADid
plaintiff prove the aftermarket remote starter-alarm system was not
the cause of the no-start condition?@ The jury found in defendant=s
favor, however, on plaintiff=s claim under the New Vehicle Buyer
Protection Act. The court awarded plaintiff $12,277 in attorney fees
and costs.
The appellate court affirmed in all respects. 349 Ill. App. 3d 651.
Hyundai petitioned for leave to appeal to this court (see 155 Ill.
2d R. 315(a)), which we granted.
ANALYSIS
Before this court the issues have been pared down. Hyundai
neither challenges the jury=s conclusions regarding causation nor
contends that plaintiff failed to prove that the warranty failed of its
essential purpose. Plaintiff does not cross-appeal the jury verdict in
Hyundai=s favor on her New Vehicle Buyer Protection Act claim.
Neither party raises any issues regarding the circuit court=s conduct of
the trial.
Rather, the arguments now focus exclusively on damages.
Hyundai first argues that the circuit court erred in refusing to enforce
the contractual exclusion of incidental and consequential damages.
Hyundai argues that the mere fact that its warranty failed of its
essential purpose does not invalidate the consequential damages
disclaimer, and contends that plaintiff introduced no evidence to
support the circuit court=s ruling that the disclaimer should not be
enforced. Second, Hyundai contends that there was insufficient
evidence to support the jury=s warranty damage award. Finally,
Hyundai argues that if this court reverses both damage awards, we
must also reverse the circuit court=s award of fees and costs. Plaintiff
raises no additional arguments. Thus, these are the only issues before
us.
I. Enforceability of Hyundai=s Disclaimer of
Incidental/Consequential Damages
The main issue before this court is the enforceability of Hyundai=s
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disclaimer of incidental and consequential damages. Hyundai argues
that the disclaimer is independent of the limited remedy, and the
disclaimer may stand even if its limited remedy failed of its essential
purpose. Hyundai contends that the disclaimer may be overridden
only if it is itself unconscionable, a standard which Hyundai argues
has not been met in the instant case. Plaintiff responds that the
disclaimer should fall with the limited warranty, and contends that
even if this court finds them to be severable, the disclaimer in this
case was unconscionable.
A. AIndependent@ vs. ADependent@ Approach to Provisions Limiting
Remedy and Excluding Consequential Damages
As previously noted, plaintiff=s claim was brought under the
Magnuson-Moss Warranty Act (15 U.S.C. '2301 et seq. (1994)).
Under the Act, consumers who have been damaged by any
warrantor=s failure to comply with its obligations under a written
warranty may bring suit Ain any court of competent jurisdiction in any
State or the District of Columbia.@ 15 U.S.C. '2310(d)(1)(A) (1994).
The Act itself does not determine the enforceability of the
consequential damages disclaimer, however. The Act does supersede
state law, but only to the extent that state law is inconsistent with the
Act. 15 U.S.C. '2311 (1994); see Sorce v. Naperville Jeep Eagle, 309
Ill. App. 3d 313, 323 (1999). The warranty at issue in this case was a
limited warranty, and the Act does not set out requirements for
limited warranties. 1 Rather, the Act merely prescribes certain
requirements with which warranties must comply in order to be
called Afull@ warranties. See 15 U.S.C. '2303(a) (1994) (a warranty
which meets the standards set forth in section 4 of the Act (15 U.S.C.
'2304 (1994)) Ashall be conspicuously designated a >full (statement of
duration) warranty,= @ and a warranty which does not meet the
standards set out in section 4 of the Act Ashall be conspicuously
designated a >limited warranty= @).
1
The Act does permit the Federal Trade Commission to establish general
disclosure requirements for the terms and conditions of all warranties, e.g.,
that they must clearly identify the warrantors, the warrantees, the products
or parts covered, etc. See 15 U.S.C. '2302 (1994). However, the Act itself
does not directly establish any such disclosure requirements, nor do the
parties raise any arguments regarding any requirements the FTC may have
established.
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Accordingly, to determine the enforceability of a consequential
damages disclaimer in a limited warranty, we look to state law. See
Lara v. Hyundai Motor America, 331 Ill. App. 3d 53, 62 (2002);
Sorce, 309 Ill. App. 3d at 325. In Illinois, the sale of goods is
governed by article 2 of the Uniform Commercial Code (UCC). 810
ILCS 5/1B101 et seq. (2000). Central to this case is section 2B719 of
the UCC, which governs AContractual modification or limitation of
remedy@:
A(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.
(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.@ 810 ILCS 5/2B719 (West 2000).
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
2B719(1)(a). However, the warranty additionally provided that
incidental or consequential damages were Anot covered,@ as permitted
under section 2B719(3).
Plaintiff claimedBand the jury foundBthat the Hyundai limited
remedy had failed of its essential purpose because of the persistence
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of the no-start problem with plaintiff=s car. Hyundai does not question
this factual determination in this appeal. Thus, according to section
2B719(2) of the UCC, plaintiff was entitled to remedy Aas provided in
this Act.@ 810 ILCS 5/2B719(2) (West 2000). See also 810 ILCS Ann.
5/2B719, Uniform Commercial Code Comment 1, at 488 (Smith-Hurd
1993) (Aunder subsection (2), where an apparently fair and reasonable
clause because of circumstances fails in its purpose or operates to
deprive either party of the substantial value of the bargain, it must
give way to the general remedy provisions of this Article@).
This does not end the inquiry insofar as consequential damages
are concerned, however. Subsection (3) of section 2B719 is part of
Athis Act@Bi.e., the UCCBand subsection (3) permits a seller to limit
or exclude consequential damages unless to do so would be
unconscionable. It still must be determined, therefore, whether a
limited remedy failing of its essential purpose defeats a disclaimer of
consequential damages.
There are two main schools of thought on the issue. Some courts
and commentators conclude that a limited remedy failing of its
essential purpose operates to destroy any limitation or exclusion of
consequential damages in the same contract. This approach is known
as the Adependent@ approach, because the enforceability of the
consequential damages exclusion depends on the survival of the
limitation of remedy.
Our appellate court issued one of the seminal cases for the
dependent approach, Adams v. J.I. Case Co., 125 Ill. App. 2d 388
(1970). There, the plaintiff purchased a tractor, pursuant to a
purchase agreement which limited his remedy to repair and
replacement and also disclaimed consequential damages. The tractor
had severe mechanical problems and was in a repair shop for over a
year. Plaintiff filed suit, seeking consequential damages for the
business he claimed to have lost because defendants were Awilfully
dilatory or careless and negligent in making good their warranty.@
The court concluded:
AThe limitations of remedy and of liability are not separable
from the obligations of the warranty. Repudiation of the
obligations of the warranty destroys its benefits. The
complaint alleges facts that would constitute a repudiation by
the defendants of their obligations under the warranty, that
repudiation consisting of their wilful failure or their careless
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and negligent compliance. It should be obvious that they
cannot at once repudiate their obligation under their warranty
and assert its provisions beneficial to them.@ Adams, 125 Ill.
App. 2d at 402-03.
In defense of the dependent approach, the United States District
Court for the Northern District of Illinois has reasoned:
A[P]laintiff also was entitled to assume that defendants would
not be unreasonable or wilfully dilatory in making good their
warranty in the event of defects in the machinery and
equipment. It is the specific breach of the warranty to repair
that plaintiff alleges caused the bulk of its damages. This
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,
which alleged repudiation has caused the very need for relief
which the defendant is attempting to avoid.@ Jones &
McKnight Corp. v. Birdsboro Corp., 320 F. Supp. 39, 43-44
(N.D. Ill. 1970) (applying Illinois law).
See also, e.g., Givan v. Mack Truck, Inc., 569 S.W.2d 243, 247 n.7
(Mo. App. 1978) (and cases cited therein); Pierce v. Catalina Yachts,
2 P.3d 618, 622 n.14 (Alaska 2000) (collecting cases).
Plaintiff suggests that the dependent approach is followed by a
majority of jurisdictions to consider the issue. While this may have
been true 15 to 20 years ago 2 (see D. Goetz, Special Project: Article
Two Warranties in Commercial Transactions: An Update, 72 Cornell
L. Rev. 1159, 1307 (1987) (AA majority of cases have answered
correctly that the failure of an exclusive remedy voids the
consequential damages exclusion clause@)), it is no longer the case.
Rather, the majority of jurisdictions now follow the other of the two
main approaches, the Aindependent@ approach. 1 E. Farnsworth,
Farnsworth on Contracts '4.28(a), at 605-06 (3d ed. 2004) (Asome
2
We note that all of the law review articles and all but one of the non-
Illinois court decisions plaintiff cites were decided in 1990 or before. The
sole post-1990 foreign authority plaintiff cites, Bishop Logging Co. v. John
Deere Industrial Equipment Co., 317 S.C. 520, 455 S.E.2d 183 (1995), did
not follow the dependent approach, but rather the Acase-by-case@ approach.
Bishop Logging, 317 S.C. at 533-37, 455 S.E.2d at 191-93.
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courts have gone so far as to hold that if UCC 2B719(2) applies,
related limitations on remedies should all fall like a house of cards, so
that a provision barring recovery of consequential damages would
also be invalidated. However, most courts have rejected this view@);
Pierce, 2 P.3d at 622 (Athe majority of jurisdictions view these
subsections to be independent@) (collecting cases). This school of
thought holds that a limitation of consequential damages must be
judged on its own merits and enforced unless unconscionable,
regardless of whether the contract also contains a limitation of
remedy which has failed of its essential purpose.
A representative case adopting the independent approach is
Chatlos Systems v. National Cash Register Corp., 635 F.2d 1081 (3d
Cir. 1980) (applying New Jersey law). There, the court rejected the
dependent approach, holding:
A[T]he better reasoned approach is to treat the
consequential damage disclaimer as an independent
provision, valid unless unconscionable. This poses no logical
difficulties. A contract may well contain no limitation on
breach of warranty damages but specifically exclude
consequential damages. Conversely, it is quite conceivable
that some limitation might be placed on a breach of warranty
award, but consequential damages would expressly be
permitted.
The limited remedy of repair and a consequential
damages exclusion are two discrete ways of attempting to
limit recovery for breach of warranty. [Citations.] The [UCC],
moreover, tests each by a different standard. The former
survives unless it fails of its essential purpose, while the latter
is valid unless it is unconscionable. We therefore see no
reason to hold, as a general proposition, that the failure of the
limited remedy provided in the contract, without more,
invalidates a wholly distinct term in the agreement excluding
consequential damages. The two are not mutually exclusive.@
Chatlos Systems, 635 F.2d at 1086.
See also Pierce, 2 P.3d at 622-23 (adopting independent approach),
622 n.16 (collecting cases).
A third approach, Aapplied relatively infrequently,@ is the Acase by
case@ approach. D. Hagen, Note, Sections 2B719(2) & 2B719(3) of the
Uniform Commercial Code: The Limited Warranty Package &
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Consequential Damages, 31 Val. U.L. Rev. 111, 131 (1996). Under
this approach, A[a]n analysis to determine whether consequential
damages are warranted must carefully examine the individual factual
situation including the type of goods involved, the parties and the
precise nature and purpose of the contract.@ AES Technology Systems,
Inc. v. Coherent Radiation, 583 F.2d 933, 941 (7th Cir. 1978).
Neither of the parties to this appeal argues in favor of the case-by-
case approach, which has been criticized as Anot supported by the
[UCC] or its official comments.@ 31 Val. U.L. Rev. at 132. The
authorities espousing it have sometimes confused it with the
Aindependent@ approach (see, e.g., Smith v. Navistar International
Transportation Corp., 957 F.2d 1439, 1443-44 (7th Cir. 1992)
(erroneously stating that Chatlos Systems had adopted the case-by-
case approach). Moreover, although one of the factors cited in favor
of the case-by-case approach is that it Aallows some measure of
certainty@ (Smith, 957 F.2d at 1444), it has been observed that it in
fact Aprovides less predictability than the dependent or independent
approaches.@ (Emphasis added.) 31 Val. U. L. Rev. at 131.
Additionally, notwithstanding that the case-by-case approach
might appear to tread a middle ground between the dependent
approach (which is generally more favorable for buyers) and the
independent approach (which is generally more favorable for sellers),
this is not necessarily so. In AES Technology, where the case-by-case
approach originated, the contract at issue contained no disclaimer or
limitation of consequential damages, only a limitation of remedy. The
court affirmed the trial court=s conclusion that the limited remedy had
failed of its essential purpose. AES Technology, 583 F.2d at 940.
However, the court inferred a consequential damage disclaimer from
the limitation of remedy (AES Technology, 583 F.2d at 941 n.9) and
proceeded to enforce that inferred disclaimer against the buyer even
though the limited remedy had failed of its essential purpose, because
Athe express provisions of the contract and the factual background@
indicated that the parties intended for the buyer to Abear the risk of
the project@ (AES Technology, 583 F.2d at 941). The court inferred a
consequential damages disclaimer where none existed, struck the
language from which the disclaimer was inferred, then enforced the
disclaimer against the buyer anyway, based on the court=s
understanding of Athe factual background.@ This result could not have
been reached under either the dependent or independent approach,
and we find the analysis difficult to reconcile with the UCC itself.
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We find the case-by-case approach injects uncertainty into the
UCC, an area of the law in which uniformity and certainty are highly
valued. See 810 ILCS 5/1B102(2)(c) (West 2000); Connick v. Suzuki
Motor Co., 174 Ill. 2d 482, 491 (1996). It leads to results which are
difficult to reconcile with the provisions of the UCC, and has been
criticized as having no basis in the UCC or its comments. 31 Val.
U.L. Rev. at 132. We decline to adopt it.
Rather, we agree with the reasoning in Chatlos Systems, and
adopt the independent approach. The independent approach is more
in line with the UCC and with contract law in general. Nothing in the
text or the official comments to section 2B719 indicates that where a
contract contains both a limitation of remedy and an exclusion of
consequential damages, the latter shares the fate of the former. See J.
Eddy, On the AEssential@ Purposes of Limited Remedies: The
Metaphysics of UCC 2B719(2), 65 Cal. L. Rev. 28, 92 (1977) (failure
of essential purpose is separate and independent from validity of
consequential damage disclaimer); E. Eissenstat, Note, Commercial
Transactions: UCC '2B719: Remedy Limitations and Consequential
Damage Exclusions, 36 Okla L. Rev. 669, 677 (1983) (Aa
consequential damages disclaimer should be governed by its own
[UCC] standard of unconscionability, independent of whether a
limited remedy has failed@). To the contrary, as noted in Chatlos
Systems, the different standards for evaluating the two
provisionsBAfailure of essential purpose@ versus
Aunconscionability@Bstrongly suggest their independence. See also 1
White and Summers= Uniform Commercial Code '12B10(c), at 668
(4th ed. 1995) (endorsing the independent approach as most in accord
with considerations of freedom of contract).
When a contract contains a limitation of remedy but that remedy
fails of its essential purpose, it is as if that limitation of remedy does
not exist for purposes of the damages to which a plaintiff is entitled
for breach of warranty. See 810 ILCS 5/2B719(2) (West 2000)
(Aremedy may be had as provided in this Act@). When a contract
contains a consequential damages exclusion but no limitation of
remedy, it is incontrovertible that the exclusion is to be enforced
unless unconscionable. 810 ILCS 5/2B719(3) (West 2000). Why,
then, would a limitation of remedy failing of its essential purpose
destroy a consequential damages exclusion in the same contract? We
see no valid reason to so hold.
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Indeed, the dependent approach operates to nullify all
consequential damage exclusions in contracts which also contain
limitations of remedy. For if the limited remedy fails of its essential
purpose, the consequential damages exclusion would also
automatically fallBregardless of whether it is unconscionableBand if
the limitation of remedy does not fail of its essential purpose, the
buyer would not be entitled to consequential damages in any event,
he would be entitled only to the specified limited remedy.
The two provisionsBlimitation of remedy and exclusion of
consequential damagesBcan be visualized as two concentric layers of
protection for a seller. What a seller would most prefer, if something
goes wrong with a product, is simply to repair or replace it, nothing
more. This Arepair or replacement@ remedy is an outer wall, a first
defense. If that wall is breached, because the limited remedy has
failed of its essential purpose, the seller still would prefer at least not
to be liable for potentially unlimited consequential damages, and so
he builds a second inner rampart as a fallback position. That inner
wall is higher, and more difficult to scaleBit falls only if
unconscionable.
The independent approach has not been immune to criticism, of
course. The Eighth Circuit has rejected the independent approach
under Minnesota law, based on the concern that Aa buyer when
entering into a contract does not anticipate that the sole remedy
available will be rendered a nullity, thus causing additional damages.@
Soo Line R.R. Co. v. Fruehauf Corp., 547 F.2d 1365, 1373 (8th Cir.
1977) (applying Minnesota law). Additionally, one commentator has
chastised the independent approach for Arel[ying] on imprecise
assumptions about the parties= intent and an unpersuasive
interpretation of section 2B719.@ K. Murtagh, Note, UCC Section
2B719: Limited Remedies and Consequential Damage Exclusions, 74
Cornell L. Rev. 359, 362 (1989) (concluding that independent
approach is Ainherently weak@). This article suggests that by engaging
in Aliteral construction of the parties= contract,@ the independent
approach Aencourages overly formalistic drafting,@ which Aunfairly
favors the party who can afford sophisticated bargaining techniques
to ensure the use of his contract terms.@ 74 Cornell L. Rev. at 363.
The article also contends that it is erroneous to conclude that the
parties intend to shift the risk of consequential loss to the buyer,
because A[t]he language structure itself does not indicate that the
parties even considered the possibility of the ineffective limited
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remedy.@ 74 Cornell L. Rev. at 364. Adams and Jones & McKnight,
two of the earliest cases adopting the dependent approach, implicitly
concluded that the independent approach was simply unfair to the
buyer. See Adams, 125 Ill. App. 2d at 402-03; Jones & McKnight,
320 F. Supp. at 43-44.
We recognize these objections to the independent approach, but
do not find them compelling. The reasoning in Adams and Jones &
McKnight, for example, is based on the seller=s failure to perform
being willful. This incorporates considerations of bad faith on the
part of the seller. As we discuss below, the seller=s bad faith is a
possible basis for finding enforcement of a limitation of
consequential damages to be unconscionable. However, the
dependent approach strips away limitations of consequential damages
whenever a limited remedy fails of its essential purpose, without
regard to the good or bad faith of the seller, which we believe goes
too far.
The objections to the independent approach in Soo Line and the
law review article noted above are similarly unpersuasive. Both argue
that the independent approach is unfair because the buyer may not
intend to renounce consequential damages when the limited remedy
has failed of its essential purpose. Soo Line, 547 F.2d at 1373; 74
Cornell L. Rev. at 364. But this seems to ignore the plain language of
the contract in a fundamental wayBfor if the buyer does not intend to
renounce consequential damages when the limited remedy has failed,
in what context could the disclaimer of consequential damages
operate? As noted above, we believe this is a fundamental defect in
the dependent approach, that it renders the disclaimer of
consequential damages an utter nullity. If a limited remedy has not
failed of its essential purpose, that is of course the buyer=s only
remedy, by definitionBthis is what it means to have a limited remedy.
So in this circumstance a disclaimer of limited damages would be of
no effect because it would be redundant. If, as the above critics argue,
the disclaimer of limited damages ought not to be enforced when the
limited remedy has failed of its essential purpose, the language would
never have any effect. Moreover, to the extent that the independent
approach encourages parties to pay attention in the drafting process
(see 74 Cornell L. Rev. at 363), we see this as a point in favor of the
independent approach, rather than the contrary.
Plaintiff objects that Illinois has always followed the dependent
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approach, and for this court now to endorse the independent approach
would unnecessarily reverse Athirty-five (35) years of commercial law
in the State of Illinois law that has repeatedly embraced the
>dependent= approach.@ We disagree with the premise of this
argument. It is true that Adams endorsed the dependent approach over
35 years ago. See Adams, 125 Ill. App. 2d at 402-03. But intervening
case law from our appellate court has not consistently followed the
dependent approach. More recently, for instance, our appellate court
stated:
AIn remedy limitation cases, the court must make three
inquiries:
>(1) whether the contract limited the remedy to repair
or replacement; (2) whether, if the remedy were so
limited, it failed of its essential purpose; and (3) whether,
if the limited remedy failed of its essential purpose,
consequential damages may be recovered because their
exclusion is unconscionable.= @ (Emphases added.)
Intrastate Piping & Controls, Inc. v. Robert-James Sales,
Inc., 315 Ill. App. 3d 248, 256 (2000), quoting Myrtle
Beach Pipeline Corp. v. Emerson Electric Co., 843 F.
Supp. 1027, 1041 (D.S.C. 1993).
Regardless of whether this language is dictum, as plaintiff argues, it
is a clear endorsement of the independent approach. Other case law
has evinced a confusion as to whether the independent or dependent
approach is to be followed. Compare Lara v. Hyundai Motor
America, 331 Ill. App. 3d 53, 61 (2002) (quoting the above Athree
inquiries@ language from Intrastate Piping), with Lara, 331 Ill. App.
3d at 63 (holding that A[i]f *** the limited remedy of replacement or
repair of defective parts failed of its essential purpose, the express
warranty=s exclusion of consequential and incidental damages will
have no effect and those damages will be available to plaintiff
pursuant to the UCC@). We note also that in that portion of its opinion
which endorsed the dependent approach, the Lara courtBlike
AdamsBcited section 2B719(2) of the UCC but failed to acknowledge
section 2B719(3). See Lara, 331 Ill. App. 3d at 63; Adams, 125 Ill.
App. 2d at 403. Illinois decisions dealing with the
independent/dependent issue under the UCC have not been
consistent. We believe that it is appropriate and necessary that we
decide this question.
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Moreover, we disagree with the reasoning, although not
necessarily the result, in Adams. There, in refusing to enforce the
consequential damages limitation, our appellate court focused on the
allegedly tortious nature of defendants= conduct which caused the
limited remedy to fail of its essential purpose. The court concluded
that defendants were entitled to none of the protections included in
the contract because they had Arepudiat[ed] *** their obligations
under the warranty.@ This implies that the sellers= alleged bad faith in
repudiating their obligations under the warranty played a part in the
analysisBbut the dependent approach does not take the seller=s good
or bad faith into account. Under the dependent approach, the seller is
stripped of the protection of a consequential damages disclaimer once
a limited remedy has failed of its essential purpose, regardless of the
seller=s good or bad faith.
A seller=s deliberate or negligent failure to supply a limited
remedy can be taken into consideration in determining whether
enforcement of a consequential damages waiver is unconscionable.
The unconscionability determination is not restricted to the facts and
circumstances in existence at the time the contract was entered into.
Pierce, 2 P.3d at 623, quoting Chatlos Systems, 635 F.2d at 1087 (Ain
addition to inquiring into the circumstances at the time of the sale,
courts examine the case >from the perspective of later events= @).
Indeed, section 2B719(3) itself expressly provides that matters which
become known only subsequent to the drafting of the contractBi.e.,
the type of injuries suffered as a result of breachBare relevant to the
unconscionability calculus. 810 ILCS 5/2B719(3) (West 2000)
(ALimitation 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@); see also 810 ILCS
5/2B719, Uniform Commercial Code Comment 3, at 488 (Smith-Hurd
1993) (Aclauses limiting or excluding consequential damages ***
may not operate in an unconscionable manner@ (emphasis added)).
As many of the authorities favoring the dependent approach have
noted, there is rarely any basis for concluding that when the parties
entered into their contract, the buyer intended to assume the risk of
the seller=s willful or negligent default on his only obligation for
breach of warranty. 3 It may well be that in a case such as Adams,
3
However, as we previously observed, we do not find this to be a
compelling argument for the dependent approach itself, which strikes
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where the defendant is alleged to have acted in bad faith, the correct
result would be to declare a consequential damages exclusion
unenforceable. See McNally Wellman Co. v. New York State Electric
& Gas Corp., 63 F.3d 1188, 1198 n.9 (2d Cir. 1995) (noting that
Asection 1B203 of the UCC, which states that >[e]very contract or duty
within this Act imposes an obligation of good faith in its performance
or enforcement,= @ supports the conclusion that bad faith could vitiate
a section 2B719(3) consequential damages exclusion). Accordingly,
we believe that a plaintiff must be allowed to point to a defendant=s
conduct, or any other circumstance which he believes would make
enforcement of a consequential damages exclusion unconscionable.
But the plain language of the UCC indicates that this step, of
evaluating whether the exclusion is unconscionable, must be taken
before a contractual consequential damages exclusion may be done
away with. See 810 ILCS 5/2B719(3) (West 2000).
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. Illinois
generally follows the majority interpretation of UCC provisions, in
order to serve the underlying UCC policy of A >mak[ing] uniform the
law among the various jurisdictions.= @ Connick v. Suzuki Motor Co.,
174 Ill. 2d 482, 491 (1996), quoting 810 ILCS 5/1B102(2)(c) (West
1994). 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.
B. Unconscionability
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. 810 ILCS 5/2B719(3) (West 2000).
consequential damage limitations regardless of the seller=s good faith.
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A determination of whether a contractual clause is
unconscionable is a matter of law, to be decided by the court. 810
ILCS 5/2B302(1) (West 2000); Frank=s Maintenance & Engineering,
Inc. v. C.A. Roberts Co., 86 Ill. App. 3d 980, 989 (1980).
Unconscionability can be either Aprocedural@ or Asubstantive@ or a
combination of both. Frank=s Maintenance, 86 Ill. App. 3d at 989.
But see Rosen v. SCIL, LLC., 343 Ill. App. 3d 1075, 1081 (2003) (for
a term to be found unconscionable, it must be both procedurally and
substantively unconscionable); 1 Farnsworth, Farnsworth on
Contracts '4.28, at 585 (3d ed. 2004) (AMost cases of
unconscionability involve a combination of procedural and
substantive unconscionability,@ although contracts may be voidable
without substantive unconscionability if the procedural
unconscionability is sufficiently severe). Procedural
unconscionability refers to a situation where a term is so difficult to
find, read, or understand that the plaintiff cannot fairly be said to
have been aware he was agreeing to it, and also takes into account a
lack of bargaining power. Frank=s Maintenance, 86 Ill. App. 3d at
989. Substantive unconscionability refers to those terms which are
inordinately one-sided in one party=s favor. Rosen, 343 Ill. App. 3d at
1081.
Hyundai argues that plaintiff introduced no evidence to support
the trial court=s determination that the consequential damages
exclusion was unconscionable. We disagree. There are a number of
facts immediately apparent from the record which tend to support a
finding of unconscionability. This was a contract on a preprinted
form, which plaintiff had no hand in drafting. The parties to the
contractBa merchant and a consumerBhad enormously disparate
bargaining power. Moreover, the clause in question is intended to
limit the drafter=s liability. None of these facts are alone dispositive,
but each one is a factor which leads this court to disfavor the clause.
See Pierce, 2 P.3d at 623 (ACourts are more likely to find
unconscionability when a consumer is involved, when there is a
disparity in bargaining power, and when the consequential damages
clause is on a pre-printed form@); Frank=s Maintenance, 86 Ill. App.
3d at 992 (although UCC permits clauses limiting remedies, such
clauses are disfavored and must be strictly construed). However, we
need notBand we do notBhold that these general circumstances alone
or in combination render the clause unconscionable.
There is an additional fact particular to this case which tips the
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balance in plaintiff=s favor. That is the lack of evidence that the
disclaimer of consequential damages was present within the written
contract itself. Neither party argues that the limited warranty and the
disclaimer of consequential damages contained therein were not
actually part of the parties= agreement. Rather, both parties proceed
from the assumption that the disclaimer is a potentially enforceable
contractual term, only differing over whether it should be enforced in
this case. Accordingly, we will assume for purposes of analysis that
the disclaimer is part of the parties= contract. However, the fact
remains that the portion of the written contract which was admitted
into evidence makes no reference to these terms, and neither party
now objects to the circuit court=s ruling admitting the contract into
evidence. Although the contract does mention provisions on the back
of the page, the back of the page does not appear in the record before
us. Moreover, plaintiff testified without contradiction that she never
saw any part of the written warranty, much less the disclaimer of
consequential damages, until she looked in her owner=s manual after
she had signed the contract and driven the car off the lot.
As previously noted, procedural unconscionability refers to a
situation where a term is so difficult to find, read, or understand that
the plaintiff cannot fairly be said to have been aware he was agreeing
to it. 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 and
defendants produced no evidence that the clause is present or even
referred to in the written contract which plaintiff signed. A[A]
limitation of liability given to the buyer after he makes the contract is
ineffective.@ Frank=s Maintenance, 86 Ill. App. 3d at 991 n.2.
Moreover, if there were any question regarding pure procedural
unconscionability, we reiterate that unconscionability can be a
combination of circumstances substantive and procedural. Frank=s
Maintenance, 86 Ill. App. 3d at 989. In this case the circumstances
are: there is no evidence that the consumer plaintiff saw or could
have seen a clause disclaiming a seller=s liability, in a form contract
drafted by the seller, a merchant with superior bargaining power.
To enforce the clause in these circumstances, we conclude, would
indeed be unconscionable. 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
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consequential damages she incurred.
II. Warranty Damages
The next issue concerns the jury=s $5,000 warranty damage award
for the decreased value of the car due to the no-start condition.
Hyundai does not object to the jury=s conclusion that the vehicle was
defective or that the limited remedy failed of its essential purpose.
Rather, Hyundai contends merely that there was no evidence to
support the jury=s damages award, and argues that because the award
can only have represented a guess by the jury, the court should have
entered judgment notwithstanding the verdict (n.o.v.) in Hyundai=s
favor. Plaintiff responds that she is not required to prove damages
with mathematical precision, and argues that there was sufficient
evidence on damages for the case to go to the jury.
As the appellate court noted, the standard for entry of judgment
n.o.v. is a high one:
AA court may enter a judgment n.o.v. only when, viewing the
evidence in a light most favorable to the nonmoving party, it
so overwhelmingly favors the movant that a contrary verdict
could not stand. [Citation.] A defendant=s motion for
judgment n.o.v. presents > Aa question of law as to whether,
when all of the evidence is considered, together with all
reasonable inferences from it in its aspect most favorable to
the plaintiffs, there is a total failure or lack of evidence to
prove any necessary element of the plaintiff[=s] case.@ =
[Citation.]@ 349 Ill. App. 3d at 658.
Because the limited remedy failed of its essential purpose,
plaintiff was entitled to pursue the other remedies afforded by the
UCC. 810 ILCS 5/2B719(2) (West 2000). Under the UCC, AThe
measure of damages for breach of warranty is the difference at the
time and place of acceptance between the value of the goods accepted
and the value they would have had if they had been as warranted,
unless special circumstances show proximate damages of a different
amount.@ 810 ILCS 5/2B714(2) (West 2000). AWhile it is not
necessary that damages for breach of warranty be calculated with
mathematical precision [citation], basic contract theory requires that
damages be proved with reasonable certainty and precludes damages
based on conjecture or speculation [citation].@ Ouwenga v. Nu-Way
Ag, Inc., 239 Ill. App. 3d 518, 523 (1992). Accord Mitsch v. General
-21-
Motors Corp., 359 Ill. App. 3d 99, 104 (2005); Valenti v. Mitsubishi
Motor Sales of America, Inc., 332 Ill. App. 3d 969, 973 (2002). See
also Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill. 2d
306, 315-16 (1987) (AIn order to recover lost profits, it is not
necessary that the amount of loss be proven with absolute certainty.
*** However, recovery of lost profits cannot be based upon
conjecture or sheer speculation. [Citation.] It is necessary that the
evidence afford a reasonable basis for the computation of damages@).
In this case there was no sufficient basis for the jury=s $5,000
award. There was no documentary evidence submitted on the
damages question, nor expert testimony. The only possible evidence
of how much the vehicle=s value decreased is plaintiff=s testimony,
and plaintiff=s only testimony which touches on the subject was that
she would not today pay the price she had originally paid for the
vehicle, because Agiven the problems that this vehicleBthat I have had
with this vehicle or the problems the vehicle has had, that=s like a
used car. I would not pay that for a new car with used problems as it
were.@ There is simply no way for the jury to get from this testimony
to a $5,000 award without engaging in speculation and conjecture.
A >[I]n proving damages, the burden is on the plaintiff to establish a
reasonable basis for computing damages.= @ Snelson v. Kamm, 204 Ill.
2d 1, 33 (2003), quoting Gill v. Foster, 157 Ill. 2d 304, 313 (1993). In
this case, plaintiff failed to do so.
Plaintiff notes that the price of the car was also entered into
evidence and suggests that jurors have sufficient familiarity with cars
and breakdowns that they ought to be permitted to determine for
themselves how much a car=s value would be diminished by events of
the type which occurred in this case. Plaintiff cites a number of cases
which suggest that damages may be proven in any manner which is
Areasonable,@ and also notes that our appellate court has held that
A[w]here the right of recovery exists the defendant cannot escape
liability because the damages are difficult to prove.@ Burrus v. Itek
Corp., 46 Ill. App. 3d 350, 357 (1977).
We agree that damages may be proven in any reasonable manner,
as a general proposition of law (see, e.g., Snelson, 204 Ill. 2d at 33)
but this begs the question whether damages were proven in a
reasonable manner in this case. The answer is clearly no. Although
jurors are not required to check their common sense at the courtroom
door (see People v. Steidl, 142 Ill. 2d 204, 238 (1991)), we are not
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prepared to endorse the proposition that jurors are as a class
sufficiently familiar with automobiles as to be able to determine the
degree of diminution of a particular vehicle=s value based on a
particular defect without the need for any evidence at all. This is
more than a matter of simple common sense. Plaintiff testified, in
essence, that AIt wasn=t worth what I paid for it.@ There was no
number presented, nothing for the jury to work from.
Plaintiff argues that the Magnuson-Moss Act and the UCC are to
be construed liberally, and argues that when a plaintiff proves he has
suffered damages, the defendant ought not to escape liability simply
because the precise measure of the damages is difficult to ascertain.
See Burrus v. Itek Corp., 46 Ill. App. 3d 350, 357 (1977). We again
agree with these propositions as a general matter. But regardless,
even assuming that plaintiff suffered some damage, there must be
some basis for a jury=s damage award, and we can see no process
other than speculation by which the jury could have translated the
evidence presented by plaintiff to an award of $5,000. We note that
even in Burrus, itself a UCC case in which a dissatisfied buyer was
attempting to recover for the value of defective goods, the record
included Atestimony@ as to Athe actual value of the defective [goods]
at time of acceptance.@ Burrus, 46 Ill. App. 3d at 357. In this case, by
contrast, there is nothing, truly not a scintilla of evidence to support
any particular verdict at which the jury might have arrivedBmuch less
the suspiciously round number of $5,000.
However, we feel compelled to note that plaintiff attempted to
introduce such evidence. During plaintiff=s case in chief, the circuit
court precluded plaintiff=s counsel=s from asking plaintiff how much
she would have paid for the car if she had known of the defects. This
was error, and it was only because of this error that plaintiff failed to
prove damages. Although the decision whether a witness is
competent to testify is a matter within the trial court=s discretion, lay
witnesses are permitted to give their opinion as to the value of
property if they have sufficient personal knowledge of the property
and its value. State Farm General Insurance Co. v. Best in the West
Foods, Inc., 282 Ill. App. 3d 470, 483 (1996). It is true that there
must be an adequate showing of the basis for such testimony before it
will be allowed (Best in the West Foods, 282 Ill. App. 3d at 483), but
in this case, the circuit court sustained defense counsel=s objection
while plaintiff=s counsel was attempting to establish the foundation of
plaintiff=s knowledge as to the value of the vehicle. This was clearly
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erroneous.
Accordingly, although plaintiff=s case failed for proof of damages,
it would be entirely unjust to reverse the verdict outright. As
previously noted, A[w]here the right of recovery exists the defendant
cannot escape liability because the damages are difficult to prove.@
Burrus, 46 Ill. App. 3d at 357 (1977). Accord McGrady v. Chrysler
Motors Corp., 46 Ill. App. 3d 136, 140 (1977). 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. See
Ford Motor Co. v. Cooper, 125 S.W.3d 794, 804 (Tex. Civ. App.
2004) (noting that Aappellate courts have reversed for a new trial
where, among other circumstances, the plaintiff failed to show
damages with reasonable certainty, but the interests of justice
required the plaintiff be given an opportunity to show the proper
measure of his or her damages,@ and remanding for new trial, where
jury awarded plaintiff $5,000 for breach of automobile warranty
without sufficient evidence of value as delivered).
At this new trial, plaintiff=s counsel must not be precluded from
attempting to lay a foundation for plaintiff=s knowledge of the value
of the car. However, of course, the evaluation of the sufficiency of
whatever foundation may be laid to establish plaintiff=s personal
knowledge of the value of the car will be within the circuit court=s
discretion (Best in the West Foods, 282 Ill. App. 3d at 483); we are
not prejudging this question in favor of either party.
III. Attorney fees
Hyundai admits that the Magnuson-Moss Act permits the court to
award attorney fees to a victorious plaintiff. See 15 U.S.C.
'2310(d)(2) (2000). Hyundai=s only argument here is that once we
have reversed the entire verdict in plaintiff=s favor, plaintiff cannot be
considered Avictorious,@ and accordingly we must also reverse the fee
award. Hyundai does not argue nor even suggest that a partial
reversal requires that we remand the cause to the circuit court to
recalculate the fees to which plaintiff=s counsel would be entitled.
However, we have not reversed the entire verdict in plaintiff=s favor.
Accordingly, this argument fails.
CONCLUSION
For the reasons given above, the judgment of the appellate court
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is affirmed in part and reversed in part, and the judgment of the
circuit court is also affirmed in part and reversed in part. We remand
for a new trial on the issue of warranty damages.
Appellate court judgment affirmed in part
and reversed in part;
circuit court judgment affirmed in part
and reversed in part;
cause remanded.
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