Limitation of Remedies (2-719)
Prof. Bill Long 4/5/05
Beal v. General Motors
I thought that now that we have arrived in April the most useful thing I could do, in preparing you for the final, is to work through some of the assigned cases and provisions of Article 2 to give you a "feel" of how they are interpreted. I also plan to continue giving you worksheets so that you can apply your learning to problems.
At issue in this case was whether the limited warranty obtained by Beal when he bought his GMC "extra-heavy tonnage diesel tractor" had "failed of its essential purpose" when it provided that the GMC's warranty obligation was "limited to repairing or replacing at its option any [defective] part or parts" within 24 months or 24,000 miles (whichever came first) after purchase, and when GMC was unable successfully to repair the vehicle after an unspecified number of attempts. Second, if the remedy failed of its essential purpose, would there be any other legal remedy available for plaintiff? Finally, the court also addressed the question of whether this was a proper case for the availability of consequential damages. Let's turn to each issue.
Failure of Limited Remedy. The court really had little difficulty in holding that a limited exclusive remedy fails of its essential prupose and is thus avoided under 2-719(2) whenever the warrantor fails to correct the defect within a reasonable period (p.495). Before going on, you might want to note the language of the warranty on p.494 and ask yourself whether in fact this language fits the requirements of 2-719(1)(b) for an exclusive remedy. The language of 2-719(1)(b) talks about the propriety of an exclusive remedy if it "is expressly agreed to be exlcusive, in which case it is the sole remedy." The language of the warranty here only speaks of a "limited" warranty, but the court seemingly accepted without comment the sufficiency of this statement to make it an exclusive warranty.
New Remedies. The court then held that the exclusive remedy failed of its essential purpose under 2-719(2), thus leading to the final words of that section that "remedy may be had as provided in this Act." Because breach of warranty was at issue, the court held that damages under 2-714(2) were appropriate. That section provides that the 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..." But, after observing that 2-714(2) damages were appropriate, the court noted 2-714(3), which provides that "in a proper case any incidental and consequential damages" under 2-715 could also be recovered.
Consequentials? For the remainder of the opinion, the court was concerned with the question of whether this fact pattern was a "proper case" for the award of consequential damages. Note that the answer to this question may be significant, especially if Beal used his truck in his business and could show that he lost considerable profits because GMC could not provide him with a vehicle that worked. The court says that "few courts" have considered the question (p.496--it was 1973), and then discussed the common law ("CL") approach to the issue. Under PA CL, courts developed a "tacit agreement" test which would trigger the availability of consequential damages. Such a test provided that "the seller was on notice of the fact that the plaintiff would hold it responsible for any loss of profit or loss due to 'down time' arising from the inability to use the machinery and equipment in question" (p.497). The court then noted that this test had subsequently been rejected, and then turned to Cmt 2 of 2-715(2), which says: "the 'tacit agreement' test for the recovery of consequential damages is rejected." Now the test in 2-715 is explicable. The drafters of 2-715 didn't want to require this kind of knowledge before allowing consequentials: all that was necessary was that the seller "at the time of contracting" had "reason to know" the "general or particular requirements and needs" of the buyer (2-715(2)(a)). However, the Code added an item to this test which the CL didn't have. Consequentials were permissible only if the buyer's damages "could not reasonably be prevented by cover or otherwise." Thus, the "agreement" test is dropped but a mitigation of damages provision is added in 2-715(2).
The court then held that this newer test, in the Code and confirmed by the more recent case law, would be what the DE Supreme Court would adopt. The edited case then stops here--it wanted simply to illustrate the legal moves that the court makes in opening up the possibility of consequentials for the plaintiff.
Copyright © 2004-2007 William R. Long