Pierce v. Catalina Yachts, Inc.
No reporter information provided (2000)
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Rule of Law:
When a seller acts in bad faith in breaching a limited warranty to repair, a separate contractual provision barring consequential damages is rendered unconscionable and unenforceable.
Facts:
- In June 1992, Jim and Karen Pierce purchased a new forty-two-foot sailboat manufactured by Catalina Yachts.
- Catalina Yachts provided the Pierces with a limited warranty, promising to repair or pay for the repair of any below-waterline gel-coat blisters.
- The limited warranty contained a separate clause expressly disclaiming Catalina Yachts' responsibility for any consequential damages.
- In June 1994, the Pierces discovered significant gel-coat blisters on the boat's hull and rudder.
- The Pierces promptly notified Catalina Yachts and submitted a repair estimate for $10,645, which involved a full replacement of the gel coat.
- Catalina Yachts refused to accept the estimate, insisting for six months that only minor patching was required.
- The Pierces' repeated efforts to convince Catalina Yachts to honor the warranty for a full repair were unsuccessful.
Procedural Posture:
- Jim and Karen Pierce sued Catalina Yachts in Alaska superior court (trial court) for breach of contract and other claims.
- Prior to trial, the superior court granted a motion ruling that the limited warranty's provision barring consequential damages was not unconscionable.
- Based on its pretrial ruling, the court prohibited the Pierces from presenting their claim for consequential damages to the jury.
- The jury returned a verdict for the Pierces, finding that Catalina breached its warranty, had done so in bad faith, and awarded $12,445 for the cost of repair.
- The Pierces, as appellants, appealed the trial court's order striking their claim for consequential damages to the Supreme Court of Alaska.
- Catalina Yachts, as appellee, filed a cross-appeal challenging the trial court's award of attorney's fees.
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Issue:
Does a seller's bad faith breach of a limited repair warranty render a contractual provision barring consequential damages unconscionable and therefore unenforceable under U.C.C. § 2-719?
Opinions:
Majority - Justice Bryner
Yes. A seller's bad faith breach of a limited repair warranty renders a contractual provision barring consequential damages unconscionable and therefore unenforceable. The court adopted the majority 'independent' approach, which holds that the failure of a limited remedy does not automatically invalidate a consequential damages exclusion; instead, the exclusion must be separately evaluated for unconscionability under U.C.C. § 2-719(c). The unconscionability analysis considers the totality of the circumstances, including the contract's formation and the nature of the breach. Here, the transaction was a consumer sale with unequal bargaining power. However, the decisive factor was the jury's specific finding that Catalina acted in bad faith when it failed to honor its warranty. Allowing a party who acted in bad faith to shelter behind a limitation of liability clause would be unconscionable and would violate the U.C.C.'s general obligation of good faith in the performance of a contract.
Analysis:
This decision aligns Alaska with the majority of jurisdictions by adopting the 'independent' analysis for failed limited remedies under U.C.C. § 2-719. However, it establishes a powerful, consumer-protective precedent by holding that a finding of seller bad faith is a 'decisive factor' that renders a consequential damages exclusion unconscionable. This creates a strong disincentive for warrantors to refuse to honor their repair obligations unreasonably or dishonestly. The ruling clarifies that while parties are free to allocate risk, they cannot use contractual limitations as a shield for their own bad faith conduct, reinforcing the U.C.C.'s overarching duty of good faith.
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