Schurtz v. BMW of North America
814 P.2d 1108 (1991)
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Rule of Law:
Under Utah's Uniform Commercial Code § 70A-2-719, a limited remedy's failure of its essential purpose does not automatically invalidate a separate contractual provision excluding consequential damages. Instead, the validity of the consequential damages exclusion must be evaluated independently under the doctrine of unconscionability.
Facts:
- In February 1982, Hugh Schurtz purchased a 1982 BMW 320i from BMW of Murray.
- The vehicle came with a written limited warranty restricting BMW's obligation to the repair or replacement of defective parts within three years or 38,000 miles.
- The warranty explicitly stated that it was the only express warranty provided by BMW of North America, Inc.
- A separate provision in the warranty document expressly excluded liability for any incidental and consequential damages arising from a breach of any express or implied warranty.
- Immediately after the purchase, Schurtz allegedly experienced numerous problems and difficulties with the car.
- Schurtz claimed that BMW was either unable or unwilling to repair or replace the allegedly defective car as required by the limited warranty.
Procedural Posture:
- Hugh Schurtz filed a lawsuit against BMW of North America and its dealers in Utah district court.
- BMW filed a motion for partial summary judgment, seeking to dismiss Schurtz's claims for incidental and consequential damages based on the warranty's express exclusion.
- The district court granted BMW's motion for partial summary judgment, ruling that the consequential damages exclusion was independent of and survived the potential failure of the limited repair-or-replace remedy.
- Following the ruling, the parties settled the primary claim, with BMW refunding the purchase price minus a credit for use, and designated Schurtz as the prevailing party for attorney fees.
- The trial court awarded Schurtz $10,000 in attorney fees, substantially less than the $44,069.15 requested.
- Schurtz, the plaintiff, appealed both the grant of partial summary judgment and the reduced attorney fees award to the Supreme Court of Utah.
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Issue:
Does the failure of a limited warranty's essential purpose under Utah Code Ann. § 70A-2-719(2) automatically invalidate a separate, express contractual provision excluding incidental and consequential damages under § 70A-2-719(3)?
Opinions:
Majority - Zimmerman, Justice
No. The failure of a limited remedy's essential purpose under subsection (2) of UCC § 2-719 does not automatically invalidate a separate provision excluding consequential damages; the exclusion clause's validity is instead analyzed independently for unconscionability under subsection (3). The plain language of the statute establishes two distinct tests: 'failure of essential purpose' for limited remedies and 'unconscionability' for consequential damage exclusions. Reading the subsections dependently would improperly read the unconscionability test out of subsection (3). This independent approach allows courts to apply a flexible, case-by-case analysis of unconscionability, which can account for factual differences between consumer transactions, where there are often disparities in bargaining power, and commercial transactions between sophisticated parties. The trial court correctly held that the subsections are independent but erred by failing to proceed to an analysis of whether the exclusion was unconscionable in this specific case.
Concurring-in-part-and-dissenting-in-part - Howe, Associate Chief Justice
Yes. The court's precedent in Devore v. Bostrom dictates that when a limited remedy fails of its essential purpose, the buyer is entitled to all remedies provided in the UCC, including incidental and consequential damages. A provision limiting remedies to repair or replacement necessarily excludes other damages. A seller cannot repudiate its primary obligation under a warranty (to repair) and simultaneously use a different provision of that same warranty to shield itself from liability. Subsection (3) should only apply when the limited remedy does not fail of its essential purpose.
Concurring-in-part-and-dissenting-in-part - Stewart, Justice
No, but the analysis should be based on contract interpretation. While the failure of a limited remedy does not automatically void a consequential damages exclusion, the key question is whether the two contractual provisions are so interrelated that the failure of one necessarily causes the failure of the other. If the contract shows the clauses are interdependent, the exclusion falls with the limited remedy. If they are discrete, separate provisions, the exclusion of consequential damages should be evaluated independently for unconscionability under subsection (3), consistent with the parties' allocation of risk.
Analysis:
This decision establishes a significant two-part framework in Utah for analyzing failed limited warranties under the UCC. It rejects the approach where failure of a limited remedy automatically voids an exclusion of consequential damages, instead creating two separate inquiries. This holding enhances contractual freedom in commercial settings, where sophisticated parties can allocate risks, including the waiver of consequential damages. Concurrently, it preserves protection for consumers by requiring courts to scrutinize such waivers for unconscionability, providing a flexible standard that considers bargaining power and the context of the transaction.
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