Cayuga Harvester, Inc. v. Allis-Chalmers Corp., ALLIS-CHALMERS
| Decision Date | 11 July 1983 |
| Docket Number | ALLIS-CHALMERS |
| Citation | 465 N.Y.S.2d 606,95 A.D.2d 5 |
| Court | New York Supreme Court — Appellate Division |
| Parties | , 37 UCC Rep.Serv. 1147 CAYUGA HARVESTER, INC. d/b/a Calmar Farms, debtor-in-possession, Appellant-Respondent, v.CORPORATION, Allis-Chalmers Credit Corporation, Respondents, and R.C. Church & Sons, Inc., Respondent-Appellant. |
Melvin & Melvin, Syracuse, for appellant-respondent; Louis Levine, Syracuse, of counsel.
Mackenzie, Smith, Lewis, Michell & Hughes, Syracuse, for respondent-appellant; Charlene McGraw, Syracuse, of counsel.
Bond, Schoeneck & King, Syracuse, for respondents; George Lowe, Syracuse, of counsel.
Before HANCOCK, J.P., and CALLAHAN, DENMAN, MOULE and SCHNEPP, JJ.
Under the Uniform Commercial Code, the parties to a sale may, within certain limitations, allocate the risks of their bargain by limiting the remedy of the buyer (Uniform Commercial Code, § 2-719, subd. 1, par. a). When, however, a limited remedy such as an exclusive repair and replacement warranty fails of its essential purpose, the buyer is relieved of its restrictions and may resort to other remedies as provided in section 2-719 (subd. 2). The Code also permits the parties to agree to exclude consequential damages unless the exclusion is unconscionable (Uniform Commercial Code, § 2-719, subd. 3). Here the contract in issue contains both an exclusive repair and replacement warranty and an exclusion of consequential damages; plaintiff claiming that the limited remedy failed of its essential purpose seeks to recover consequential as well as other damages for breach of warranty. A major question arises from plaintiff's contention that proof of the failure of the limited repair and replacement warranty would free it not only from the restrictions of that clause but also from the clause excluding consequential damages.
The action arises out of the sale of an N-7 harvesting machine manufactured by defendant Allis-Chalmers Corporation ("Allis"). Plaintiff, the operator of an extensive corn-growing business in Cato, New York, purchased the machine for $142,213 from defendant R.C. Church & Sons, Inc. ("Church"), a farm machinery dealer, under a written purchase order containing a limited repair and replacement warranty and an exclusion of consequential damages. The balance of the purchase price, after a down payment of $36,989.80, was financed through defendant Allis-Chalmers Credit Corporation ("Allis Credit"). Plaintiff alleges that the machine did not operate or function properly and that it suffered numerous failures and breakdowns preventing it from making a timely and effective harvest of its 1981 corn crop.
The issues considered concerning various sections of the Uniform Commercial Code are as follows:
I. A. whether the limited repair and replacement warranty failed of its essential purpose ( § 2-719, subd. 2);
B. if so, whether, despite the failure, the consequential damages exclusion remains in effect; and
C. whether the clause excluding consequential damages is unconscionable ( §§ 2-719, subd. 3; 2-302, subds. 1, 2).
The following questions, not related to the Code and pertaining to the tort causes of action, are also examined:
II. whether in the cause of action for fraud, the buyer may recover consequential damages including damage to its crops and loss of profits or whether such damages are excluded under the rule stated in Reno v. Bull, 226 N.Y. 546, 124 N.E. 144, and whether the allegations in the fraud cause of action are of the nature that would support an award of punitive damages; and
III. whether in the causes of action for negligence and strict products liability, the buyer may recover for the destruction of its corn crop allegedly resulting from the defective machine or whether such damages are an economic loss for which recovery is precluded by Schiavone Constr. Co. v. Elgood Mayo Corp., 81 A.D.2d 221, 227, 439 N.Y.S.2d 933, revd. for the reasons stated in dissenting opn., 56 N.Y.2d 667, 451 N.Y.S.2d 720, 436 N.E.2d 1322.
In its complaint, in which it seeks damages in the amount of $10,000,000, including consequential damages and loss of profits, plaintiff sets forth 10 separately stated causes of action as follows: the first and second against Allis and Church for breach of express warranties; the third and fourth against Church alone for breach of an implied warranty of merchantability and an implied warranty of fitness for purpose; the fifth against Allis and Church for fraud; the sixth against Allis alone for strict products liability; the seventh against Allis alone for negligence in design, testing, inspection, manufacture, distribution, diagnosis, repair, marketing and promotion of the N-7 combine; the eighth against Church alone for negligence in delivery, testing, assembly, inspection, diagnosis, service and repair of the combine; the ninth against Allis Credit and Church for a judgment declaring that plaintiff has no obligation to them by reason of its purchase of the combine; and the tenth against Allis Credit and Church for a return of its down payment.
The issues we address arise in plaintiff's appeal from Special Term's order granting motions for summary judgment made by defendants Allis and Church and dismissing in their entirety the first, second, fifth, sixth, seventh and eighth causes of action and from the denial of its cross-motion to amend its complaint by adding a claim for punitive damages to its fifth cause of action for fraud. We agree with the disposition of several additional motions made in the balance of the order and hold that these determinations should be affirmed for the reasons stated in Special Term's decision. 1 No further discussion of them is required.
I
We consider first the grant of summary judgment dismissing the first two causes of action against Allis alleging breaches of express warranties. In the purchase order under the "Allis-Chalmers New Farm Equipment Warranty", Allis gave an express warranty limited to the repair or replacement of defective parts in the following provisions which we quote in part:
WHAT IS WARRANTED
Allis-Chalmers Corporation ("Company") warrants new farm equipment sold by it to be merchantable and free of defects in workmanship and material at the time of shipment from the Company's factory. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY STATED HEREIN. The warranty is made to the original purchaser or lessee from an authorized Allis-Chalmers Dealer of each item of new Allis-Chalmers farm equipment.
1. Equipment Warranty. Parts which are defective in workmanship and material as delivered will be repaired or replaced as follows:
* * *
* * *
(There follow several paragraphs detailing the terms and conditions of Allis' obligation to make repairs and replacements and the periods during which the warranty is effective.)
THE COMPANY'S LIABILITY, WHETHER IN CONTRACT OR IN TORT, ARISING OUT OF WARRANTIES, REPRESENTATIONS, INSTRUCTIONS, OR DEFECTS FROM ANY CAUSE SHALL BE LIMITED EXCLUSIVELY TO REPAIRING OR REPLACING PARTS UNDER THE CONDITIONS AS AFORESAID, AND IN NO EVENT WILL THE COMPANY BE LIABLE FOR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF CROPS, LOSS OF PROFITS, RENTAL OR SUBSTITUTE EQUIPMENT, OR OTHER COMMERCIAL LOSS.
In granting Allis' motions Special Term held that the provision excluding consequential damages in Paragraph "I", above, was, as a matter of law, not unconscionable under Uniform Commercial Code ( §§ 2-719, subd. 3; 2-302, subd. 1) and that it acted as a total bar to plaintiff's express warranty claims. The court did not find it necessary to reach the issues before us concerning the alleged failure of the essential purpose of the repair and replacement warranty under the Uniform Commercial Code ( § 2-719, subd. 2) and the effect of that failure on the exclusion of consequential damages.
Ordinarily, whether circumstances have caused a "limited remedy to fail of its essential purpose" (Uniform Commercial Code, § 2-719, subd. 2) 2 is a question of fact for the jury and one necessarily to be resolved upon proof of the circumstances occurring after the contract is formed (see Johnson v. John Deere Co., 306 N.W.2d 231, 237, 238 [S.D.1981] ). It should be noted that in order to establish a failure of a limited remedy under section 2-719 (subd. 2) it is not necessary to show that the warrantor's conduct in failing to effect repairs was wilfully dilatory or even negligent. Rather, the section is to apply "whenever an exclusive remedy, which may have appeared fair and reasonable at the inception of the contract, as a result of later circumstances operates to deprive a party of a substantial benefit of the bargain" (Clark v. International Harvester Co., 99 Idaho 326, 340, 581 P.2d 784; see Uniform Commercial Code, § 2-719, Official Comment 1; White & Summers, Handbook of the Law under the Uniform Commercial Code, [2d ed], § 12-10). The damage to the buyer is the same whether the seller diligently but unsuccessfully attempts to honor his promise or acts negligently or in bad faith (see Beal v. General Motors Corp., 354 F.Supp. 423, 427 [DC Del., 1973]). Moreover, a (Chatlos Systems, Inc. v. National Cash Register Corp., 635 F.2d 1081, 1085 [CCA 3d, 1980] ). Thus, if it is found at trial that plaintiff, because of defendant Allis' failure to repair or replace parts within a reasonable time, has been deprived of a substantial benefit of its bargain, it may prevail even though, as is the case here, there is no claim of bad faith or wilfully dilatory conduct and the record demonstrates that defendant made extensive efforts to comply.
The precise question here is whether plaintiff has made a prima facie showing that the limited...
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