Smith v. Navistar Intern. Transp. Corp., 87 C 4092.

• Decision Date: 27 January 1989
• Docket Number: No. 87 C 4092.,87 C 4092.
• Court: U.S. District Court — Northern District of Illinois
• Parties: Jeary K. SMITH, Plaintiff, v. NAVISTAR INTERNATIONAL TRANSPORTATION CORP., Navistar Financial Corp. and J. Merle Jones & Sons, Inc., Defendants.

714 F. Supp. 303

Jeary K. SMITH, Plaintiff, v. NAVISTAR INTERNATIONAL TRANSPORTATION CORP., Navistar Financial Corp. and J. Merle Jones & Sons, Inc., Defendants.

No. 87 C 4092.

United States District Court, N.D. Illinois, E.D.

January 27, 1989.

COPYRIGHT MATERIAL OMITTED

David Bikoff, Indianapolis, Ind., Fred R. Harbecke, Chicago, Ill., for plaintiff.

Hal Morris, Arnstein Gluck Lehr & Milligna, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Plaintiff Jeary K. Smith brings this action charging the Navistar International Transportation Corp. ("Navistar"), Navistar Financial Corp. ("Navistar Financial") and J. Merle Jones & Sons, Inc. ("Jones") with breach of warranty on a Navistar truck purchased from Jones and financed by Navistar Financial. In a counterclaim, Navistar Financial charges Smith with breach of the installment contract. Defendants have moved for summary judgment on Smith's claims, and Navistar Financial has moved for summary judgment on its counterclaim. For the reasons set forth below, the motion for judgment on Smith's claims is granted in part, and the motion on the counterclaim is denied.

Factual Background¹

At all times pertinent to this action, Smith, an Indiana citizen, was an independent owner-operator of long distance highway trucks. In late 1984, Smith decided to purchase a new truck. He visited various truck dealers, including Jones, to discuss whether their trucks had certain options and met certain specifications. On November 7, 1984, Smith purchased a Navistar Model F-9370 semi-tractor truck from Jones. To execute the sale, Smith signed a Retail Order which contained the following warranty:

International Harvester Company's now Navistar Promise to You. We promise to you, the first user purchaser, that we will replace or repair any part or parts of your new International motor vehicle which are defective in material or workmanship without charge for either parts or labor during the first year or 12,000 miles of operation, whichever occurs first.

* * * * * *

What You Must Do. We recommend that you bring the vehicle back to the dealership where you purchased it; however, if you are in transit or have moved, take it to the most convenient authorized International Truck Dealer.

* * * * * *

THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE, ALL OTHER REPRESENTATIONS TO THE FIRST USER PURCHASER, AND ALL OTHER OBLIGATIONS OR LIABILITIES, INCLUDING LIABILITY FOR INCIDENTAL AND CONSEQUENTIAL DAMAGES ON THE PART OF THE COMPANY OR THE SELLER.

Smith also signed an installment contract with Navistar Financial, obligating him to pay sixty monthly installments of $1,595.34. That contract contained a provision disclaiming any warranties on the truck beyond those offered by the manufacturer.

Upon delivery of the truck, Navistar gave Smith an owner's manual which provided in pertinent part:

International Harvester will repair or replace any part of this vehicle which proves defective in material and/or workmanship in normal use and service, with new or ReNEWed parts, for the first 12 months from new vehicle delivery date or for 50,000 miles (90,000 Km), whichever occurs first, except as specified under "What is Not Covered."

Like the Retail Order, the owner's manual stated that Navistar disclaims any warranties of merchantability and fitness for a particular purpose and any liability for incidental and consequential damages.

As early as nine days after he purchased the truck, Smith began to experience problems with it. On at least ten separate occasions between the purchase date and April 1985, Smith brought the truck to Speedway International Trucks, Inc. and other authorized Navistar dealers for repairs. The dealers held the truck for a total of forty-five days during this period. Smith also complained orally and in writing to various employees of Navistar, Navistar Financial and Jones as well as a state consumer affairs agency. Smith contends, and defendants dispute, that some of the defects that formed the basis of his complaints were never fully resolved. Despite these defects, Smith continued to use the truck, eventually amassing 48,488 miles in it. After the final repair effort, Smith still remained dissatisfied with the truck's performance, and on June 6, 1985, sent a letter to the three defendants expressing his intention to revoke acceptance of the truck. He also ceased paying installments on the truck.

On May 4, 1987, Smith filed this action. In Count I, he charges Jones and Navistar with breach of the express and implied warranties of merchantability and fitness for its intended use and seeks compensation for the difference in value between the vehicle as delivered and as warranted and incidental and consequential damages for loss of business income and good will. In Count II, Smith charges Jones with breach of contract and seeks cancellation of the contract, sale of the truck and damages. In its counterclaim, Navistar Financial charges Smith with defaulting on the installment contract and seeks possession of the truck as well as damages for the unpaid installments, delinquency charges and collection costs. Defendants move for summary judgment on all claims, and Navistar Financial moves for summary judgment in its counterclaim.

Summary Judgment on Smith's Claims

In their motion for summary judgment, defendants contend that under the undisputed facts they are not liable under the warranty and, in any event, Smith cannot recover for incidental and consequential damages. We can quickly dispense with their motion for summary judgment as to liability. Smith concedes for purposes of this motion that the disclaimers of liability for breaches of implied warranties of merchantability and fitness are valid and enforceable under the Uniform Commercial Code.² However, Smith presents through affidavit and the revocation letter evidence supporting a finding that Navistar breached the express "repair and replace" warranty by failing to rectify various defects and by holding the truck for a total of forty-five days to repair other defects. With this evidence, Smith has identified a factual dispute going to defendants' liability under the express warranty and thereby withstands summary judgment as to liability. Fed.R.Civ.P. 56(e). Joslyn Corp. v. RTE Corp., 684 F.Supp. 967, 969 (N.D.Ill. 1988).

Defendants alternatively move for summary judgment as to the damages Smith may recover should he prove breach of the warranty. Ordinarily Smith's effective waiver in the contract of any right to recover incidental and consequential damages would preclude such recovery here. However, the U.C.C. provides that "where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act." Ill.Rev.Stat. ch. 26, ¶ 2-719(2). Thus, if a buyer proves that the seller breached an express warranty, the buyer may seek additional relief for breach of an implied warranty of fitness for a particular purpose even if the seller expressly disclaimed that warranty. Some courts have expanded buyers' remedies further, holding that a buyer may additionally seek damages otherwise excluded by the contract. In Adams v. J.I. Case Co., 125 Ill.App.2d 388, 261 N.E.2d 1 (4th Dist.1970), the Illinois appellate court held that the seller's breach of a limited warranty to repair and replace automatically exposes the seller to liability for the buyer's consequential damages despite an otherwise enforceable disclaimer:

The 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.... It should be obvious that they cannot at once repudiate their obligation under the warranty and assert its provisions beneficial to them. Id., 261 N.E.2d at 7-8.

See also Fidelity and Deposit Co. v. Krebs Engineers, 859 F.2d 501 (7th Cir.1988) (interpreting Wisconsin law).

The Seventh Circuit has refused to adopt this categorical approach, instead undertaking a fact-specific case-by-case inquiry. AES Technology Systems, Inc. v. Coherent Radiation, 583 F.2d 933 (7th Cir. 1978), the Seventh Circuit affirmed the district court's finding that the defendant was liable for breach of warranty on a laser but remanded for a redetermination of damages excluding consequential damages. The court refused to automatically sever a consequential damages disclaimer from the contract merely on the failure of a warranty's essential purpose:

We reject the contention that failure of the essential purpose of the limited remedy automatically means that a damage award will include consequential damages. An 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. Id. at 941.

The court nevertheless enforced the consequential damages disclaimer in that decision on extrinsic evidence that the buyer assumed the risk of consequential damages and failed to properly mitigate damages: "the awarding of damages for the breach of warranty and incidental but not consequential damages provides the `minimum adequate remedies' mandated by 2-719(2), while maintaining the commercial allocation of risk determined by AES and Coherent." Id. at 941-42. Other courts have similarly adopted this case-by-case approach. E.g., Chatlos Systems v. National Cash Register Corp., 635 F.2d 1081, 1085-86 (3d Cir.1980) (New Jersey law); S.M. Wilson & Co. v. Smith International, Inc., 587 F.2d 1363, 1374-76 (9th Cir.1978) (California law) (finding that the relative bargaining power of the parties and the limited nature of the seller's breach warrant enforcement of the consequential damages exclusion despite failure of the limited repair...