Xerox Corp. v. Hawkes

• Decision Date: 02 March 1984
• Docket Number: A-P,No. 83-228,83-228
• Citation: 124 N.H. 610,475 A.2d 7
• Parties: , 38 UCC Rep.Serv. 159 XEROX CORPORATION v. L. Alan HAWKES d/b/a Min-rint.
• Court: New Hampshire Supreme Court

Page 7

475 A.2d 7

124 N.H. 610, 38 UCC Rep.Serv. 159

XEROX CORPORATION v. L. Alan HAWKES d/b/a Min-A-Print.

No. 83-228.

Supreme Court of New Hampshire.

March 2, 1984.

Jay M. Niederman, Manchester, by brief and orally, for plaintiff.

Wiggin & Nourie, Manchester (Eric P. Bernard, Manchester, on the brief and orally), for defendant.

KING, Chief Justice.

In this case we address the validity of contractual provisions contained in a service agreement between a lessor and a lessee. We hold, first, that the language of the agreement falls within the scope of Article 2 of the Uniform Commercial Code; second, that there is no evidence indicating that the clauses in the agreement which exclude incidental and consequential damages are unconscionable; third, that the agreement's disclaimer language is sufficiently conspicuous to meet the requirements of the Uniform Commercial Code; and fourth, that the agreement's repair or replacement remedy does not "fail of its essential purpose" under RSA 382-A:2-719(2). For the foregoing reasons, we affirm the trial court's dismissal of the defendant's counterclaim for incidental and consequential damages.

In July 1977, the defendant L. Alan Hawkes d/b/a Min-A-Print leased a Model 2400 copying machine from the plaintiff Xerox Corporation (Xerox) for use in his printing and copying business, and both parties entered into a "service agreement." As a result of problems Hawkes experienced with the Model 2400 copier, Xerox replaced the copier with a Model 7000 copier in December 1977, and a new service agreement was signed. Hawkes continued to experience problems with the replacement copier and on February 27, 1978, he demanded that Xerox remove the Model 7000 copier from his place of business. Xerox complied with his request on March 16, 1978.

Xerox filed suit in Manchester District Court in May 1979, seeking $1,016.52 in unpaid rental fees. Hawkes counterclaimed in the district court in June 1979, for $30,000 in lost profits, lost business and incidental and consequential damages.

On January 17, 1983, Xerox filed a summary judgment motion contending that the disclaimer language on the reverse side of the service agreement with Hawkes barred the counterclaim for incidental and consequential damages. The Superior Court (Bean, J.) initially denied the motion on March 18, 1983. However, the court, sua sponte, vacated its order on March 25, 1983, and granted summary judgment. The court's ruling did not result in a dismissal of the counterclaim in its entirety. The court order dismissed only that portion of the counterclaim which sought incidental and consequential damages. Hawkes' motion for reconsideration was subsequently denied and he appeals. We affirm and remand.

The two service agreements at issue contain warranty and remedy limitations. The pertinent language in the Model 2400 contract states:

"Xerox Shall:

....

Warrant that the equipment will be free of defects in material and workmanship; however, Xerox' sole obligation shall be to repair or replace, at its option, Equipment found to be defective under this warranty. OTHER THAN THE OBLIGATION OF XEROX EXPRESSLY SET FORTH HEREIN, XEROX DISCLAIMS ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR

PURPOSE. THE FOREGOING CONSTITUTES XEROX' SOLE OBLIGATION WITH RESPECT TO DAMAGES, INCIDENTAL OR CONSEQUENTIAL RESULTING FROM THE USE OR PERFORMANCE OF THE EQUIPMENT."

Similar language appears in the contract for the Model 7000 copier:

"Xerox Shall:

....

Warrant that its equipment will be of merchantable quality and free of defects in material and workmanship: and repair or replace equipment which is found to be defective under this warranty. (THIS REPRESENTS XEROX'S SOLE OBLIGATION WITH RESPECT TO DAMAGE, WHETHER DIRECT, INCIDENTAL OR CONSEQUENTIAL, RESULTING FROM THE USE OR PERFORMANCE OF THE EQUIPMENT)."

Although a "lease" and not a "sale" was contemplated by the parties to the service agreements, the Uniform Commercial Code still applies to the warranty provisions of the two service agreements. RSA 382-A:2-102, which defines the scope of Article 2 of the Uniform Commercial Code, does not refer to "sales," but instead to "transactions in goods." Further, Professor Anderson, in his treatise on the Uniform Commercial Code, states:

"Although UCC Article 2 is designed to supersede the former Sales Act and to relate to the sale of goods, the Article is not limited to 'sales,' which it defines as the transfer of title to goods, but instead is expressly made applicable to 'transactions in goods,' and UCC § 2-202 omits any reference to sales.

The phrase 'transaction in goods' is broader than 'sale'.

The use of the term 'transaction' rather than 'sale' in UCC § 2-102 makes it clear that Article 2 is not to be confined merely to those transactions in which there is a 'sale,' that is, a transfer of title. Conversely, Article 2 may extend by analogy to non-sale transactions, such as equipment leasing."

1 R. Anderson, Uniform Commercial Code, § 2-102:4, at 500-01 (1981).

In addition, in Sawyer, etc. v. Pioneer Leasing Corp., 244 Ark. 943, 955-57, 428 S.W.2d 46, 53-54 (1968), the court held that the Uniform Commercial Code provisions regarding warranties and their disclaimers are applicable to a lease of an ice machine. Similarly, in Owens v. Patent Scaffolding-Div. of Harsco, 77 Misc.2d 992, 354 N.Y.S.2d 778, 784 (Sup.Ct.1974), rev'd on other grounds, 50 A.D.2d 866, 376 N.Y.S.2d 948 (N.Y.App.Div.1975), the court stated that "[t]o allow lease-sale distinctions to subject a supplier-lessor to different liabilities than a supplier-seller preserves distinctions without differences." See also Knox v. North American Car Corp., 80 Ill.App.3d 683, 35 Ill.Dec. 827, 399 N.E.2d 1355 (1980).

Under the Uniform Commercial Code, express warranties can be created by "promises or affirmations of fact" which relate to the goods and become part of the contractual bargain. RSA 382-A:2-314(2)(f). RSA 382-A:2-314 generally provides that a seller impliedly warrants that his goods are merchantable or generally fit for the "ordinary purposes" for which the goods are used, unless the seller validly excludes or modifies the warranty. Also, an implied warranty of fitness for a particular purpose can be made when the seller knows that the buyer is relying upon the seller's expertise in selecting goods to fulfill the buyer's particular requirements. RSA 382-A:2-315. Unless the warranties are disclaimed or limited, a breach of any of these warranties may give rise to a cause of action for incidental or consequential damages. See RSA 382-A:2-714.

Consequential damages are defined in RSA 382-A:2-715(2) to include:

"(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty."

RSA 382-A:2-715(1) defines incidental damages as:

"expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach."

However, each of the warranties outlined above can be limited or totally disclaimed in one of two ways. First, a warranty may be totally disclaimed under RSA 382-A:2-316(2):

"[T]o exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that 'There are no warranties which extend beyond the description on the face hereof.' "

Second, even if there is not a complete disclaimer, under RSA 382-A:2-719(1), the parties may agree to limit the buyer's remedies in the event of a breach:

"Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and ...

....

(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not."

Accordingly, under section 2-719, a seller may limit his obligation to repairing or replacing non-conforming goods under subsection 1(a) and limit consequential damages under subsection 3.

Contract language containing limitations upon consequential and incidental damages has been upheld by numerous courts. This has often been true when, as here, the transaction was between commercial entities and the disclaimer was not prima facie unconscionable. Am. Elec. Power Co. v. Westinghouse Elec. Corp., 418 F.Supp. 435, 458 (S.D.N.Y.1976); Cyclops Corporation v. Home Insurance Company, 389 F.Supp. 476, 482 (W.D.Pa.1975), aff'd, 523 F.2d 1050 (3d Cir.1975); County Asphalt, Inc. v. Lewis Welding & Engineering Corp., 323 F.Supp. 1300, 1308 (S.D.N.Y.1970). Disclaimer language in contracts has also been construed to justify dismissal of claims for negligent failure to repair, where the complaint is, in fact, premised upon breach of contract and warranty. See Investors Premium Corp. v. Burroughs Corp., ...