Razor v. Hyundai Motor America

Docket No. 98813.

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

SHANTE RAZOR, Appellee, v. HYUNDAI MOTOR AMERICA,

Appellant.

Opinion filed February 2, 2006.

JUSTICE FREEMAN delivered the judgment of the court, with

opinion.

Chief Justice Thomas and Justices McMorrow, Fitzgerald,

Kilbride, Garman, and Karmeier concurred in the judgment and

opinion.

OPINION

This appeal involves the federal Magnuson-Moss

WarrantyBFederal Trade Commission Improvement Act (Act) (15

U.S.C. '2301 et seq. (2000)) and the Illinois Uniform Commercial

Code (UCC) (810 ILCS 5/1B101 et seq. (West 2000)). The only

issues raised concern the propriety of the damages awarded to the

plaintiff. The primary question is whether the circuit court acted

properly in refusing to enforce a contractual clause prohibiting the

award of consequential damages. There is also a sufficiency of the

evidence challenge to the court=s award of warranty damages. We

affirm in part, reverse in part, and remand.

BACKGROUND

Plaintiff Shante Razor purchased a new Hyundai Sonata from

Gartner Buick, Inc. (Gartner), on August 4, 2001. At the time she

purchased the car, plaintiff also bought an optional remote starter and

alarm system from an Aoptions@ booklet shown to her by the Gartner

salesman. Gartner subcontracted the installation of this starter to

Professional Sound Installers (ProSound). ProSound did not install it

on the date plaintiff purchased her vehicle, but a few weeks later, on

August 30, 2001.

The Sonata was the first new car plaintiff had ever purchased. It

came with a five-year, 60,000-mile warranty, a copy of which was

introduced into evidence. In pertinent part, the warranty provided as

follows:

AWHAT IS COVERED

Repair or replacement of any component originally

manufactured or installed by Hyundai Motor Company or

Hyundai Motor America (HMA) that is found to be defective

in material or workmanship under normal use and

maintenance, except any item specifically referred to in the

section >What is Not Covered.=

***

WHAT IS NOT COVERED

* Damage or failure resulting from:

BNegligence of proper maintenance as required in the

Owner=s Manual.

BMisuse, abuse, accident, theft, water/flooding or fire.

***

B Any device and/or accessories not supplied by Hyundai.

***

*INCIDENTAL OR CONSEQUENTIAL DAMAGES,

INCLUDING WITHOUT LIMITATION, LOSS OF TIME,

INCONVENIENCE, LOSS OF USE OF THE VEHICLE, OR

COMMERCIAL LOSS.

*The duration of any implied warranties, including those

for MERCHANTABILITY and FITNESS FOR A

PARTICULAR PURPOSE, are limited to the duration of this

limited warranty.

Some states do not allow limitations on how long an

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implied warranty lasts, or the exclusion or limitation of

incidental and consequential damages, so the limitations or

exclusions set forth regarding this limited warranty may not

apply to you. You may also have other rights which vary

from state to state.@

In late September 2001, plaintiff began experiencing difficulties

with the vehicle. On September 26, plaintiff had the vehicle towed to

Gartner for service because it failed to start when she turned the key.

She experienced the same problem and again had the vehicle towed

to Gartner for service on October 6, October 16, and October 25. On

the latter occasion, Gartner kept the vehicle for more than two weeks,

providing plaintiff with a rental car to use during the time the vehicle

was out of her possession. Nevertheless, the problem happened again

on November 21, the day before Thanksgiving, when plaintiff had

taken the day off from work to go shopping for the holiday. After a

technician came to her home and was himself unable to start the car,

the vehicle was yet again towed to Gartner for attempted repairs.

Sometimes after being towed to Gartner the vehicle started

normally, other times it did not. Gartner technicians attempted

various different repairs on the different occasions that the car

appeared before them, including replacing the starter, replacing the

AECU power relay,@ replacing the remote starter with an updated

system, and replacing the Atrans range switch@ and Astarter relay.@

Additionally, after the October 25 no-start, when the vehicle was kept

for more than two weeks, ProSound removed the remote starter it had

originally installed on plaintiff=s vehicle and replaced it with an

updated model. Plaintiff was not charged for any of the attempted

repairs.

In December 2001, plaintiff filed suit against defendant, Hyundai

Motor America (Hyundai). Plaintiff made claims against Hyundai

pursuant to the Magnuson-Moss Warranty Act (15 U.S.C. '2301 et

seq. (2000)) for breach of written warranty and breach of implied

warranty of merchantability. Plaintiff also alleged that Hyundai had

violated the Illinois New Vehicle Buyer Protection Act (815 ILCS

380/1 et seq. (West 2000)).

The case initially went to arbitration. The arbitration panel found

in plaintiff=s favor, and entered an award of $6,500, plus attorney fees

and costs. Hyundai rejected this award and demanded trial.

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The case went to trial in February 2003. Plaintiff was the sole

witness for her case, and most of the above undisputed facts are

drawn from her testimony. In addition, plaintiff testified that she

never saw the actual warranty until after she had purchased the car,

because the warranty was contained in the owner=s manual, which she

saw for the first time in the glove box of her vehicle when she drove

it off the lot. Plaintiff=s purchase contract, a copy of which was

introduced into evidence, does not appear to contain or refer to the

vehicle warranty. When asked on cross-examination if she had seen

the warranty on a placard at Gartner Hyundai, plaintiff testified that

she had not. Plaintiff testified that she had performed all required

maintenance on her car, had never been in an accident or been the

victim of vandalism, and that no one other than Gartner Hyundai had

ever performed any repairs on the vehicle.

During plaintiff=s direct examination, defense counsel objected

when plaintiff=s counsel inquired regarding her purchase of prior

automobiles. During a lengthy sidebar, counsel explained that he was

attempting to lay a foundation in order to ask her how much the car=s

value to her had decreased because of the problems she had with it.

The court ruled that plaintiff could not answer such a question. The

court indicated that plaintiff could testify Aas to what her feelings

were, what her frame of mind was and the impact of the slow [sic]

start situation on her personal feelings. *** But as to >the value of the

vehicle would have been such and such because of the no start

conditions,= I don=t see how you=re going to go that far with it.@

Plaintiff was permitted to testify that the purchase price of her Sonata

was $16,522, and that she would eventually have paid a total of

$21,249 for the car, including finance charges.

Plaintiff testified that the vehicle did not provide her the type of

transportation she expected. She testified, A[I]t=s a brand new car. I

expected it to be perfect, flawless or minimal problems, certainly not

the ones that I encountered here.@ She testified that she would not

purchase the same vehicle today, because it was Aproven unreliable,@

and she would not today pay the price she had originally paid for the

vehicle, because Agiven the problems that this vehicle B that I have

had with this vehicle or the problems the vehicle has had, that=s like a

used car. I would not pay that for a new car with used problems as it

were.@ Plaintiff also testified that the problems she had with the car

had caused her considerable inconvenience, including missing days

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of work. However, on cross-examination, plaintiff admitted she was

still driving the car at the time of trialBMay 2003Band had not

experienced any difficulties with it since December 2001.

Plaintiff offered her exhibits into evidence and rested. Hyundai

moved for a directed verdict, which the court denied in its entirety.

During argument on the motion, the court initially ruled that

Hyundai=s disclaimer of incidental and consequential damages was

not unconscionable, but shortly thereafter the court reversed itself and

ruled that the disclaimer was unconscionable and would not be

enforced. When defense counsel inquired of the court as to the basis

for its ruling that the disclaimer was unconscionable, the court

responded:

ATHE COURT: The number of attempts that the plaintiff

attempted for repairs. The fact that the plaintiff needed, used

or intended to use the vehicle for transportation to and from

work. The fact that the plaintiff was unable to use the vehicle

for the time period in question for it=s [sic] intended use.@

After the court denied Hyundai=s motion for a directed verdict,

the defense called its sole witness, Randy Wood. Wood is treasurer

and part owner of ProSound, the company which installed plaintiff=s

alarm and remote starter system. He testified that ProSound had

inspected the system installed on plaintiff=s vehicle on more than one

occasion, and no problem was ever found. Although ProSound did

replace plaintiff=s system with the newest model, this was for

customer satisfaction purposes only, because ProSound never found

anything wrong with plaintiff=s system. He did admit on redirect

examination that plaintiff=s vehicle Amay have@ had a weak signal

coming through its Atack [sic] wire,@ and if that condition existed it

could cause problems for the ProSound system. Wood also testified

that the system could itself prevent the car from starting, if one

attempted to start it with the key after locking the car with the remote

control.

After the defense rested, Hyundai renewed its motion for a

directed verdict, including specifically arguing that the court should

not have reversed its initial conclusion regarding the enforceability of

the consequential damages disclaimer. The court denied Hyundai=s

motions and submitted the case to the jury.

The jury returned a verdict for plaintiff on the breach of warranty

claims, awarding her $5,000 in warranty damages for the diminished

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value of the Sonata due to the defects, and $3,500 in consequential

damages for aggravation and inconvenience and loss of use. The jury

also answered Ayes@ to a special interrogatory which asked, ADid

plaintiff prove the aftermarket remote starter-alarm system was not

the cause of the no-start condition?@ The jury found in defendant=s

favor, however, on plaintiff=s claim under the New Vehicle Buyer

Protection Act. The court awarded plaintiff $12,277 in attorney fees

and costs.

The appellate court affirmed in all respects. 349 Ill. App. 3d 651.

Hyundai petitioned for leave to appeal to this court (see 155 Ill.

2d R. 315(a)), which we granted.

ANALYSIS

Before this court the issues have been pared down. Hyundai

neither challenges the jury=s conclusions regarding causation nor

contends that plaintiff failed to prove that the warranty failed of its

essential purpose. Plaintiff does not cross-appeal the jury verdict in

Hyundai=s favor on her New Vehicle Buyer Protection Act claim.

Neither party raises any issues regarding the circuit court=s conduct of

the trial.

Rather, the arguments now focus exclusively on damages.

Hyundai first argues that the circuit court erred in refusing to enforce

the contractual exclusion of incidental and consequential damages.

Hyundai argues that the mere fact that its warranty failed of its

essential purpose does not invalidate the consequential damages

disclaimer, and contends that plaintiff introduced no evidence to

support the circuit court=s ruling that the disclaimer should not be

enforced. Second, Hyundai contends that there was insufficient

evidence to support the jury=s warranty damage award. Finally,

Hyundai argues that if this court reverses both damage awards, we

must also reverse the circuit court=s award of fees and costs. Plaintiff

raises no additional arguments. Thus, these are the only issues before

us.

I. Enforceability of Hyundai=s Disclaimer of

Incidental/Consequential Damages

The main issue before this court is the enforceability of Hyundai=s

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disclaimer of incidental and consequential damages. Hyundai argues

that the disclaimer is independent of the limited remedy, and the

disclaimer may stand even if its limited remedy failed of its essential

purpose. Hyundai contends that the disclaimer may be overridden

only if it is itself unconscionable, a standard which Hyundai argues

has not been met in the instant case. Plaintiff responds that the

disclaimer should fall with the limited warranty, and contends that

even if this court finds them to be severable, the disclaimer in this

case was unconscionable.

A. AIndependent@ vs. ADependent@ Approach to Provisions Limiting

Remedy and Excluding Consequential Damages

As previously noted, plaintiff=s claim was brought under the

Magnuson-Moss Warranty Act (15 U.S.C. '2301 et seq. (1994)).

Under the Act, consumers who have been damaged by any

warrantor=s failure to comply with its obligations under a written

warranty may bring suit Ain any court of competent jurisdiction in any

State or the District of Columbia.@ 15 U.S.C. '2310(d)(1)(A) (1994).

The Act itself does not determine the enforceability of the

consequential damages disclaimer, however. The Act does supersede

state law, but only to the extent that state law is inconsistent with the

Act. 15 U.S.C. '2311 (1994); see Sorce v. Naperville Jeep Eagle, 309

Ill. App. 3d 313, 323 (1999). The warranty at issue in this case was a

limited warranty, and the Act does not set out requirements for

limited warranties. 1 Rather, the Act merely prescribes certain

requirements with which warranties must comply in order to be

called Afull@ warranties. See 15 U.S.C. '2303(a) (1994) (a warranty

which meets the standards set forth in section 4 of the Act (15 U.S.C.

'2304 (1994)) Ashall be conspicuously designated a >full (statement of

duration) warranty,= @ and a warranty which does not meet the

standards set out in section 4 of the Act Ashall be conspicuously

designated a >limited warranty= @).

1

The Act does permit the Federal Trade Commission to establish general

disclosure requirements for the terms and conditions of all warranties, e.g.,

that they must clearly identify the warrantors, the warrantees, the products

or parts covered, etc. See 15 U.S.C. '2302 (1994). However, the Act itself

does not directly establish any such disclosure requirements, nor do the

parties raise any arguments regarding any requirements the FTC may have

established.

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Accordingly, to determine the enforceability of a consequential

damages disclaimer in a limited warranty, we look to state law. See

Lara v. Hyundai Motor America, 331 Ill. App. 3d 53, 62 (2002);

Sorce, 309 Ill. App. 3d at 325. In Illinois, the sale of goods is

governed by article 2 of the Uniform Commercial Code (UCC). 810

ILCS 5/1B101 et seq. (2000). Central to this case is section 2B719 of

the UCC, which governs AContractual modification or limitation of

remedy@:

A(1) 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

(b) resort to a remedy as provided is optional unless

the remedy is expressly agreed to be exclusive, in which

case it is the sole remedy.

(2) Where circumstances cause an exclusive or limited

remedy to fail of its essential purpose, remedy may be had as

provided in this Act.

(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.@ 810 ILCS 5/2B719 (West 2000).

In this case, Hyundai=s limited warranty contained both a

limitation of remedy and an exclusion of consequential damages. The

warranty expressly limited the buyer=s remedies to repair and

replacement of nonconforming parts, as permitted under section

2B719(1)(a). However, the warranty additionally provided that

incidental or consequential damages were Anot covered,@ as permitted

under section 2B719(3).

Plaintiff claimedBand the jury foundBthat the Hyundai limited

remedy had failed of its essential purpose because of the persistence

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of the no-start problem with plaintiff=s car. Hyundai does not question

this factual determination in this appeal. Thus, according to section

2B719(2) of the UCC, plaintiff was entitled to remedy Aas provided in

this Act.@ 810 ILCS 5/2B719(2) (West 2000). See also 810 ILCS Ann.

5/2B719, Uniform Commercial Code Comment 1, at 488 (Smith-Hurd

1993) (Aunder subsection (2), where an apparently fair and reasonable

clause because of circumstances fails in its purpose or operates to

deprive either party of the substantial value of the bargain, it must

give way to the general remedy provisions of this Article@).

This does not end the inquiry insofar as consequential damages

are concerned, however. Subsection (3) of section 2B719 is part of

Athis Act@Bi.e., the UCCBand subsection (3) permits a seller to limit

or exclude consequential damages unless to do so would be

unconscionable. It still must be determined, therefore, whether a

limited remedy failing of its essential purpose defeats a disclaimer of

consequential damages.

There are two main schools of thought on the issue. Some courts

and commentators conclude that a limited remedy failing of its

essential purpose operates to destroy any limitation or exclusion of

consequential damages in the same contract. This approach is known

as the Adependent@ approach, because the enforceability of the

consequential damages exclusion depends on the survival of the

limitation of remedy.

Our appellate court issued one of the seminal cases for the

dependent approach, Adams v. J.I. Case Co., 125 Ill. App. 2d 388

(1970). There, the plaintiff purchased a tractor, pursuant to a

purchase agreement which limited his remedy to repair and

replacement and also disclaimed consequential damages. The tractor

had severe mechanical problems and was in a repair shop for over a

year. Plaintiff filed suit, seeking consequential damages for the

business he claimed to have lost because defendants were Awilfully

dilatory or careless and negligent in making good their warranty.@

The court concluded:

AThe 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. The

complaint alleges facts that would constitute a repudiation by

the defendants of their obligations under the warranty, that

repudiation consisting of their wilful failure or their careless

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and negligent compliance. It should be obvious that they

cannot at once repudiate their obligation under their warranty

and assert its provisions beneficial to them.@ Adams, 125 Ill.

App. 2d at 402-03.

In defense of the dependent approach, the United States District

Court for the Northern District of Illinois has reasoned:

A[P]laintiff also was entitled to assume that defendants would

not be unreasonable or wilfully dilatory in making good their

warranty in the event of defects in the machinery and

equipment. It is the specific breach of the warranty to repair

that plaintiff alleges caused the bulk of its damages. This

Court would be in an untenable position if it allowed the

defendant to shelter itself behind one segment of the warranty

when it has allegedly repudiated and ignored its very limited

obligations under another segment of the same warranty,

which alleged repudiation has caused the very need for relief

which the defendant is attempting to avoid.@ Jones &

McKnight Corp. v. Birdsboro Corp., 320 F. Supp. 39, 43-44

(N.D. Ill. 1970) (applying Illinois law).

See also, e.g., Givan v. Mack Truck, Inc., 569 S.W.2d 243, 247 n.7

(Mo. App. 1978) (and cases cited therein); Pierce v. Catalina Yachts,

2 P.3d 618, 622 n.14 (Alaska 2000) (collecting cases).

Plaintiff suggests that the dependent approach is followed by a

majority of jurisdictions to consider the issue. While this may have

been true 15 to 20 years ago 2 (see D. Goetz, Special Project: Article

Two Warranties in Commercial Transactions: An Update, 72 Cornell

L. Rev. 1159, 1307 (1987) (AA majority of cases have answered

correctly that the failure of an exclusive remedy voids the

consequential damages exclusion clause@)), it is no longer the case.

Rather, the majority of jurisdictions now follow the other of the two

main approaches, the Aindependent@ approach. 1 E. Farnsworth,

Farnsworth on Contracts '4.28(a), at 605-06 (3d ed. 2004) (Asome

2

We note that all of the law review articles and all but one of the non-

Illinois court decisions plaintiff cites were decided in 1990 or before. The

sole post-1990 foreign authority plaintiff cites, Bishop Logging Co. v. John

Deere Industrial Equipment Co., 317 S.C. 520, 455 S.E.2d 183 (1995), did

not follow the dependent approach, but rather the Acase-by-case@ approach.

Bishop Logging, 317 S.C. at 533-37, 455 S.E.2d at 191-93.

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courts have gone so far as to hold that if UCC 2B719(2) applies,

related limitations on remedies should all fall like a house of cards, so

that a provision barring recovery of consequential damages would

also be invalidated. However, most courts have rejected this view@);

Pierce, 2 P.3d at 622 (Athe majority of jurisdictions view these

subsections to be independent@) (collecting cases). This school of

thought holds that a limitation of consequential damages must be

judged on its own merits and enforced unless unconscionable,

regardless of whether the contract also contains a limitation of

remedy which has failed of its essential purpose.

A representative case adopting the independent approach is

Chatlos Systems v. National Cash Register Corp., 635 F.2d 1081 (3d

Cir. 1980) (applying New Jersey law). There, the court rejected the

dependent approach, holding:

A[T]he better reasoned approach is to treat the

consequential damage disclaimer as an independent

provision, valid unless unconscionable. This poses no logical

difficulties. A contract may well contain no limitation on

breach of warranty damages but specifically exclude

consequential damages. Conversely, it is quite conceivable

that some limitation might be placed on a breach of warranty

award, but consequential damages would expressly be

permitted.

The limited remedy of repair and a consequential

damages exclusion are two discrete ways of attempting to

limit recovery for breach of warranty. [Citations.] The [UCC],

moreover, tests each by a different standard. The former

survives unless it fails of its essential purpose, while the latter

is valid unless it is unconscionable. We therefore see no

reason to hold, as a general proposition, that the failure of the

limited remedy provided in the contract, without more,

invalidates a wholly distinct term in the agreement excluding

consequential damages. The two are not mutually exclusive.@

Chatlos Systems, 635 F.2d at 1086.

See also Pierce, 2 P.3d at 622-23 (adopting independent approach),

622 n.16 (collecting cases).

A third approach, Aapplied relatively infrequently,@ is the Acase by

case@ approach. D. Hagen, Note, Sections 2B719(2) & 2B719(3) of the

Uniform Commercial Code: The Limited Warranty Package &

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Consequential Damages, 31 Val. U.L. Rev. 111, 131 (1996). Under

this approach, A[a]n 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.@ AES Technology Systems,

Inc. v. Coherent Radiation, 583 F.2d 933, 941 (7th Cir. 1978).

Neither of the parties to this appeal argues in favor of the case-by-

case approach, which has been criticized as Anot supported by the

[UCC] or its official comments.@ 31 Val. U.L. Rev. at 132. The

authorities espousing it have sometimes confused it with the

Aindependent@ approach (see, e.g., Smith v. Navistar International

Transportation Corp., 957 F.2d 1439, 1443-44 (7th Cir. 1992)

(erroneously stating that Chatlos Systems had adopted the case-by-

case approach). Moreover, although one of the factors cited in favor

of the case-by-case approach is that it Aallows some measure of

certainty@ (Smith, 957 F.2d at 1444), it has been observed that it in

fact Aprovides less predictability than the dependent or independent

approaches.@ (Emphasis added.) 31 Val. U. L. Rev. at 131.

Additionally, notwithstanding that the case-by-case approach

might appear to tread a middle ground between the dependent

approach (which is generally more favorable for buyers) and the

independent approach (which is generally more favorable for sellers),

this is not necessarily so. In AES Technology, where the case-by-case

approach originated, the contract at issue contained no disclaimer or

limitation of consequential damages, only a limitation of remedy. The

court affirmed the trial court=s conclusion that the limited remedy had

failed of its essential purpose. AES Technology, 583 F.2d at 940.

However, the court inferred a consequential damage disclaimer from

the limitation of remedy (AES Technology, 583 F.2d at 941 n.9) and

proceeded to enforce that inferred disclaimer against the buyer even

though the limited remedy had failed of its essential purpose, because

Athe express provisions of the contract and the factual background@

indicated that the parties intended for the buyer to Abear the risk of

the project@ (AES Technology, 583 F.2d at 941). The court inferred a

consequential damages disclaimer where none existed, struck the

language from which the disclaimer was inferred, then enforced the

disclaimer against the buyer anyway, based on the court=s

understanding of Athe factual background.@ This result could not have

been reached under either the dependent or independent approach,

and we find the analysis difficult to reconcile with the UCC itself.

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We find the case-by-case approach injects uncertainty into the

UCC, an area of the law in which uniformity and certainty are highly

valued. See 810 ILCS 5/1B102(2)(c) (West 2000); Connick v. Suzuki

Motor Co., 174 Ill. 2d 482, 491 (1996). It leads to results which are

difficult to reconcile with the provisions of the UCC, and has been

criticized as having no basis in the UCC or its comments. 31 Val.

U.L. Rev. at 132. We decline to adopt it.

Rather, we agree with the reasoning in Chatlos Systems, and

adopt the independent approach. The independent approach is more

in line with the UCC and with contract law in general. Nothing in the

text or the official comments to section 2B719 indicates that where a

contract contains both a limitation of remedy and an exclusion of

consequential damages, the latter shares the fate of the former. See J.

Eddy, On the AEssential@ Purposes of Limited Remedies: The

Metaphysics of UCC 2B719(2), 65 Cal. L. Rev. 28, 92 (1977) (failure

of essential purpose is separate and independent from validity of

consequential damage disclaimer); E. Eissenstat, Note, Commercial

Transactions: UCC '2B719: Remedy Limitations and Consequential

Damage Exclusions, 36 Okla L. Rev. 669, 677 (1983) (Aa

consequential damages disclaimer should be governed by its own

[UCC] standard of unconscionability, independent of whether a

limited remedy has failed@). To the contrary, as noted in Chatlos

Systems, the different standards for evaluating the two

provisionsBAfailure of essential purpose@ versus

Aunconscionability@Bstrongly suggest their independence. See also 1

White and Summers= Uniform Commercial Code '12B10(c), at 668

(4th ed. 1995) (endorsing the independent approach as most in accord

with considerations of freedom of contract).

When a contract contains a limitation of remedy but that remedy

fails of its essential purpose, it is as if that limitation of remedy does

not exist for purposes of the damages to which a plaintiff is entitled

for breach of warranty. See 810 ILCS 5/2B719(2) (West 2000)

(Aremedy may be had as provided in this Act@). When a contract

contains a consequential damages exclusion but no limitation of

remedy, it is incontrovertible that the exclusion is to be enforced

unless unconscionable. 810 ILCS 5/2B719(3) (West 2000). Why,

then, would a limitation of remedy failing of its essential purpose

destroy a consequential damages exclusion in the same contract? We

see no valid reason to so hold.

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Indeed, the dependent approach operates to nullify all

consequential damage exclusions in contracts which also contain

limitations of remedy. For if the limited remedy fails of its essential

purpose, the consequential damages exclusion would also

automatically fallBregardless of whether it is unconscionableBand if

the limitation of remedy does not fail of its essential purpose, the

buyer would not be entitled to consequential damages in any event,

he would be entitled only to the specified limited remedy.

The two provisionsBlimitation of remedy and exclusion of

consequential damagesBcan be visualized as two concentric layers of

protection for a seller. What a seller would most prefer, if something

goes wrong with a product, is simply to repair or replace it, nothing

more. This Arepair or replacement@ remedy is an outer wall, a first

defense. If that wall is breached, because the limited remedy has

failed of its essential purpose, the seller still would prefer at least not

to be liable for potentially unlimited consequential damages, and so

he builds a second inner rampart as a fallback position. That inner

wall is higher, and more difficult to scaleBit falls only if

unconscionable.

The independent approach has not been immune to criticism, of

course. The Eighth Circuit has rejected the independent approach

under Minnesota law, based on the concern that Aa buyer when

entering into a contract does not anticipate that the sole remedy

available will be rendered a nullity, thus causing additional damages.@

Soo Line R.R. Co. v. Fruehauf Corp., 547 F.2d 1365, 1373 (8th Cir.

1977) (applying Minnesota law). Additionally, one commentator has

chastised the independent approach for Arel[ying] on imprecise

assumptions about the parties= intent and an unpersuasive

interpretation of section 2B719.@ K. Murtagh, Note, UCC Section

2B719: Limited Remedies and Consequential Damage Exclusions, 74

Cornell L. Rev. 359, 362 (1989) (concluding that independent

approach is Ainherently weak@). This article suggests that by engaging

in Aliteral construction of the parties= contract,@ the independent

approach Aencourages overly formalistic drafting,@ which Aunfairly

favors the party who can afford sophisticated bargaining techniques

to ensure the use of his contract terms.@ 74 Cornell L. Rev. at 363.

The article also contends that it is erroneous to conclude that the

parties intend to shift the risk of consequential loss to the buyer,

because A[t]he language structure itself does not indicate that the

parties even considered the possibility of the ineffective limited

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remedy.@ 74 Cornell L. Rev. at 364. Adams and Jones & McKnight,

two of the earliest cases adopting the dependent approach, implicitly

concluded that the independent approach was simply unfair to the

buyer. See Adams, 125 Ill. App. 2d at 402-03; Jones & McKnight,

320 F. Supp. at 43-44.

We recognize these objections to the independent approach, but

do not find them compelling. The reasoning in Adams and Jones &

McKnight, for example, is based on the seller=s failure to perform

being willful. This incorporates considerations of bad faith on the

part of the seller. As we discuss below, the seller=s bad faith is a

possible basis for finding enforcement of a limitation of

consequential damages to be unconscionable. However, the

dependent approach strips away limitations of consequential damages

whenever a limited remedy fails of its essential purpose, without

regard to the good or bad faith of the seller, which we believe goes

too far.

The objections to the independent approach in Soo Line and the

law review article noted above are similarly unpersuasive. Both argue

that the independent approach is unfair because the buyer may not

intend to renounce consequential damages when the limited remedy

has failed of its essential purpose. Soo Line, 547 F.2d at 1373; 74

Cornell L. Rev. at 364. But this seems to ignore the plain language of

the contract in a fundamental wayBfor if the buyer does not intend to

renounce consequential damages when the limited remedy has failed,

in what context could the disclaimer of consequential damages

operate? As noted above, we believe this is a fundamental defect in

the dependent approach, that it renders the disclaimer of

consequential damages an utter nullity. If a limited remedy has not

failed of its essential purpose, that is of course the buyer=s only

remedy, by definitionBthis is what it means to have a limited remedy.

So in this circumstance a disclaimer of limited damages would be of

no effect because it would be redundant. If, as the above critics argue,

the disclaimer of limited damages ought not to be enforced when the

limited remedy has failed of its essential purpose, the language would

never have any effect. Moreover, to the extent that the independent

approach encourages parties to pay attention in the drafting process

(see 74 Cornell L. Rev. at 363), we see this as a point in favor of the

independent approach, rather than the contrary.

Plaintiff objects that Illinois has always followed the dependent

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approach, and for this court now to endorse the independent approach

would unnecessarily reverse Athirty-five (35) years of commercial law

in the State of Illinois law that has repeatedly embraced the

>dependent= approach.@ We disagree with the premise of this

argument. It is true that Adams endorsed the dependent approach over

35 years ago. See Adams, 125 Ill. App. 2d at 402-03. But intervening

case law from our appellate court has not consistently followed the

dependent approach. More recently, for instance, our appellate court

stated:

AIn remedy limitation cases, the court must make three

inquiries:

>(1) whether the contract limited the remedy to repair

or replacement; (2) whether, if the remedy were so

limited, it failed of its essential purpose; and (3) whether,

if the limited remedy failed of its essential purpose,

consequential damages may be recovered because their

exclusion is unconscionable.= @ (Emphases added.)

Intrastate Piping & Controls, Inc. v. Robert-James Sales,

Inc., 315 Ill. App. 3d 248, 256 (2000), quoting Myrtle

Beach Pipeline Corp. v. Emerson Electric Co., 843 F.

Supp. 1027, 1041 (D.S.C. 1993).

Regardless of whether this language is dictum, as plaintiff argues, it

is a clear endorsement of the independent approach. Other case law

has evinced a confusion as to whether the independent or dependent

approach is to be followed. Compare Lara v. Hyundai Motor

America, 331 Ill. App. 3d 53, 61 (2002) (quoting the above Athree

inquiries@ language from Intrastate Piping), with Lara, 331 Ill. App.

3d at 63 (holding that A[i]f *** the limited remedy of replacement or

repair of defective parts failed of its essential purpose, the express

warranty=s exclusion of consequential and incidental damages will

have no effect and those damages will be available to plaintiff

pursuant to the UCC@). We note also that in that portion of its opinion

which endorsed the dependent approach, the Lara courtBlike

AdamsBcited section 2B719(2) of the UCC but failed to acknowledge

section 2B719(3). See Lara, 331 Ill. App. 3d at 63; Adams, 125 Ill.

App. 2d at 403. Illinois decisions dealing with the

independent/dependent issue under the UCC have not been

consistent. We believe that it is appropriate and necessary that we

decide this question.

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Moreover, we disagree with the reasoning, although not

necessarily the result, in Adams. There, in refusing to enforce the

consequential damages limitation, our appellate court focused on the

allegedly tortious nature of defendants= conduct which caused the

limited remedy to fail of its essential purpose. The court concluded

that defendants were entitled to none of the protections included in

the contract because they had Arepudiat[ed] *** their obligations

under the warranty.@ This implies that the sellers= alleged bad faith in

repudiating their obligations under the warranty played a part in the

analysisBbut the dependent approach does not take the seller=s good

or bad faith into account. Under the dependent approach, the seller is

stripped of the protection of a consequential damages disclaimer once

a limited remedy has failed of its essential purpose, regardless of the

seller=s good or bad faith.

A seller=s deliberate or negligent failure to supply a limited

remedy can be taken into consideration in determining whether

enforcement of a consequential damages waiver is unconscionable.

The unconscionability determination is not restricted to the facts and

circumstances in existence at the time the contract was entered into.

Pierce, 2 P.3d at 623, quoting Chatlos Systems, 635 F.2d at 1087 (Ain

addition to inquiring into the circumstances at the time of the sale,

courts examine the case >from the perspective of later events= @).

Indeed, section 2B719(3) itself expressly provides that matters which

become known only subsequent to the drafting of the contractBi.e.,

the type of injuries suffered as a result of breachBare relevant to the

unconscionability calculus. 810 ILCS 5/2B719(3) (West 2000)

(ALimitation 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@); see also 810 ILCS

5/2B719, Uniform Commercial Code Comment 3, at 488 (Smith-Hurd

1993) (Aclauses limiting or excluding consequential damages ***

may not operate in an unconscionable manner@ (emphasis added)).

As many of the authorities favoring the dependent approach have

noted, there is rarely any basis for concluding that when the parties

entered into their contract, the buyer intended to assume the risk of

the seller=s willful or negligent default on his only obligation for

breach of warranty. 3 It may well be that in a case such as Adams,

3

However, as we previously observed, we do not find this to be a

compelling argument for the dependent approach itself, which strikes

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where the defendant is alleged to have acted in bad faith, the correct

result would be to declare a consequential damages exclusion

unenforceable. See McNally Wellman Co. v. New York State Electric

& Gas Corp., 63 F.3d 1188, 1198 n.9 (2d Cir. 1995) (noting that

Asection 1B203 of the UCC, which states that >[e]very contract or duty

within this Act imposes an obligation of good faith in its performance

or enforcement,= @ supports the conclusion that bad faith could vitiate

a section 2B719(3) consequential damages exclusion). Accordingly,

we believe that a plaintiff must be allowed to point to a defendant=s

conduct, or any other circumstance which he believes would make

enforcement of a consequential damages exclusion unconscionable.

But the plain language of the UCC indicates that this step, of

evaluating whether the exclusion is unconscionable, must be taken

before a contractual consequential damages exclusion may be done

away with. See 810 ILCS 5/2B719(3) (West 2000).

We conclude that the independent approach is the better-reasoned

and more in accordance with the plain language of the UCC. This

conclusion is buttressed by the fact that a majority of jurisdictions to

consider the issue have adopted the independent approach. Illinois

generally follows the majority interpretation of UCC provisions, in

order to serve the underlying UCC policy of A >mak[ing] uniform the

law among the various jurisdictions.= @ Connick v. Suzuki Motor Co.,

174 Ill. 2d 482, 491 (1996), quoting 810 ILCS 5/1B102(2)(c) (West

1994). Contractual limitations or exclusions of consequential

damages will be upheld unless to do so would be unconscionable,

regardless of whether the contract also contains a limited remedy

which fails of its essential purpose.

B. Unconscionability

Accordingly, the mere fact that the jury found the limited remedy

to have failed of its essential purpose does not destroy the provision

in the warranty excluding consequential damages. However, this does

not mean that the exclusion of consequential damages will

necessarily be upheld. Rather, that provision must be judged on its

own merits to determine whether its enforcement would be

unconscionable. 810 ILCS 5/2B719(3) (West 2000).

consequential damage limitations regardless of the seller=s good faith.

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A determination of whether a contractual clause is

unconscionable is a matter of law, to be decided by the court. 810

ILCS 5/2B302(1) (West 2000); Frank=s Maintenance & Engineering,

Inc. v. C.A. Roberts Co., 86 Ill. App. 3d 980, 989 (1980).

Unconscionability can be either Aprocedural@ or Asubstantive@ or a

combination of both. Frank=s Maintenance, 86 Ill. App. 3d at 989.

But see Rosen v. SCIL, LLC., 343 Ill. App. 3d 1075, 1081 (2003) (for

a term to be found unconscionable, it must be both procedurally and

substantively unconscionable); 1 Farnsworth, Farnsworth on

Contracts '4.28, at 585 (3d ed. 2004) (AMost cases of

unconscionability involve a combination of procedural and

substantive unconscionability,@ although contracts may be voidable

without substantive unconscionability if the procedural

unconscionability is sufficiently severe). Procedural

unconscionability refers to a situation where a term is so difficult to

find, read, or understand that the plaintiff cannot fairly be said to

have been aware he was agreeing to it, and also takes into account a

lack of bargaining power. Frank=s Maintenance, 86 Ill. App. 3d at

989. Substantive unconscionability refers to those terms which are

inordinately one-sided in one party=s favor. Rosen, 343 Ill. App. 3d at

1081.

Hyundai argues that plaintiff introduced no evidence to support

the trial court=s determination that the consequential damages

exclusion was unconscionable. We disagree. There are a number of

facts immediately apparent from the record which tend to support a

finding of unconscionability. This was a contract on a preprinted

form, which plaintiff had no hand in drafting. The parties to the

contractBa merchant and a consumerBhad enormously disparate

bargaining power. Moreover, the clause in question is intended to

limit the drafter=s liability. None of these facts are alone dispositive,

but each one is a factor which leads this court to disfavor the clause.

See Pierce, 2 P.3d at 623 (ACourts are more likely to find

unconscionability when a consumer is involved, when there is a

disparity in bargaining power, and when the consequential damages

clause is on a pre-printed form@); Frank=s Maintenance, 86 Ill. App.

3d at 992 (although UCC permits clauses limiting remedies, such

clauses are disfavored and must be strictly construed). However, we

need notBand we do notBhold that these general circumstances alone

or in combination render the clause unconscionable.

There is an additional fact particular to this case which tips the

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balance in plaintiff=s favor. That is the lack of evidence that the

disclaimer of consequential damages was present within the written

contract itself. Neither party argues that the limited warranty and the

disclaimer of consequential damages contained therein were not

actually part of the parties= agreement. Rather, both parties proceed

from the assumption that the disclaimer is a potentially enforceable

contractual term, only differing over whether it should be enforced in

this case. Accordingly, we will assume for purposes of analysis that

the disclaimer is part of the parties= contract. However, the fact

remains that the portion of the written contract which was admitted

into evidence makes no reference to these terms, and neither party

now objects to the circuit court=s ruling admitting the contract into

evidence. Although the contract does mention provisions on the back

of the page, the back of the page does not appear in the record before

us. Moreover, plaintiff testified without contradiction that she never

saw any part of the written warranty, much less the disclaimer of

consequential damages, until she looked in her owner=s manual after

she had signed the contract and driven the car off the lot.

As previously noted, procedural unconscionability refers to a

situation where a term is so difficult to find, read, or understand that

the plaintiff cannot fairly be said to have been aware he was agreeing

to it. Surely, whatever other context there might be in which a

contractual provision would be found to be procedurally

unconscionable, that label must apply to a situation such as the case

at bar where plaintiff has testified that she never saw the clause and

defendants produced no evidence that the clause is present or even

referred to in the written contract which plaintiff signed. A[A]

limitation of liability given to the buyer after he makes the contract is

ineffective.@ Frank=s Maintenance, 86 Ill. App. 3d at 991 n.2.

Moreover, if there were any question regarding pure procedural

unconscionability, we reiterate that unconscionability can be a

combination of circumstances substantive and procedural. Frank=s

Maintenance, 86 Ill. App. 3d at 989. In this case the circumstances

are: there is no evidence that the consumer plaintiff saw or could

have seen a clause disclaiming a seller=s liability, in a form contract

drafted by the seller, a merchant with superior bargaining power.

To enforce the clause in these circumstances, we conclude, would

indeed be unconscionable. Accordingly, we affirm the circuit court=s

order to that effect, as well as the $3,500 which represents that

portion of the jury verdict intended to recompense plaintiff for the

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consequential damages she incurred.

II. Warranty Damages

The next issue concerns the jury=s $5,000 warranty damage award

for the decreased value of the car due to the no-start condition.

Hyundai does not object to the jury=s conclusion that the vehicle was

defective or that the limited remedy failed of its essential purpose.

Rather, Hyundai contends merely that there was no evidence to

support the jury=s damages award, and argues that because the award

can only have represented a guess by the jury, the court should have

entered judgment notwithstanding the verdict (n.o.v.) in Hyundai=s

favor. Plaintiff responds that she is not required to prove damages

with mathematical precision, and argues that there was sufficient

evidence on damages for the case to go to the jury.

As the appellate court noted, the standard for entry of judgment

n.o.v. is a high one:

AA court may enter a judgment n.o.v. only when, viewing the

evidence in a light most favorable to the nonmoving party, it

so overwhelmingly favors the movant that a contrary verdict

could not stand. [Citation.] A defendant=s motion for

judgment n.o.v. presents > Aa question of law as to whether,

when all of the evidence is considered, together with all

reasonable inferences from it in its aspect most favorable to

the plaintiffs, there is a total failure or lack of evidence to

prove any necessary element of the plaintiff[=s] case.@ =

[Citation.]@ 349 Ill. App. 3d at 658.

Because the limited remedy failed of its essential purpose,

plaintiff was entitled to pursue the other remedies afforded by the

UCC. 810 ILCS 5/2B719(2) (West 2000). Under the UCC, AThe

measure of damages for breach of warranty is the difference at the

time and place of acceptance between the value of the goods accepted

and the value they would have had if they had been as warranted,

unless special circumstances show proximate damages of a different

amount.@ 810 ILCS 5/2B714(2) (West 2000). AWhile it is not

necessary that damages for breach of warranty be calculated with

mathematical precision [citation], basic contract theory requires that

damages be proved with reasonable certainty and precludes damages

based on conjecture or speculation [citation].@ Ouwenga v. Nu-Way

Ag, Inc., 239 Ill. App. 3d 518, 523 (1992). Accord Mitsch v. General

-21-

Motors Corp., 359 Ill. App. 3d 99, 104 (2005); Valenti v. Mitsubishi

Motor Sales of America, Inc., 332 Ill. App. 3d 969, 973 (2002). See

also Midland Hotel Corp. v. Reuben H. Donnelley Corp., 118 Ill. 2d

306, 315-16 (1987) (AIn order to recover lost profits, it is not

necessary that the amount of loss be proven with absolute certainty.

*** However, recovery of lost profits cannot be based upon

conjecture or sheer speculation. [Citation.] It is necessary that the

evidence afford a reasonable basis for the computation of damages@).

In this case there was no sufficient basis for the jury=s $5,000

award. There was no documentary evidence submitted on the

damages question, nor expert testimony. The only possible evidence

of how much the vehicle=s value decreased is plaintiff=s testimony,

and plaintiff=s only testimony which touches on the subject was that

she would not today pay the price she had originally paid for the

vehicle, because Agiven the problems that this vehicleBthat I have had

with this vehicle or the problems the vehicle has had, that=s like a

used car. I would not pay that for a new car with used problems as it

were.@ There is simply no way for the jury to get from this testimony

to a $5,000 award without engaging in speculation and conjecture.

A >[I]n proving damages, the burden is on the plaintiff to establish a

reasonable basis for computing damages.= @ Snelson v. Kamm, 204 Ill.

2d 1, 33 (2003), quoting Gill v. Foster, 157 Ill. 2d 304, 313 (1993). In

this case, plaintiff failed to do so.

Plaintiff notes that the price of the car was also entered into

evidence and suggests that jurors have sufficient familiarity with cars

and breakdowns that they ought to be permitted to determine for

themselves how much a car=s value would be diminished by events of

the type which occurred in this case. Plaintiff cites a number of cases

which suggest that damages may be proven in any manner which is

Areasonable,@ and also notes that our appellate court has held that

A[w]here the right of recovery exists the defendant cannot escape

liability because the damages are difficult to prove.@ Burrus v. Itek

Corp., 46 Ill. App. 3d 350, 357 (1977).

We agree that damages may be proven in any reasonable manner,

as a general proposition of law (see, e.g., Snelson, 204 Ill. 2d at 33)

but this begs the question whether damages were proven in a

reasonable manner in this case. The answer is clearly no. Although

jurors are not required to check their common sense at the courtroom

door (see People v. Steidl, 142 Ill. 2d 204, 238 (1991)), we are not

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prepared to endorse the proposition that jurors are as a class

sufficiently familiar with automobiles as to be able to determine the

degree of diminution of a particular vehicle=s value based on a

particular defect without the need for any evidence at all. This is

more than a matter of simple common sense. Plaintiff testified, in

essence, that AIt wasn=t worth what I paid for it.@ There was no

number presented, nothing for the jury to work from.

Plaintiff argues that the Magnuson-Moss Act and the UCC are to

be construed liberally, and argues that when a plaintiff proves he has

suffered damages, the defendant ought not to escape liability simply

because the precise measure of the damages is difficult to ascertain.

See Burrus v. Itek Corp., 46 Ill. App. 3d 350, 357 (1977). We again

agree with these propositions as a general matter. But regardless,

even assuming that plaintiff suffered some damage, there must be

some basis for a jury=s damage award, and we can see no process

other than speculation by which the jury could have translated the

evidence presented by plaintiff to an award of $5,000. We note that

even in Burrus, itself a UCC case in which a dissatisfied buyer was

attempting to recover for the value of defective goods, the record

included Atestimony@ as to Athe actual value of the defective [goods]

at time of acceptance.@ Burrus, 46 Ill. App. 3d at 357. In this case, by

contrast, there is nothing, truly not a scintilla of evidence to support

any particular verdict at which the jury might have arrivedBmuch less

the suspiciously round number of $5,000.

However, we feel compelled to note that plaintiff attempted to

introduce such evidence. During plaintiff=s case in chief, the circuit

court precluded plaintiff=s counsel=s from asking plaintiff how much

she would have paid for the car if she had known of the defects. This

was error, and it was only because of this error that plaintiff failed to

prove damages. Although the decision whether a witness is

competent to testify is a matter within the trial court=s discretion, lay

witnesses are permitted to give their opinion as to the value of

property if they have sufficient personal knowledge of the property

and its value. State Farm General Insurance Co. v. Best in the West

Foods, Inc., 282 Ill. App. 3d 470, 483 (1996). It is true that there

must be an adequate showing of the basis for such testimony before it

will be allowed (Best in the West Foods, 282 Ill. App. 3d at 483), but

in this case, the circuit court sustained defense counsel=s objection

while plaintiff=s counsel was attempting to establish the foundation of

plaintiff=s knowledge as to the value of the vehicle. This was clearly

-23-

erroneous.

Accordingly, although plaintiff=s case failed for proof of damages,

it would be entirely unjust to reverse the verdict outright. As

previously noted, A[w]here the right of recovery exists the defendant

cannot escape liability because the damages are difficult to prove.@

Burrus, 46 Ill. App. 3d at 357 (1977). Accord McGrady v. Chrysler

Motors Corp., 46 Ill. App. 3d 136, 140 (1977). Therefore, pursuant to

our authority under Supreme Court Rule 366(a)(5) (155 Ill. 2d R.

366(a)(5)), we reverse and remand for a new trial solely on the

question of the warranty damages to which plaintiff is entitled. See

Ford Motor Co. v. Cooper, 125 S.W.3d 794, 804 (Tex. Civ. App.

2004) (noting that Aappellate courts have reversed for a new trial

where, among other circumstances, the plaintiff failed to show

damages with reasonable certainty, but the interests of justice

required the plaintiff be given an opportunity to show the proper

measure of his or her damages,@ and remanding for new trial, where

jury awarded plaintiff $5,000 for breach of automobile warranty

without sufficient evidence of value as delivered).

At this new trial, plaintiff=s counsel must not be precluded from

attempting to lay a foundation for plaintiff=s knowledge of the value

of the car. However, of course, the evaluation of the sufficiency of

whatever foundation may be laid to establish plaintiff=s personal

knowledge of the value of the car will be within the circuit court=s

discretion (Best in the West Foods, 282 Ill. App. 3d at 483); we are

not prejudging this question in favor of either party.

III. Attorney fees

Hyundai admits that the Magnuson-Moss Act permits the court to

award attorney fees to a victorious plaintiff. See 15 U.S.C.

'2310(d)(2) (2000). Hyundai=s only argument here is that once we

have reversed the entire verdict in plaintiff=s favor, plaintiff cannot be

considered Avictorious,@ and accordingly we must also reverse the fee

award. Hyundai does not argue nor even suggest that a partial

reversal requires that we remand the cause to the circuit court to

recalculate the fees to which plaintiff=s counsel would be entitled.

However, we have not reversed the entire verdict in plaintiff=s favor.

Accordingly, this argument fails.

CONCLUSION

For the reasons given above, the judgment of the appellate court

-24-

is affirmed in part and reversed in part, and the judgment of the

circuit court is also affirmed in part and reversed in part. We remand

for a new trial on the issue of warranty damages.

Appellate court judgment affirmed in part

and reversed in part;

circuit court judgment affirmed in part

and reversed in part;

cause remanded.

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