## Facts

- A machine-tool manufacturer sold a computer-controlled machining center to an industrial engraver for about $167,000.
- Marketing materials described the machine as efficient, simple, and requiring low maintenance.
- The sales contract provided a limited warranty for defects in materials and workmanship (time/usage capped), disclaimed implied warranties, limited the buyer’s remedy to repair/replacement or return/refund at the seller’s option, and broadly excluded incidental and consequential damages, including lost profits.
- After installation, the machine experienced frequent malfunctions during the first year, with 25%–50% downtime; the seller attributed many problems to operator error and programming issues.
- The machine’s performance improved after the first year and remained in use at trial; the buyer never attempted to return the machine for a refund.
- After the warranty period, the seller performed service calls and billed the buyer; the buyer refused to pay.
- The seller sued for unpaid service charges; the buyer counterclaimed for breach of warranty and sought, among other damages, lost profits as consequential damages.

## Issues

1. Whether a contractual exclusion of consequential damages under U.C.C. § 2-719(3) remains enforceable when the contract’s limited remedy fails of its essential purpose under U.C.C. § 2-719(2).
2. Whether the jury may award consequential damages based solely on a finding that the seller failed to make the machine conform through repair/replacement efforts.

## Decision

- The New Jersey Supreme Court reversed the judgment affirming the buyer’s consequential-damages award and remanded for a new trial.
- The Court held that failure of a limited remedy’s essential purpose does not automatically nullify a separate consequential-damages exclusion.
- The consequential-damages exclusion should be enforced absent proof of unconscionability or a contract-based showing that the parties intended the exclusion to fall with the limited remedy.
- On remand, the buyer could pursue ordinary warranty damages and allowable incidental damages, but not consequential damages barred by the exclusion.

## Legal Principles

- U.C.C. § 2-719 treats (a) limited remedies and (b) consequential-damages exclusions as distinct contract tools governed by different subsections; invalidation of one does not presumptively invalidate the other.
- Under U.C.C. § 2-719(2), when an agreed limited remedy fails of its essential purpose, the buyer may access Code remedies sufficient to provide a fair quantum of relief.
- Under U.C.C. § 2-719(3), consequential damages may be limited or excluded and such exclusions are enforceable unless unconscionable; limitation of consequential damages for commercial loss is not prima facie unconscionable.
- In commercial sales between sophisticated entities, courts generally enforce clear risk-allocation clauses, including exclusions of lost-profit damages, unless the buyer proves unconscionability or establishes a contrary contractual intent.
- Even where consequential damages are excluded, a buyer may still recover standard breach-of-warranty damages under the U.C.C., such as the difference between the value of the goods as accepted and as warranted, plus permitted incidental damages.

## Conclusion

The court held that a consequential-damages exclusion in a commercial sales contract may be enforced even if the contract’s limited repair-or-refund remedy fails of its essential purpose; the buyer’s relief is confined to non-excluded Code remedies unless the exclusion is shown to be unconscionable or inconsistent with the parties’ intent.


Kearney & Trecker Corp. v. Master Engraving Co., 107 N.J. 584, 527 A.2d 429 (N.J. 1987)