## Facts

- Jeary K. Smith, an independent long-haul owner-operator trucker, purchased a new Navistar Model 9370 semi-tractor through an authorized dealer, with financing from Navistar Financial Corporation.
- The retail order incorporated Navistar’s written warranty providing a limited remedy: Navistar would repair or replace defective parts (parts and labor) for one year or 12,000 miles, whichever occurred first.
- The warranty conspicuously disclaimed other warranties (including implied warranties of merchantability and fitness) and expressly excluded liability for incidental and consequential damages.
- Soon after delivery and use, the truck developed recurring brake-system and related problems, resulting in repeated repair visits and significant downtime; repairs themselves were performed under the warranty.
- Smith alleged the downtime caused loss of a hauling arrangement and substantial lost income.
- Smith revoked acceptance of the truck, stopped making payments, and sued the manufacturer, its financing arm, and the dealer for breach of warranty, seeking return of the purchase price and consequential/incidental damages.

## Issues

1. Whether a contractual exclusion of incidental and consequential damages is enforceable under Illinois U.C.C. § 2-719 when the repair-or-replace remedy allegedly fails of its essential purpose.
2. Whether the buyer may recover consequential damages (including lost income or lost business) despite an express, conspicuous consequential-damages exclusion.
3. Upon revocation of acceptance, whether the buyer’s recovery is properly limited to return of the purchase price where the contract excludes consequential and incidental damages.

## Decision

- The Seventh Circuit affirmed the district court’s partial summary judgment for defendants on consequential and incidental damages.
- The court held the warranty’s exclusion of incidental and consequential damages was valid and enforceable under Illinois law.
- Even assuming the limited repair-or-replace remedy failed of its essential purpose, the separate consequential-damages exclusion remained effective absent unconscionability.
- The court affirmed limiting Smith’s recovery on revocation to a refund of the truck’s purchase price and denying lost-income and related consequential claims.

## Legal Principles

- Under U.C.C. § 2-719, commercial parties may contractually limit remedies and exclude consequential and incidental damages, subject to unconscionability constraints.
- A limited remedy provision (repair or replacement) and a consequential-damages exclusion are analytically distinct; failure of the limited remedy does not automatically invalidate a separate consequential-damages exclusion.
- A conspicuous, express consequential-damages exclusion remains enforceable unless the buyer proves unconscionability or another recognized ground for invalidation.
- On revocation of acceptance under U.C.C. §§ 2-608 and 2-711, a buyer’s recovery may be confined to the contractually permitted remedies, including refund, when consequential and incidental damages have been validly excluded.

## Conclusion

The court enforced a clear contractual allocation of risk in a commercial truck sale, holding that the buyer could not recover lost-income and other consequential losses because the warranty expressly excluded incidental and consequential damages, and the buyer’s remedy on revocation was limited to refund of the purchase price.


Smith v. Navistar Int'l Transp. Corp., 957 F.2d 1439 (7th Cir. 1992)