## Facts

- Transport Corporation of America, Inc. (TCA), a Minnesota trucking company, obtained an IBM computer system through a commercial transaction arranged with Innovative Computing Corporation (ICC), an IBM reseller that also supplied software.
- The system, used for order processing and dispatching, was installed at TCA’s Minneapolis office on December 29, 1989.
- Contract terms in the distribution chain included: (1) IBM’s disclaimer of implied warranties and a limited remedy of repair or replacement, and (2) ICC’s disclaimer excluding consequential damages such as lost profits and business-interruption losses.
- On December 19, 1990, the system experienced a disk-drive error and went down; TCA contacted IBM and sought a replacement drive, but IBM followed its service protocol to analyze and repair the drive.
- TCA alleged approximately 33.91 hours of downtime and about $473,079.46 in business losses.
- TCA sued IBM and ICC for negligence, strict products liability, and warranty claims, seeking consequential damages.
- The district court granted summary judgment for IBM and ICC, and TCA appealed.

## Issues

1. Whether Minnesota’s economic-loss doctrine barred TCA’s negligence and strict-liability claims for purely economic loss arising from a product that damaged only itself.
2. Whether IBM’s disclaimer of implied warranties in its agreement with ICC was enforceable against TCA as an end user outside direct contractual privity with IBM.
3. Whether IBM’s limitation of remedies to repair or replacement failed of its essential purpose under U.C.C. § 2-719.
4. Whether ICC’s exclusion of consequential damages was unconscionable or otherwise unenforceable in a commercial contract.

## Decision

- The Eighth Circuit affirmed summary judgment for IBM and ICC.
- The economic-loss doctrine barred TCA’s tort claims because the alleged damages were purely economic and involved no personal injury or damage to other property.
- IBM’s disclaimer of implied warranties was effective against TCA as a downstream commercial user in the distribution chain.
- IBM’s repair-or-replace limited remedy did not fail of its essential purpose; IBM provided service consistent with the contractual remedy.
- ICC’s consequential-damages exclusion was enforceable and not unconscionable in an arm’s-length transaction between sophisticated commercial entities.

## Legal Principles

- In a commercial sale of goods, when a defective product causes only economic loss and damages only itself, tort remedies (negligence, strict liability) are unavailable; recovery is confined to contract/U.C.C. remedies.
- U.C.C.-compliant warranty disclaimers and remedy limitations negotiated in a commercial distribution chain may bind a downstream commercial purchaser when the structure reasonably allocates risk and pricing.
- A repair-or-replace remedy fails of its essential purpose only when it deprives the buyer of the substantial value of the bargain; mere downtime and consequential business losses do not, by themselves, establish failure where the seller provides the contractual repair remedy.
- Consequential-damages exclusions in commercial contracts are generally enforceable absent procedural unfairness or substantive oppression; sophistication and arm’s-length bargaining weigh strongly against unconscionability.

## Conclusion

The court held that TCA’s losses from a computer-system failure were contractual economic losses allocated by enforceable U.C.C. disclaimers and limitations, barring tort recovery and foreclosing consequential damages against both the manufacturer and reseller.


Transport Corp. of Am., Inc. v. Int'l Bus. Machs. Corp., 30 F.3d 953 (8th Cir. 1994)