Reversed and remanded.
Mr. JUSTICE ROMITI delivered the opinion of the court:
The plaintiff, upon discovering that goods ordered from one defendant and sent by the other defendant were defective, sued to recover the purchase price and certain other damages. Both defendants moved for summary judgment, contending the plaintiff was not entitled to recover since it had simply junked the goods. They also contended that the plaintiff was not entitled to recover consequential damages because of a limitation of damages provision on the back of the purchase acknowledgment. The trial court granted the motion. We reverse and remand.
The pleadings, affidavits and other evidence in the record disclose the following: The plaintiff, Frank's Maintenance & Engineering, Inc., manufactures motorcycle front fork tubes. These tubes bear the full front weight of the motorcycle and connect the motorcycle frame, through other parts, to the front wheel. On February 1, 1974, the plaintiff orally ordered some steel tubing from the defendant C.A. Roberts Co. (Roberts). Roberts sent a written acknowledgment. The record does not disclose whether there was an oral contract or merely an oral offer and a subsequent acceptance in the form of an acknowledgment from Roberts. On the back of this acknowledgment were various conditions including the following paragraph 11:
While several paragraphs on the front of the acknowledgment informed the plaintiff that the order had been entered with Roberts' mill and advised plaintiff to compare the acknowledgment with the original order and to advise Roberts of any error, nothing on the face of the acknowledgment advised plaintiff of the conditions on the back. To the contrary, the printed legend "conditions of sale on reverse side" had been stamped over and rendered practically illegible. Indeed, at first glance that box appears to read "No conditions of sale on reverse side." The terms of limitation were not discussed by Roberts and the plaintiff and were first brought to the attention of plaintiff's president after the commencement of the suit. Roberts ordered the steel from the other defendant, Leland Tube Company, Inc. (Leland), and directed it to send the steel directly to the plaintiff, which it did. Although the steel was supposed to be shipped in July, it was not shipped until December 1974.
The occurrence of cracks or other defects in steel tubing of the nature ordered is highly unusual. However, they can occur and such defects may be invisible to the naked eye particularly if they originate on the inside surface of the tube and do not reach the outer surface. The outer surface of the tube is covered with oxide which conceal marks which would otherwise be visible. Plaintiff had no testing equipment for such defects, the quality control procedure of manufacturers usually making such testing unnecessary.
When processing was begun on the first part of the shipment in the summer of 1975 it was discovered that the steel was pitted and corroded beyond the point where it could be reclaimed by grinding; the steel was cracked, useless and dangerous for the high-stress purposes for which it was ordered. Contrary to the express terms of the contract, the steel was welded rather than seamless. Plaintiff gave notice to Roberts of these defects on August 25, 1975, informed Roberts that it was revoking its acceptance of the goods and that it would hold the goods for 30 days for Roberts and after that time the steel would be sold and any amount received deducted from plaintiff's claim. In fact, after some 60 days had elapsed, and Roberts failed to respond in any way the plaintiff scrapped the entire lot of steel, allegedly because it was worthless. Plaintiff pointed out in its affidavit in response to the motion for summary judgment that it
The plaintiff filed suit against both Roberts and Leland for breach of warranty of merchantability, seeking the following damages:
The defendants moved for summary judgment, contending (1) that any action is barred by plaintiff's act in scrapping the goods, citing Ozite Corp. v. F.C. Clothier & Sons Corp. (1970), 130 Ill.App.2d 716, 264 N.E.2d 833; and (2) the plaintiff is barred from recovering consequential damages by paragraph 11 of the purchase confirmation.
Plaintiff denied that its conduct barred recovery as a matter of law and contended that paragraph 11 was unconscionable. As already noted, the trial court granted the defendants' motion. In its well-written opinion, the trial court indicated it relied heavily on the Ozite case, which it considered controlling, in finding plaintiff barred from recovery by its act of scrapping the steel. The trial court found that paragraph 11 was not unconscionable as it involved a commercial transaction between corporations and a claim of wholly commercial loss. The trial court apparently did not receive any evidence as to the circumstances surrounding the agreement.
The defendants contend that, following Ozite Corp. v. F.C. Clothier & Sons Corp. (1970), 130 Ill.App.2d 716, 264 N.E.2d 833, the plaintiff by scrapping the steel accepted it and cannot therefore sue for breach of warranty. Ozite is not in point in this issue since no suit for breach of warranty was involved. All that case held was that the buyer, having by its conduct accepted the goods, was liable for the purchase price.
• 1, 2 Section 2-607(1) of the Uniform Commercial Code (Ill. Rev. Stat. 1973, ch. 26, par. 2-607(1)) provides that the buyer must pay at
While it is clear from the foregoing that the plaintiff may be entitled to recover even if it did not effectively revoke its acceptance of the steel, and that, therefore, the defendants' motion failed to establish that it was clearly entitled to judgment, nevertheless we are not convinced that it has been established as a matter of law that the plaintiff did not effectively revoke its acceptance.
• 4 The defendants seem to contend that because the plaintiff did not adopt any of the options laid down in section 2-604 (Ill. Rev. Stat. 1973, ch. 26, par. 2-604), it accepted the goods. Section 2-604 permits the buyer to store, reship or resell the goods and provides that such conduct constitutes neither acceptance nor conversion. As the official comment to that section points out, these options are not exhaustive but merely illustrative. Accordingly, while a buyer rejecting goods can safely adopt any of the three options set forth without fear that he will be held to have accepted the goods, he is also free to adopt some other reasonable option. Thus it has been frequently held that under certain circumstances a buyer rejecting goods or revoking his acceptance may continue to use the goods (see, for example, Countryside Mobile Homes of Lincoln, Inc. v. Schade (1979), 204 Neb. 209, 281 N.W.2d 746; McGregor v. Dimoa (City Ct.
It appears from the trial court's opinion that it believed, following Ozite Corp. v. F.C. Clothier & Sons Corp. (1970), 130 Ill.App.2d 716, 364 N.E.2d 833, that the options set forth in 2-604 were exclusive and that since the plaintiff did not adopt one of the options it could not revoke its acceptance. If, in fact, Ozite did so hold, we cannot agree with that opinion in light of the clear language of the Code that the options are merely illustrative and not exclusive. Accordingly, on remand it will be necessary for the trial court to reconsider the question whether the plaintiff wrongfully exercised ownership over the goods after it revoked its acceptance in light of the overriding requirement of reasonableness which permeates the Code. (Fablok Mills, Inc. v. Cocker Machine & Foundry Co. (1973), 125 N.J.Super. 251, 310 A.2d 491.) Nothing in this opinion, however, should be construed as a determination by this court that the plaintiff's conduct did not in fact constitute a wrongful exercise of ownership.
• 5 We are aware that the plaintiff in its letter of rejection stated it would sell the goods. This promise was, however, wholly gratuitous and not
In their motion, the defendants also contended that they were not liable for consequential damages and the court so ruled. In seeking this declaration, the defendants did not rely on that part of paragraph 11 which limited damages to the purchase price and certain other expenses but solely on the first sentence of paragraph 11 which provides that the seller shall not be liable for consequential damages. However, there was no showing that the plaintiff was, in fact, claiming consequential damages.
Consequential damages are defined by the Uniform Commercial Code (Ill. Rev. Stat. 1973, ch. 26, par. 2-715(2)):
In contrast, the Code defines incidental damages as follows:
Expenses incurred in the handling of the goods such as shipping, repairs, putting goods in workable condition and in obtaining cover have been considered to be incidental rather than consequential damages. Council Brothers, Inc. v. Ray Burner Co. (5th Cir.1973), 473 F.2d 400; Murray v. Holiday Rambler, Inc. (1978), 83 Wis.2d 406, 265 N.W.2d 513; Laredo Hides Co. v. H & H Meat Products Co. (Tex. Civ. App. 1974), 513 S.W.2d 210, writ ref'd n.r.e.; Lewis v. Mobil Oil Corp. (8th Cir.1971), 438 F.2d 500; General Supply & Equipment Co. v. Phillips (Tex. Civ. App. 1972), 490 S.W.2d 913, writ ref'd.n.r.e.
Besides the value of the goods as represented, the damages sought by plaintiff consisted of the cost of acquiring cover and the expense of
• 6, 7 Section 2-719(3) of the Uniform Commercial Code (Ill. Rev. Stat. 1973, ch. 26, par. 2-719(3)) provides that consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable and such clauses have been upheld in many cases. (See, for example, J.D. Pavlak, Ltd. v. William Davies Co. (1976), 40 Ill.App.3d 1, 351 N.E.2d 243; County Asphalt, Inc. v. Lewis Welding & Engineering Corp. (S.D.N.Y. 1970), 323 F.Supp. 1300, aff'd (2d Cir.1971), 444 F.2d 372, cert. denied (1971), 404 U.S. 939, 30 L.Ed.2d 252, 92 S.Ct. 272; Earl M. Jorgensen Co. v. Mark Construction, Inc. (1975), 56 Haw. 466, 540 P.2d 978; Avenell v. Westinghouse Electric Corp. (1974), 41 Ohio App.2d 150, 70 Ohio Op.2d 316, 324 N.E.2d 583; Wyatt Industries, Inc. v. Publicker Industries, Inc. (5th Cir.1969), 420 F.2d 454.) The Code provides that such limitation is prima facie unconscionable where personal injuries are involved, but not where the loss is commercial. Nevertheless, the existence of a commercial setting is not of itself sufficient insulation against a charge of unconscionability. (County Asphalt, Inc. v. Lewis Welding & Engineering Corp. (S.D.N.Y. 1970), 323 F.Supp. 1300, aff'd (2d Cir.1971), 444 F.2d 372, cert. denied (1971), 404 U.S. 939, 30 L.Ed.2d 252, 92 S.Ct. 272.) While under the Code (Ill. Rev. Stat. 1973, ch. 26, par. 2-302(2); Ill. Ann. Stat., ch. 26, par. 2-302, Uniform Commercial Code Comment 3, at 175 (Smith-Hurd 1963)), the question of the unconscionability of a clause is for the court to decide, the court before making this determination must give the parties a reasonable opportunity to present evidence as to its commercial setting, purpose and effect. Generally a full hearing on the issue is required. Reynolds v. Preferred Mutual Insurance Co. (1972), 49 Mass. App. Dec. 97; Luick v. Graybar Electric Co. (8th Cir.1973), 473 F.2d 1360; Kohlenberger, Inc. v. Tyson's Foods, Inc. (1974), 256 Ark. 584, 510 S.W.2d 555; Haugen v. Ford Motor Co. (N.D. 1974), 219 N.W.2d 462; Schroeder v. Fageol Motors, Inc. (1975), 86 Wn.2d 256, 544 P.2d 20.
• 8, 9 Unconscionability can be either procedural or substantive or a combination of both. (Schroeder v. Fageol Motors, Inc. (1975), 86 Wn.2d 256, 544 P.2d 20; Johnson v. Mobil Oil Corp. (E.D. Mich. 1976), 415 F.Supp. 264.) Procedural unconscionability consists of some impropriety during the process of forming the contract depriving a party of a meaningful choice. (Schroeder v. Fageol Motors, Inc. (1975), 86 Wn.2d 256, 544 P.2d 20; Williams v. Walker-Thomas Furniture Co. (D.C. Cir.1965), 350 F.2d 445.) Factors to be considered are all the circumstances
• 10 Substantive unconscionability concerns the question whether the terms themselves are commercially reasonable. (Johnson v. Mobil Oil Corp. (E.D. Mich. 1976), 415 F.Supp. 264.) While the Code permits the limitation of remedies, it must be remembered that it disfavors them and specifically provides for their deletion if they would act to deprive a contracting party of reasonable protection against a breach. (Chemetron Corp. v. McLouth Steel Corp. (N.D. Ill. 1974), 381 F.Supp. 245, aff'd (7th Cir.1975), 522 F.2d 469; Schroeder v. Fageol Motors, Inc. (1975), 86 Wn.2d 256, 544 P.2d 20.) The Code (Ill. Rev. Stat. 1973, ch. 26, par. 1-106(1)) specifically provides that the remedies provided by it shall be liberally construed to the end that the aggrieved party may be put in
• 11, 12 In the present case, the evidence produced by the plaintiff discloses that the limiting clause was not conspicuous
• 13 Even if the limitation of liability is found to be binding upon the plaintiff, it cannot be found to absolve Leland from any claim for incidental or consequential damages. The clause merely refers to the seller, that is Roberts. Since such clauses are held in disfavor (Chemetron Corp. v. McLouth Steel Corp. (N.D. Ill. 1974), 381 F.Supp. 245, aff'd (7th Cir.1975), 522 F.2d 469), and must be strictly construed (Berwind Corp. v. Litton Industries, Inc. (7th Cir.1976), 532 F.2d 1; Owen v. Vic Tanny's Enterprises (1964), 48 Ill.App.2d 344, 199 N.E.2d 280, appeal denied (1964), 30 Ill.2d 627; Valentin v. D.G. Swanson & Co. (1960), 25 Ill.App.2d 285, 167 N.E.2d 14), the paragraph cannot be construed to refer to Leland, a party not even named in the acknowledgment.
• 14 Leland, however, contends that it cannot be held liable to the plaintiff because it was not in privity with it. It is true that absent a situation falling within the scope of section 2-318 of the Uniform Commercial Code (Ill. Rev. Stat. 1973, ch. 26, par. 2-318), or of Berry v. G.D. Searle & Co. (1974), 56 Ill.2d 548, 309 N.E.2d 550), generally privity only extends to the parties to the sale and implied warranties are not applicable between the buyer and a remote manufacturer. (Richards v. Goerg Boat & Motors, Inc. (Ind. App. 1979), 384 N.E.2d 1084.) This is not true, however, where there is a direct relationship between the manufacturer and the seller (Richards v. Goerg Boat & Motors, Inc. (Ind. App. 1979), 384 N.E.2d 1084), or where, as here, the manufacturer knew
Since we have determined that the trial court erred in entering summary judgment for the defendants, we reverse and remand for further proceedings in accordance with this opinion.
Reversed and remanded.
LINN, P.J. and JOHNSON, J., concur.