Legal Memorandum: Limitation of Damages Unconscionable in MA

Issue: Under Massachusetts law, is a clause, not made a part of the contract, enforceable simply because it would not be unconscionable?

Area of Law: Business Organizations & Contracts
Keywords: Limitation of liability; Enforcement of unconscionable clause; Damages
Jurisdiction: Massachusetts
Cited Cases: 548 N.E.2d 182; 495 N.E.2d 303
Cited Statutes: Mass. Gen. Laws Ann. ch. 106, § 2-719; Mass. Gen. Laws Ann. ch. 106, § 2-719(3)
Date: 02/01/2001

The contractual modification or limitation of remedies is addressed in Mass. Gen. Laws Ann. ch. 106, § 2-719 (West 1990).  Subsection (3) allows for the limitation or exclusion of consequential damages unless unconscionable. According to the statute, limitation of consequential damages is not unconscionable in cases of commercial loss.  Id. § 2-719(3).

The limitation of damages to a refund of the purchase price when the parties are sophisticated business entities, even though the consequential damages could be much greater, is a reasonable business practice and is not unconscionable.  Deerskin Trading Post v. Spencer Press, Inc., 398 Mass. 118, 495 N.E.2d 303, 307-08 (1986). 

In Canal Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369, 548 N.E.2d 182 (1990), Canal Electric had bought a set of rotating blades from Westinghouse for use in a steam turbine generator.  Westinghouse shipped the blades to Canal and installed them in the turbine.  The sale contract contained a limitation of liability clause that excluded direct, indirect, special, incidental and consequential damages, allowing only repair or replacement remedies.  A few months later, an inspection revealed cracks in the blades.  Westinghouse credited Canal for the price of the failed blades, replaced the blades and returned the turbine to service.

One of the questions before the court was whether, in light of the failure of the exclusive remedy, the limitation of liability provision still was enforceable.  The court held that the limitation of liability clause was enforceable and not […]

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