On certification to the Superior Court, Appellate Division.
For modification and affirmance -- Chief Justice Wilentz and Justices Sullivan, Pashman, Schreiber, Handler and Pollock. For reversal and remandment -- Justice Clifford. The opinion of the Court was delivered by Handler, J. Pashman, J., concurring. Clifford, J., dissenting.
[83 NJ Page 322] Plaintiff seeks to recover from Uniroyal, Inc. (hereinafter "Uniroyal"), a national automobile tire manufacturer, property damages for the total loss of her automobile based upon breach of express warranty covering the automobile's tires. Plaintiff claimed that the right rear tire failed while the car was being driven by her brother, causing the car to leave the road and strike a guardrail and tree. Uniroyal disputed that the tire's failure under the circumstances constituted a breach of its warranty. It also asserted that, in any event, its liability for
such a warranty breach was limited to a refund for or replacement of that tire. On the authority of Collins v. Uniroyal, Inc., 64 N.J. 260 (1974), the trial court ruled that this limitation of liability was ineffective. It is this ruling, sustained by the Appellate Division, which is the focus of this appeal.
Plaintiff Viola Gladden was the owner of a 1974 Coupe de Ville hardtop Cadillac automobile. Her younger brother, Larry Brown, was driving the automobile from South Carolina to Morristown, New Jersey and, on September 1, 1975, while traveling easterly on Route 22 near Harrisburg, Pennsylvania, the automobile left the roadway and struck a guardrail and tree. As the car left the road, both Brown and his passenger heard a "big pop" or "pow-like" noise; the right rear tire was later discovered about two feet from the scene of the accident.
Plaintiff bought the new automobile for her brother in July 1974, although Brown handled the actual purchase. Brown testified that he had thought that he was getting a "top-notch car" which should have the "better tires" and he therefore requested "steel-belted radials." He further testified that steel-belted radial tires were advertised on television and in newspapers and although he did not request any particular brand of tires, he was sold Uniroyal tires. Distributed with the tires was a booklet described in large letters on the front cover as "OWNER'S GUIDE AND GUARANTEE," which contained a section in bold, red printing encaptioned "UNIROYAL STEEL BELTED RADIAL TIRE GUARANTEE." Brown testified that he had "skimmed through" the guarantee booklet and that he had thought that he understood its contents.
Seeking only property damages for the loss of the automobile, plaintiff brought a lawsuit against the Cadillac Motor Car Division of General Motors Corporation, Lex Depp Cadillac, and Uniroyal, Inc. Summary judgment for defendant Lex Depp Cadillac was granted prior to trial. The cause of action against Cadillac Motor Car Division was dismissed upon plaintiff's failure to establish a prima facie case.
At trial, plaintiff's theory of liability against Uniroyal was predicated upon her expert's claim that the automobile had gone out of control and had left the road after the right rear tire blew out either because of some factor relating to the road, or because of a defect in the manufacturing, the mounting, or dismounting of the tire. The defendant and its expert contended that, after the automobile had left the roadway, the tire failed when the vehicle struck the guardrail and tree. The case was sent to the jury on theories of strict liability, implied warranty, and express warranty. Answering special interrogatories, the jury found that the tire was not defective but, that Uniroyal had, nevertheless, breached its express warranty. Uniroyal's motion for a judgment notwithstanding the verdict was denied and the jury award of $6,250 plus interest for property damage to plaintiff's car was entered.
On appeal, Uniroyal contended that the evidence of a breach of warranty was inadequate and that the trial court had erred in submitting this issue to the jury. It also asserted that its guarantee did not constitute a promise that the tires would not fail but only a promise that, if there were a tire failure, the tire would be replaced or the purchase price would be refunded on an apportioned basis. For that reason, Uniroyal contended that the trial court had erred in ruling that the guarantee, which restricted its liability as to damages, was unconscionable and, thus, unenforceable.
The Appellate Division in an unreported decision reversed on the ground that the trial court had given an incorrect or inadequate instruction to the jury on the express warranty question. It concluded that a new trial should have been granted. The appellate court, however, rejected Uniroyal's contentions with respect to the validity of the remedy restrictions of the guarantee. Uniroyal's petition for certification, granted at 81 N.J. 285 (1979), sought review only of the question of the validity of the remedy restriction which appears in the warranty.
The initial question is whether Uniroyal's undertaking constituted an express warranty. The Uniform Commercial Code (hereinafter the "UCC" or "Code"), N.J.S.A. 12A:1-101 et seq., deals with the creation of warranties. It provides as follows:
(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(2) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty. [ N.J.S.A. 12A:2-313.]
The UCC Comments to this section emphasize that no specific intention to make a warranty is necessary if part of the basis of the bargain consists of the seller's affirmations of fact or descriptions of the goods. N.J.S.A. 12A:2-313, Comment 3. The Comments state further that express warranties rest on "dickered" aspects of the individual bargain. N.J.S.A. 12A:2-313, Comment 1. Particular reliance on such statements of description or quality need not be shown and the warranty issue will be normally a factual one. N.J.S.A. 12A:2-313, Comment 3.
As noted, the booklet distributed by Uniroyal with the purchase of its steel-belted radial tires contained a section entitled "UNIROYAL STEEL BELTED RADIAL TIRE GUARANTEE." It expressly "guaranteed [the tires] for 40,000 odometer miles" in three specific situations, two of which arguably apply to this case. One such situation relates to "road hazard protection" which furnishes a guarantee "[i]f within 40,000 vehicle odometer miles the tire becomes unrepairable due to impact breaks, snags, cuts or punctures . . .." The other, referred to as a "[g]eneral [g]uarantee," applies "[i]f a tire becomes unserviceable, for any reason other than wearout or [those enumerated in] the specific road hazards [guarantee] . . .."
An express warranty under the Code can arise even though the word "warranty" is not used. N.J.S.A. 12A:2-313(2). Guarantees are viewed as warranties under New Jersey case law. See Jutta's Inc. v. Fireco Equipment Co., 150 N.J. Super. 301, 306 (App.Div.1977); Adams v. Peter Tramontin Motor Sales, Inc., 42 N.J. Super. 313, 319 (App.Div.1956). In Jutta's Inc., the Appellate Division, calling the manufacturer's guarantee an "express guarantee," treated it as an express warranty. 150 N.J. Super. at 306. In Adams, the Appellate Division held that a 90-day guarantee of repair or replacement of parts constituted an express warranty because it was made before the sale, was given to the buyer "in case anything went wrong," and had a "natural tendency" to induce the sale of the automobile. 42 N.J. Super. at 319. Similarly, guarantees were treated as express warranties in Collins v. Uniroyal, Inc., 64 N.J. 260 (1974). See also McCarty v. E.J. Korvette, Inc., 28 Md.App. 421, 427, 347 A.2d 253, 258 (Ct.Spec.App.1975) (tire guarantee is express warranty). Hence, it is of no legal significance that Uniroyal's undertaking with respect to its tires was denominated a "guarantee" rather than a "warranty." Its obligation was an express warranty if it could fairly be understood, regardless of Uniroyal's intent, to constitute an affirmation or representation that the tires possessed a certain quality and capacity relating to future performance.
The provisions of the tire guarantee were included in the "OWNER'S GUIDE AND GUARANTEE." That booklet deals extensively with the characteristics, quality, capacity, and performance of Uniroyal steel-belted radial tires. It states, for example, that "[t]he radial design provides superior tread mileage, traction and lower rolling resistance . . .." The tire is said to be "engineered to provide a proper balance" as to certain "performance characteristics," e.g. "tread mileage, traction, endurance, road hazard resistance." In addition, the booklet is replete with references to "guarantee." The word "guarantee" is prominently displayed on the cover; on the very first page the owner is advised that the booklet contains "40,000 mile guarantee provisions." A separate section of the booklet alerts
the purchaser in bold type to the "UNIROYAL STEEL BELTED RADIAL TIRE GUARANTEE," and throughout that section the term "guarantee" appears both in subject headings (e.g., "What is Guaranteed And For How Long,") as well as in descriptive language (e.g., "guarantee eligibility," "general guarantee," "tire guarantee.") This section also deals specifically with future performance in terms of a tire becoming "unrepairable" or "unserviceable." Moreover, another page containing what is called "adjustment claim forms," is denominated as "Uniroyal Steel Belted Radial Passenger Tire Mileage Guarantee Certificate."
In a section dealing with exclusions, the guarantee states that it is a substitute for any "other express or implied warranties, including but not limited to any implied warranties of merchantability or fitness for a particular purpose." This suggests, by negative implication, that the guarantee actually given the purchaser itself constitutes an express warranty since it serves to replace " other express warranties," and, further, that the guarantee was intended to be the functional equivalent of ordinary implied warranties which relate generally to product quality and performance.
The document taken as a whole firmly supports the conclusion that Uniroyal has given an express warranty in conjunction with the sale of its steel-belted radial tires. It does so in language which spells out such an undertaking with sufficient clarity and specificity. Cf. Herbstman v. Eastman Kodak Company, 68 N.J. 1, 12 (1975) (guarantees of future performance must be specific). The guarantee, as presented and expressed, constitutes an affirmation or representation that the tires possess a capacity and quality relating to their ability to perform. On the basis of this communication, a purchaser could reasonably expect that the tire if used in accordance with the Uniroyal instructions would not become unrepairable or unserviceable within the first 40,000 miles of normal use or, if it did, that the consumer would be entitled to some form of redress.
The Appellate Division determined that in this case there was sufficient evidence of breach of warranty.*fn1 This brings us to the gravamen of the appeal, namely, whether Uniroyal has legally and effectively limited its liability for damages for a breach of the express warranty to either replacement of the failed tire or a partial or full refund of the tire's purchase price.
The language of the Uniroyal guarantee, if given literal effect as contended by Uniroyal, would limit damages recoverable for breach of warranty. While the express warranty states that the tire is "guaranteed for 40,000 vehicle odometer miles," it further provides under the general guarantee clause that the tire will be replaced at no charge if "unserviceability" occurs within 8,000 miles and, beyond that mileage up to 40,000 miles, "unserviceability" will result in pro rata charge for a new tire; similarly, if the tire at any point up to 40,000 miles becomes "unrepairable" because of "road hazards," the warranty provides for a pro rata adjustment charge.*fn2
The warranty in part states by way of further exclusion as follows:
4. WHAT IS NOT COVERED BY THE GUARANTEE
a) General Exclusions applicable to all parts of guarantee.
Unserviceability or unrepairability or failure or loss due to accident, fire, chain damage, racing, theft, run flat or willful abuse.
This guarantee is a promise of replacement under the conditions specified. It is not a promise that your tires will not fail.
This guarantee is given in lieu of all other express or implied warranties, including but not limited to any implied warranties of merchantability or fitness for a particular purpose. It does not cover consequential damages and UNIROYAL'S liability is limited to repairing or replacing the tire in accordance with the stipulations contained in this guarantee.
These exclusions cut deeply into the substantive effect of the warranty relating to tire capacity and quality. If the failure of the tire equates with "unserviceability or unrepairability or failure or loss," but is caused by an "accident, fire, chain damage, theft, run flat or willful abuse," the resultant deficiency of the tire would not be covered at all under the warranty. Thus, even though the express warranty against "unrepairability," is first stated in the guarantee booklet as being applicable to any failure resulting specifically from impact breaks, snags, cuts, or punctures and the warranty against "unserviceability" is stated as being applicable to any failure for any other reason except "wearouts," the general exclusion restricts the scope of this coverage. Moreover, even though the express warranty deals with tire failure, described as unserviceability or unrepairability, the general exclusion section states that the guarantee is "not a promise that [the] tires will not fail." Further, the general exclusionary clause also states that it is "in lieu of all other express warranties," as well as the implied warranties of merchantability and fitness, which implied warranties clearly
relate to quality and performance and are ordinarily available to the purchaser.
The exclusionary clause deals not only with the scope of coverage and product performance -- that is, whether and under what circumstances a tire might fail -- but also with the extent of liability. Thus, the guarantee is described in the general exclusionary clause, not as a warranty relating to quality or performance as implied in the initial presentation of the guarantee, but merely as "a promise of replacement under the conditions specified." Further, the exclusionary clause states that the guarantee "does not cover consequential damages" and that "liability is limited to repairing or replacing the tire in accordance with the stipulations contained in this guarantee."
In determining the efficacy of Uniroyal's attempted disclaimer and restriction of its affirmative warranty, it is important to differentiate between a disclaimer of warranty and a limitation of remedy. N.J.S.A. 12A:2-719, Comment 3; White & Summers, Uniform Commercial Code § 12-11, at 383 (1972). As Professors White and Summers explain, a disclaimer clause is used to exclude or limit the seller's warranties. White & Summers, supra, at 384. The disclaimer limits the seller's liability by reducing the number of situations in which the seller can be in breach of warranty. Ibid. An exclusionary clause, on the other hand, restricts the remedies available to one or both parties once a breach has been established. Ibid.
The complete exclusion of express warranties is strongly disfavored in the UCC. See N.J.S.A. 12A:2-313, Comment 4; see also Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 373 (1960). An exclusion or limitation engrafted upon express warranties is inoperative to the extent its terms are unreasonably inconsistent with the express warranties that are given. Realmuto v. Straub Motors, Inc., 65 N.J. 336, 341 n.2 (1974); N.J.S.A. 12A:2-316(1). On this question of warranty qualifications, it is instructive to compare the Code treatment of implied warranties. The complete exclusion of implied warranties, including warranties of merchantability and of fitness for a particular
purpose, is specifically permitted under the Code. See N.J.S.A. 12A:2-316. Nevertheless, in order to effect the exclusion of an implied warranty of merchantability, the language must be clear and conspicuous. Ibid. The Code, moreover, expressly defines "conspicuous" to mean "[a] term or clause . . . so written that a reasonable person against whom it is to operate ought to have noticed it." N.J.S.A. 12A:1-201(10); see also N.J.S.A. 12A:1-201, Comment 10. While no such requirement is explicitly imposed by the Code with respect to a disclaimer of an express warranty, it is inconceivable that such a disclaimer or limitation of an express warranty which is other than clear and conspicuous could be regarded as valid and enforceable.
The parties, as well as the courts below, concluded that the question of whether the warranty disclaimers and limitations here effectively limit Uniroyal's liability for damages turns upon notions of "unconscionability." They were strongly influenced in that direction by our decision in Collins v. Uniroyal, Inc., supra. In Collins, the plaintiff's husband was killed in an automobile accident ostensibly caused by the failure of a tire manufactured by the defendant. In a subsequent suit for breach of express warranty and strict liability in tort, the trial court excised as being unconscionable the defendant's limitation of remedy to replacement of the tires. This Court affirmed that determination based on N.J.S.A. 12A:2-719(3). 64 N.J. at 261. That section of the Code provides that while consequential damages for breach of warranty may be limited or excluded unless "unconscionable," such a limitation with respect to damages for personal injuries is "prima facie unconscionable." The Court also gave considerable weight in its conclusion to the evidence that the buyer had relied on the seller's advertisements that the tires would save his life. Id. at 263.
Here the presumption of unconscionability embodied in N.J.S.A. 12A:2-719(3) is not applicable because the presumption applies by its terms only to attempts to limit damages for personal injury arising out of a breach of warranty. N.J.S.A. 12A:2-719(3). We deal in this case only with a claim for property damages. This does not mean, however, that considerations
of fairness or unconscionability are any less relevant when reviewing warranties which contain limitations on property damages. It may be that under certain circumstances a restriction upon damages interwoven in an express warranty guaranteeing performance could be "unreasonably inconsistent" with the terms of the express warranty and, therefore, inoperative. See N.J.S.A. 12A:2-316(1). Moreover, the Court always retains the option in an appropriate case of declaring the limitation unconscionable under N.J.S.A. 12A:2-302. See Jutta's Inc. v. Fireco Equipment Co., supra, 150 N.J. Super. at 307 (consequential damages clause is unconscionable); cf. Unico v. Owen, 50 N.J. 101, 125 (1967) (N.J.S.A. 12A:2-302 authorizes the court to refuse to enforce any consumer contract clause which it finds ...