Failure of essential purpose

Failure of essential purpose refers to a remedy of a limitation of liability clause being insufficient.

UCC 2-719 §3 – Consequential damages may be limited or excluded by agreement unless their limitation is unconscionable. For consumers, limitation of personal damages is prima facie unconscionable

UCC 2-719 §2 provides consequential damages if the specified remedy fails, but §3 allows consequential damages to be limited if not unconscionable. Courts have followed different approaches: Option 1 – Failure of essential purpose -> consequential damages Option 2 – Failure of essential purpose does not lead to consequential damages unless the limitation of liability was unconscionable Option 3 – Total and fundamental breach -> consequential damages. Doesn’t quite require unconscionability, but more than failure of essential purpose.

best practices: (1) Use separate sections for the limitation of liability and warranty. (In Hawaiian Telephone v. Microform Data Systems, 829 F.2d 919 (9th Cir. 1987), the plaintiff had both the limitation of liability and warranty in the same section. Because the contract was breached, the court held the warranty did not come into affect, and as a result, the limitation of liability did not apply to limit the plaintiff's liability.) (2) State explicitly that the limitation of liability survives any remedy’s failure of essential purpose.