Consumer Warranty Law: KENTUCKY
Ky. Rev. Stat. § 304.5-070(1)(p)
Establishes certain service contracts as not regulated as insurance, as long as the contractor has purchased reimbursement insurance or is an automobile manufacturer or distributor.
Ky. Rev. Stat. § 304.5-070(1)(p)
Establishes certain service contracts as not regulated as insurance, as long as the contractor has purchased reimbursement insurance or is an automobile manufacturer or distributor.
Voiding the entire contract is the most drastic of the remedies, and courts may be reluctant to grant it. Frequently, the same result for the consumer can be achieved by striking out only the offensive clause.160 This remedy is useful when the unconscionable clause is not essential to the purpose of the agreement. Examples are warranty disclaimers and limitations of remedies.
Limiting the effect of an unconscionable term or clause is generally most appropriate for excessive price cases. In such cases, the courts can limit the price to a reasonable amount or to the amount already paid. Limiting the effect of a limitation of remedy clause might involve allowing the consumer to obtain direct or incidental damages, but not consequential damages.
Monetary damages are not available under section 2-302.162 Monetary relief is, however, available in the form of restitution, an equitable remedy, when complete rescission is ordered or in certain cases when the offensive clause is struck.163 Or the court can award the damages under other UCC sections,164 under the Magnuson-Moss Act, or under a UDAP or tort claim.
Good faith is not limited to post-sale conduct. It is most useful in protecting the buyer against unreasonable seller conduct occurring before the contract is signed. For example, a seller who fails to inform the buyer of known material defects before the contract is signed breaches the duty of good faith.179 This view is explicitly supported by comment 3 to section 2-314, which states in part that “[the seller’s] knowledge of any defects . . .
The UCC is not the only potential source of a duty of good faith.
According to comment 1 to section 1-304 of the UCC:
The good faith obligation’s policing function makes it much like the unconscionability provision of section 2-302.192 While unconscionability concerns the written contract, focusing on the harshness of oppressive contract terms on a weaker party, good faith focuses on the seller’s conduct and knowledge.
When a product does not perform as promised or expected, common law fraud and related torts are possible alternatives to a warranty cause of action. For example, an untrue oral statement that a used car has never been in a collision violates an express warranty and also may constitute fraud. The existence of a UCC warranty claim does not prevent the consumer from bringing a fraud claim.199
In most jurisdictions, misrepresentation claims avoid the application of the parol evidence rule.202 Many courts also hold that these claims are unaffected by merger and integration clauses.203 Merger and integration clauses however may be relevant when evaluating whether the buyer’s reliance on the misrepresentation was justifiable.204
Neither the UCC nor the comments define unconscionability. Comment 1 to section 2-302 enunciates the Code’s test for unconscionability in fairly broad terms:
Procedural unconscionability involves the manner and process by which the terms become part of the contract.126 Procedural unconscionability derives from the basic contract law tenet that freedom of contract depends upon the voluntariness and knowledge of the parties. Without meaningful choice by one party, the resulting contract is no longer a true bargain or agreement; it is instead an imposition.
Standards for procedural unconscionability differ depending on whether the two parties to the agreement are businesses or whether one party is a consumer. Between two businesses, there must be more than mere disparity of bargaining power; otherwise, few contracts would ever survive.127 Oppression or unfair surprise must infect the contract formation.128
An important example of lack of meaningful choice and lack of sophistication in consumer cases is a seller’s use of contracts written in English when the seller knows the buyer cannot speak or read that language. In Jefferson Credit Corp. v. Marcano,133 a used car buyer who had, “at best a sketchy knowledge of the English language,” purchased a car with implied warranties disclaimed.
Several courts have emphasized the uniformity of contracts within the industry as demonstrative of lack of meaningful choice. In the leading case of Henningsen v. Bloomfield Motors, Inc.,139 the new car buyer sued the manufacturer and dealer for breach of warranty for personal injuries. The defense raised the typical warranty disclaimer clause in the purchase order.
Substantive unconscionability focuses on the terms of the agreement and whether they are unreasonably favorable to one party or are so one-sided as to shock the conscience.145 For example, courts have struck down waivers of various sorts146 and a clause in a lease requiring the lessee to assume full risk of loss of the merchandise.147 Giving the consumer one-sided contract terms in the form of a warranty that is so riddled with limitations as to be
Courts take differing views about the necessity of proving both procedural and substantive unconscionability. Some courts require a showing that both types of unconscionability are present.152 However, a weak showing of procedural unconscionability can be compensated by a strong showing of substantive unconscionability, and vice versa.153
While the burden of proof is on the party asserting unconscionability,156 the amount and type of evidence needed to meet that burden will vary. In one case it may be sufficient to show that the consumers do not understand English, that the seller knew it but did not explain the contract to them, and that the contract or clause is injurious to the consumers. In another case it may be necessary to have expert testimony on the reasonable retail value of an item sold at an exorbitant price.
The remedy of voiding the whole contract is appropriate when the unconscionability goes to the inducement to enter the contract, such as when there was deception about the benefits or terms of the contract.158 Voiding the contract is also appropriate when the unconscionability permeates the entire transaction so that the total effect of the contract is unconscionable.
Unfair and deceptive practices (UDAP) claims present the same advantages as misrepresentation claims, and the UDAP deception standard will be easier to meet than an intentional or even negligent misrepresentation standard. Furthermore, unlike common law fraud, UDAP statutes usually allow the recovery of attorney fees.
The elements of “intentional misrepresentation,” “fraudulent misrepresentation,” or “common law fraud” are most often stated as follows:
Under the economic loss rule, discussed in § 12.2, infra, the only damages available on a negligence or strict liability claim based on a defective product are damages for personal injury or injury to other property. The rule bars “economic loss” damages—repair costs, diminution in value, lost profits, and the like—on these claims.
Misrepresentations do not have to be intentional in order to form a basis for tort liability. Even if a seller believes the false statement it is making to be true, the misrepresentation is actionable if the seller has not exercised reasonable care in ascertaining the facts.224 A tort claim based on such a misrepresentation is one for negligent misrepresentation.225 The following is a typical list of elements of such a claim:
Jurisdictions differ as to whether a plaintiff may recover for purely economic loss as opposed to personal injury or property damage in a negligence action.231 While there is less case law on negligent misrepresentation than negligence on this issue, a number of cases do allow recovery for economic loss caused by negligent misrepresentation.232 Other courts do not.233 Some jurisdictions allow recovery of economic loss on a negligent misrepresentati