SSRN Id3036654

Limitation
of Liability in Adhesion Contracts Dogbevi
LIMITATION OF LIABILITY IN ADHESION CONTRACT: A
COMPARATIVE ANALYSIS BETWEEN THE FRENCH THEORY OF
“FAILURE OF ESSENTIAL OBLICATION” AND THE U.S. THEORY OF
“FAILURE OF THE ESSENTIAL PURPOSE”
Koffi Dogbevi1
April 2015

1
Koffi Dogbevi is a doctorate candidate (LLM/Juridical Science Doctorate) at the University of Wisconsin
Law School, USA. He is a former Labor and Social Security Inspector at the Togolese Department of
Labor, Employment and Social Security. Dogbevi@wisc.edu/ Koffidogbevi@gmail.com;; Tel: +1(608)446-
8585.

1

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https://ssrn.com/abstract=3036654
Limitation of Liability in Adhesion Contracts Dogbevi
Abstract
This paper aims to shed light on the French and U.S. doctrines of
“failure of essential obligation” and “failure of essential purpose”, and
discuss how Courts use them to resolve issues arising from limitation of
remedies clauses. The research will compare scholars and courts positions in
the United States to the standards adopted in France, where courts instead
of referring to the failure of essential purpose and unconscionability
doctrines, prefer to rely on the “failure of the essential obligation” in the
contract. While in France consideration is only given to the “failure essential
obligation” to determine whether the clause is derisory or inapplicable to the
circumstance purposed to, the legislator in the United States has developed
two ways to resolve these issues: “the failure of the essential purpose” and
the “unconscionability”. This paper analyzes the economy of the doctrines
retained respectively in France (II) and in the United States (III), by
exploring their similarities and potential gaps, and providing for
recommendation as to which of the doctrines is better suitable in resolving
issues inherent to disclaimer and limitation of liability clauses.
Keywords: Adhesion contract; limitation of liability; disclaimer of warranty;
unconscionability; unfair clauses of the contract; patent – latent defects;
essential obligation; essential purpose; object of the contract; cause of the
contract; Uniform Commercial Code.
2

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I- Introduction
An adhesion contract is a one-sided agreement, fully drafted by one party
and where the other party, and generally the consumer, has only one
choice, to agree to the terms of the agreement or refrain to contract.
Pursuant to the French Civil Code (article 1110), the adhesion contract is
one whose general conditions, exempted from negotiation, are determined in
advance by one of the parties.2 In other words, the provisions are imposed
by one of the parties or on her/its behalf or according to her/its instructions,
and they could not be freely discussed. Many larges businesses, supply
chains, insurance companies, dating sites, etc., use the adhesion contract
with their customers. These standardized forms of contracts offer goods or
services to consumers on essentially a "take it or leave it" basis without
giving them realistic opportunities to negotiate terms that would benefit
their interests.3 When this occurs, the consumer cannot obtain the desired
product or service unless he or she acquiesces to the form of contract.4 The
direct consequence of adhering to a contract without any bargaining chip is

2
The French Civil Code, also called Napoleonic Code, is established under Napoleon in 1804. This Code
has been reformed (modified) by the French Ordinance No. 2016-131 of 10 February 2016 reforming the
law of contracts, the general regime and the proof of obligations (NOR: JUSC1522466R;;
https://www.legifrance.gouv.fr/eli/ordonnance/2016/2/10/JUSC1522466R/jo/texte;;
https://www.legifrance.gouv.fr/eli/ordonnance/2016/2/10/2016-131/jo/texte). This paper was written in
April 2015, about one year before the issuance of the Ordinance No. 2016-131 of February 2016, and it
results that the changes/reforms induced by the Ordinance are not reflected in this paper. However, it is
th
important to note that the French Ordinance No. 2016-131 of February 10 , 2016, brought a distinction
between adhesion contract and private agreement also called over the counter contract (“contrat de gré à
gré”), which were not distinguished under the civil code previously in force.
3 nd
http://legal-dictionary.thefreedictionary.com/adhesion+contract, consulted on March 2 , 2015.
4
See Id.
3

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the unfairness that may result for the consumer. Even though parties to a
contract have the freedom to limit or disclaim liabilities inherent to their
agreements, this freedom is not without control. The Uniform Commercial
Code (UCC)5 in its section 2-719(2) provides that: where circumstances
cause an exclusive or limited remedy to fail of its essential purpose, remedy
may be had as provided in [the] Act.6 Moreover, the UCC sets out in its
section §2-719 (3) that consequential damages may be limited or excluded
unless the limitation or exclusion is unconscionable.7 This raises the
following questions: how do courts proceed to determine that a clause has
failed its essential purpose or is unconscionable? Is the approach adopted in
the U.S. similar to the one adopted in France, and if not, what are the
similarities and which system better served parties and provides for more
efficiency?
This paper aims to shed light on the French and U.S. doctrines of
“failure of essential obligation” and “failure of essential purpose”, and
discuss how courts use them to resolve issues arising from limitation of
remedies clauses. The research will compare scholars and courts positions in
the United States to the standards adopted in France, where courts instead
of referring to the failure of essential purpose and unconscionability

5
The Uniform Commercial Code (UCC) was first adopted in 1952, in order to harmonize the laws of sales
and other commercial transaction across the United States, and has been a long-term and joint project of
the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Law
Institute (ALI) (See https://uniformcommercialcode.uslegal.com/articles-of-the-ucc/, visited on
02/15/2015).
6
See UCC § 2-719(2).
7
See Id. §2-719 (3).
4

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doctrines, prefer to rely on the “failure of the essential obligation” in the
contract. While in France consideration is only given to the “failure essential
obligation” to determine whether the clause is derisory or inapplicable to the
circumstance purposed to, the legislator in the United States has developed
two ways to resolve these issues: “the failure of the essential purpose” and
the “unconscionability”. This paper analyzes the economy of the doctrines
retained respectively in France (II) and in the United States (III), by
exploring their similarities and potential gaps, and providing for
recommendation as to which of the doctrines is better suitable in resolving
issues inherent to disclaimer and limitation of liability clauses.
II- The French doctrine of “[Failure of] essential obligation”
The definition of the “Essential obligation” is not without difficulty even if
courts decisions have tried to set some standards. In his attempt of defining
the notion, professor Delebecque asserted that: “parties are free to do
whatever they want in the contract, but only to some extent; the point from
which parties’ agreement is emptied of its substance, as the case when a
creditor cannot obtain performance [constitutes the failure of the essential
obligation]”8. In other words, the essential obligation can be said the

8
Alima Sanogo, “L’obligation Essentielle dans le Contrat”, Université de Bourogne, Master II Recherche
Droit des Marches des Affaires et d l’Economie, 2005.
5


fundamental obligation of the contract, and the contract cannot exist without
it.
This definition has been subject to many controversies. Some scholars
thought the “essential obligation” is not the end value of the contract but
instead the elements on which the parties specified a clause. Other scholars
and courts retained the opposite view in admitting that the “essential
obligation” of the contract is the end value of the parties, the one without
which a reasonable person would not enter into the agreement.
Face to this controversy, a look to the U.S. doctrine of “failure of the
essential purpose” shows that the purpose in question is not the end value of
the contract but instead the elements retained in the limitation of remedies’
clause9. However, the standard retained by the U.S. is not probably the one
in use in French and an in-depth analysis of courts considerations will help
us understand the notion. For that purpose and in ascertaining the French
essential obligation theory, our analysis will distinguish between the
characteristic performance of the contract or the object of the contract, and
the cause of the contract (reason for which one enters into agreement with
other).

9 st
BAE Sys. Info. & Elecs. Sys. Integration v. Spacekey Components, Inc, 752 F. 3d 72 (1 Cir. N.H.
2014).
6


2.1. The essential obligation and the characteristic
performance or object of the contract in French law?
For the proponents of this position, the “essential obligation” of the
contract is the elements on which the parties agreed and which was
important to them. These elements are usually specified in a clause which
highlights the obligations designed as essential by the parties. This can be
the price, the deadline, the celerity or urgency, etc. Until a recent period,
courts in France have been relying on the object of the contract to determine
the “essential obligation” which failure will imply a resolution or annulation of
the contract.10 Under the article 1126 of the French civil code11: “any
contract has for object a thing one party undertakes to give, to do, or not
do.” The object of the contract corresponds to the legal operation envisaged
by the parties (it can be a creation of enterprise, an insurance contract,
etc.), and should not be confused with the object of the obligation. This later
(object of the obligation) corresponds to the performance that each party
commits itself to provide. The article 1126 of the French civil code speaks of
“obligation to give, to do, or not do something.” For example the object of
the sales contract is to generate obligations to the seller and the buyer; the
object of the seller’s obligation is to transfer the propriety and the object of
the buyer’s obligation is to pay the price. In matters of employment

10
Cass. Com., 17.07.2001, n°98-15.678, inedit;; Cass. Civ. 22.10.2009, n 98-15678, inedit.
11
The French civil code is also named “Code Napoleon” as promulgated by Napoleon Bonaparte on
March 21, 1804.
7


contract, the object of the employer’s obligation is to pay the salary and the
object of the employee’s obligation is accomplished the work for which she is
hired.
French courts have in the first time relied on the object of the obligation
to determine the “essential obligation” of the contract, which failure will
partially or totally void the contract. Thus in the case SECURINFOR in date of
July 17th 200112, related to a maintenance contract, it was admit that the
characteristic service was an “obligation to perform” enabling to qualify the
contract as a “contract of enterprise”. The essential obligation agreed upon
by the parties in this contract consisted in an urgent corrective intervention
(in 48 hours) for maintenance. For the Supreme Court, SECURINFOR which
admitted not being able to "legitimately intervene on the site" and criticized
the company Highway for falling to provide it materials "necessary for its
intervention" cannot reasonably maintain that the Court of Appeal distorted
the words in the contract clause by holding that it did not fulfill its
commitment to intervene "in 48 hours"13. The court here used the
characteristic service or the object of the obligation as the “essential
obligation” of the debtor (provide an urgent corrective intervention).
In a similar situation, the issue was whether a limitation of liability clause
was valid when it concerns an essential obligation and even contradicts an
initial obligation. In fact the Banchereau company chose Chronopost to

12
Cass. Com., 17.07.2001, n°98-15.678, inedit.
13
See Id.
8


deliver two packages containing tender proposals to the SFMI society. The
high challenge and expectation of the Banchereau company to deliver the
packages on time in order to be considered for the tender collapsed because
Chronopost failed to comply with the essential obligation of the contract. The
Banchereau company claimed damages, but Chronopost invoked a limitation
of liability clause. The court found that what constitutes the specificity of
Chronopost is that it is a "specialist of rapid transportation, ensuring the
reliability and a speed service."14 Therefore, if a client chooses Chronopost,
it is because it found this safeguard essential. So the customer will not
hesitate to pay a significantly higher price than normal mail because it
considers that this reliability and speed of service are necessary for it.15 The
essential obligation in this contract, for the court is the celerity and speed
delivery of packages within appropriate deadlines, which are the objects of
the debtor’s (Chronopost) obligation.
Identifying the essential obligation was therefore the key to the solutions
of the parties, and when there is a “failure of the essential obligation”, a
party debtor of the obligation could not easily prevail unless it demonstrates
the existence of a force major, and therefore a total impracticability and
impossibility to alternatively perform its obligation.
The object of the contract is for the French courts the place where the
“essential obligation” resides. Therefore in a sale contract, the essential

14
Cass. Civ. 22.10.2009, n 98-15678, inedit.
15
See Id.
9


obligation is for the seller to deliver the product or make it available to the
purchaser. In a lease contract, the essential obligation is the obligation of
the landlord to ensure the enjoyment of the premise by the lessee. In a car
rental contract the essential obligation of the lessor would be to make
available a car in a good condition to the lessee. In a charter agreement, the
essential obligation of the lessor is to make available to the charterer, a ship
seaworthy, in a good condition of navigability.
Alongside the essential obligations, there can be some accessory or
secondary obligations which are necessary in the contract but insufficient to
invalidate it. However, the accessory obligation in one contract can be the
essential obligation in another. For example the surveillance obligation is
accessory in a parking contract, but it is essential in security (house,
building, etc.) contract. Also the maintenance contract is accessory in a
parking contract but essential in a garage contract (automotive, repair
shop). There are some newly accessory obligations such as: obligation of
counsel (bankers, architects, physicians, notaries, insurers), obligation of
security (transport of persons, products, etc.), obligation of efficiency or
effectiveness of travel agency.
All these accessory obligations can mutate to essential obligations
depends on the circumstance or particular characteristics of type of
contracts. When parties specify some conditions or highlight some
obligations (even secondary) in a contract, this obligation will be considered
10


essential or principal, simply because they were highlighted and thus have
some particular importance for the parties.
Identifying the “essential obligation” based on the object of the contract
would be somehow easy for French courts since the object of the contract
corresponds, for the most part, to the legal operation envisaged by the
parties. This legal operation can be identified by the name of the specific
contract (employment contract, lease contract, insurance contract,
enterprise contract, maintenance contract, etc.) or the characteristics of
parties’ performance (speed delivery, urgent intervention, etc.). However,
this does not seem to be the case always and French courts have
experienced lots of difficulties and complex cases16 and have since changed
their position by seeking the “essential obligation” in the cause of the
parties’ obligations.
2.2. The essential obligation and the cause of the
contract
On June 29 2010, the Cassation Court of Paris (Supreme Court) has to
decide in a very complex case, whether a limitation of remedy clause which
fail its essential obligation should be void or not. The litigation arose
between FAURECIA an automotive company and ORACLE, a software
company. In facts, FAURECIA Automotive, then known as Bertrand Faure

16
FAURECIA v. ORACLE, Cass. Com. 29-06-2010, n 09-11.941
11


equipment, wanted to deploy in 1997 on its sites an embedded software
covering mainly the management of its production and business. It chose
the software V12 proposed by the ORACLE company, but should not be
available before September 1999. The parties concluded a licensing
agreement, a maintenance contract and a training contract in May 1998,
while the implementation of “Oracle applications program” contract was
signed in July 1998. As FAURECIA was in need of a software change to enter
year 2000, an interim solution has been installed by ORACLE company to
help it shift from 1999 to 2000. Faurecia has ceased payment on the motif
that the temporary solution had some serious difficulties and the version V12
still not delivered. It was sued for payment by FranFinance to which ORACLE
corporation had ceded its rights to payment. FAURECIA collaterally assigned
ORACLE for breach of contract and nullity of the clause limiting its liability on
the basis that the failure of the essential obligation constituted a fault of
such gravity that would void the limitation of remedy clause. The litigation
lasted 10 years with many rebounds (remands) until June 2010 when the
Supreme Court rendered its decision finding that: “only is ultimately void,
the limitation of remedy clause that contradicts the scope of the essential
obligation undertook by the debtor”.17
The court in its reasoning found that even though there is a failure of
the essential obligation, the caps of the limitation of remedy clause was not

17
See Id.
12


derisory as the ORACLE Corporation granted FAURECIA a discount rate of
49% and other benefits. Therefore, the court concluded that the limitation of
remedy clause did not empty of all substance the essential obligation of
Oracle Corporation. What is then the essential obligation and how did the
court identify it? To answer this question, it will be convenient to analyze the
Supreme Court argument on the first ground of the appeal court decision.
For the Supreme:
“the non-performance by the debtor of the essential obligation
contractually undertook entails the non-application of the limited
remedy clause; by applying the limitation of liability clause after
finding that the company ORACLE had breached the essential
requirement relating to the delivery of the V12 software, which had
not been delivered to the agreed date or later and ORACLE
Corporation demonstrated no fault attributable to FAURECIA which
prevented it from meeting its obligations, or any event or force
majeure; [therefore] the Court of Appeal did not draw legal
consequences of its findings, thus violating articles 1131, 1134 and
1147 of the Civil Code.”
The Court here found that the non-performance by the debtor of its
essential obligation violated article 1131 and following. These articles set out
the provisions of the “cause of the contract”. Under article 1131 of the civil
code, the obligation without cause or on a false cause or illicit cause shall
13


have no effect. The essential obligation in the parties’ agreement is now
clearly identified with regards to the cause of the obligation. It is the
obligation in consideration to which a party engaged itself to the contract, or
the provisions that entered in parties’ meeting of mind. The failure of such
obligation can be attributed to the absence of cause, its falsity or its
unlawfulness. An obligation that then failed its essential obligation shall have
no effect. However, in the current case, the Supreme Court had found that
the failure of the essential obligation did not empty of all substance the
obligation of the debtor because it had offered up to 49% discount and other
benefit to the FAURECIA company.
Nevertheless, the cause is a complex notion and to understand it we
must distinguish it from the notion of “object”. In contractual matters, the
cause is the immediate determinants and reasons justifying a party decision
to contract. In bilateral contracts, the cause of the obligation of each party
resides in the obligation of the other. And as we have discussed it above, the
“object of the obligation” corresponds to the performance that each party
commits itself to provide. So the cause of the obligation of one party is the
object of the obligation of the other party.
For example in an employment contract, the cause of the employee
resides in the obligation of the employer, and the obligation of the employer
(the performance it commits to provide) is to pay a salary to the employee.
Thus the cause of the obligation of the employee in an employment contract
14


is the salary. In a contract of sale of vehicle, the cause of the obligation of
the purchaser resides in the obligation of the seller to transfer a vehicle
according to the specifications provided for in the contract of sale. And given
that the sale is a bilateral contract, the cause of the seller's obligation
resides in the obligation of the buyer to pay the price. Therefore, the cause
of the obligation of the seller in a contract of sale is to be paid the good’s
price. Neither party to contract would engage itself if the obligation of the
other does not exist or is emptied of all substance. And to recall the article
1131 of the French civil code: “the obligation without a cause, or with a false
cause, or illicit, shall have no effect”.
Coming back to the FAURECIA case, the Supreme Court found that the
cause of the obligation (the essential obligation) of FAURECIA is the
obligation of the ORACLE company which was to deliver the V12 software,
and in absence of fault attributable to FAURECIA which prevented ORACLE
from meeting its obligations, or any event or force majeure, there would be
a clear violation of articles 1131 and subsequent of the civil code.
By finding further that the obligation actually assumed by ORACLE (the
interim solution and the 49% discount) was not derisory and did not empty
of all its substance the obligation undertook at the formation of the contract,
the court seemed make application of the U.S. “unconscionability doctrine”.
In fact in its analysis the court relied on criterias used in determination of
unconscionability and found that:
15


- the limitation of liability clause was freely negociated and accepted
by parties that are sophisticated and knowledgeable about
limitation of remedies clauses;
- the limitation of liability clause did not empty the essential
obligation of all its substance but fixed a caps (ceiling) of
indemnification which is not derisory;
- the limitation of liability clause did not deprive the other party of
counterpart.
The French system does not distinguish, like in the U.S. system,
between the “failure of the essential purpose” where a clause purported to
regulate a situation fail due the occurrence of a totally distinct situation not
initial envisaged, and the “unconscionability” where a clause an absence of a
new circumstance to the parties agreement has still emptied of all it
substance an obligation undertook by a debtor. This creates a difficult
situation for French courts as attested by the lengthy courts battles in
FAURECIA v. ORACLE case, which took 10 years since the case was
introduced in court. Finally the principle retained by the court in its decision
does not seem to resolve all the issues inherent to limitation of liability
clauses, and a close look to the approach retained by the United States
Courts will be valuable in many respects.
16


III- The U.S. doctrine of “Failure of the essential purpose”
A detailed analysis of the UCC provisions on limitation of remedies and
disclaimer of liabilities will help us understand the U.S. doctrine of “failure of
the essential purpose”. However, due to the confusion among scholars and
even some courts between the theories of “failure of essential purpose” (2.1)
and the “unconscionability” (2.2), a necessary clarification will be made on
the two notions.
3.1. The theory of “[failure of] essential purpose”
Pursuant to section §2-719(2) of the UCC, where circumstances cause
an exclusive or limited remedy to fail of its essential purpose, remedy may
be had as provided in [the] Act.18 To understand this theory, consideration
should be given to the remedies agreed upon by the parties at formation of
the contract. In fact there is a failure of essential purpose when the
disclaimer or limitation of liability clause, or the remedy by its allocated,
initially fair at the beginning of the contract, comes to operate unfairly under
the circumstances to which it is later applied.19 In other words, when the
situation which the clause is purported to remedy has not arisen and instead
a totally different situation not envisaged occurred, making the clause

18
See Id.
19
See Jonathan Eddy, On the “Essential Purpose of Limited Remedies: The Metaphysics of UCC Section
2-719(2), 65 Cal. L. Rev. 28 (1977), [hereinafter cited as On the “Essential” Purpose of Limited
Remedies], citing J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code
380 (1972).
17


inoperative or unable to be applied to that new circumstance, the clause has
failed its essential purpose. For example, when a purchaser bought a new
car and a limitation of remedies clause was specified on the engine defining
the extent to which the dealership could provide for a replacement taking
into account the amount and the period of time. If after couple weeks the
purchaser complained to the dealer about his car electric system that are
non-functional anymore, and the later (dealer) declined any remedy as
nothing was agreed upon by the parties in their clause, we would say here
that the clause has failed its essential purpose. The electric system is part of
the car and permits its functionability. A clause that fails to take into account
the essential circumstances of the products would be said to have failed its
purpose.
The official comment of UCC section 2-719(2) states that it applies
“where an apparently fair and reasonable clause because of circumstances
fails in its purpose or operates to deprive either party of the substantial
value of the bargain, it must give way to the general remedy provisions of
this article”.20 In other words, when a different circumstance not intended to
be resolved by the remedy occurred, the remedy no longer appears to be
equitable as it fails its essential purpose. The failure of essential purpose
doctrine guide courts to sensible constructions by directing their attention to
the underlying purposes of the remedy in question, and thus dissuades them

20
See Id.
18


from mechanical, literal application having no justification in commercial
understanding.21
In determining whether a clause fail its essential purpose, the
fundamental question courts must ask is whether the circumstance to which
the clause is intended to different from the one occurring actually. In
answering that question, courts look at many factors such: the bargaining
power of the parties and their ability to seek advice or alternative offers, the
clarity of the contract and whether the disclaimer or limitation clause was
known by the parties when contracting, the potential defects purposed to be
remedied by the clause and whether these defects were patent or latent.
Our paper will discuss the parties’ bargaining power in a contract with
relation to the limitation of remedies clauses, as that is the situation in
adhesion contracts. Another issue susceptible to arise in adhesion contracts
are the problem of latent defects as most of the consumer are not
sophisticated parties are could not have reasonably known or identify a
potential defect. Our paper will analyze courts positions with regards to
these issues, and this in consideration of the “failure of essential purpose”.
3.1.1. The parties’ bargaining power
To determine whether a disclaimer or limitation of liability clause fails
its purpose, courts usually look at the equal bargaining power of parties.

21
See Id.
19


Their criteria of analysis will help in understanding the situation in adhesion
contracts.
In American Nursery products, Inc. v. Indian Wells Orchards22, a
commercial orchard, the purchaser, entered into a contract with a
commercial nursery, the seller, to purchase apple trees. The contract
contained a clause limiting the seller’s liability for incidental or consequential
damages. The seller dipped the rootstocks of the trees in a chemical which
damaged them, and the seller was not able to deliver all the trees promised.
The purchaser sued the seller for breach of contract and negligence. The trial
court found in favor of the purchaser and held that the exclusionary
provision was unconscionable and unenforceable. On appeal, the court noted
that the parties to the commercial contract had equal bargaining power and
equal ability to seek advice and alternative offers, that the contract language
was clear, and the exclusion was not hidden in a maze of fine print. The
court then ruled that the limited remedies in the contract were nonexclusive
and did not fail their essential purposes, and therefore the exclusionary
clause was enforceable.
The criteria or elements retained by the court in this case are
determinative in finding whether a limitation clause or exclusionary provision
has failed its essential purpose. As, noted by the court, the parties had equal
bargaining power and equal ability to seek advice and alternative offers, the

22
115 Wn.2d 217 (Wash. 1990)
20


contract was clear and the clause was not hidden in a maze of fine print.
Would the court ruled differently in case of adhesion contract where the
parties do not have an equal bargain power? One of the criteria retained by
the court in this case which will significant in determining courts’ plausible
outcomes in adhesion contracts is whether the parties, beside the bargaining
power, have an “equal ability to seek advice and alternative offers”. With
regards to the freedom of contract principle, it is clear that no one should be
forced to contract and everyone presumably has her total ability and
freedom as to enter in a contract or not. Most of the adhesion contracts
include the language to “enter into contract or refrain to use…” or “take it or
leave it”. The possibility to seek advice and alternative offers are
determinants factors court should consider in analyzing whether a clause
fails its essential purpose in adhesion contracts.
Under UCC 2-719 (2), where an apparently fair and reasonable clause
because of circumstances fails its purpose or operates to deprive either party
of the substantial value of the bargain, it must give way to the general
remedy provisions of the Act. Determining whether a party is deprived of the
substantial value of the bargain is itself a complicated matter. While some
positions estimated that the substantial value of the bargaining was the end-
value of the contract23, many courts decisions opted to the contrary.

23
The official comment of the draft of article 2 in date of May 1949 provides that where circumstances
cause an exclusive or limited remedy to fail its essential purpose, as when it deprives the buyer of the
21


In BAE Sys. Info. & Elecs. Sys. Integration v. Spacekey Components,
Inc.,24 a semiconductor integrated circuit, seller brought an action alleging
that the buyer wrongfully withheld payment pursuant to the parties’
consultant agreement, agreement which raised no dispute. For the seller,
the buyer breached the terms of sale because it sought a remedy outside
the scope of the parties’ agreement and under UCC § 2-719 (2), the limited
remedies for breach of warranty outlined in the parties’ terms of sale did not
fail of their essential purpose. A credit remedy did not fail of their essential
purpose because the parties’ clear expectation was that the buyer could
return the goods within a limited period of time and claim a credit, or could
keep the good and pay. The U.S District Court, first pointed out the UCC
which permits a buyer and seller to limit the buyer’s remedies for breach of
warranty by agreement, so long as the agreed-upon remedy does not fail its
essential purpose. Second, the parties’ terms of sale provided in its section
8(b) that if the hardware BAE delivered thereunder did not substantially
confirm to BAE’s specifications, the Spacekey’s sole remedy was to “return
within 60 days of the delivery of any nonconforming Deliverables for credit,
repair, or replacement, at BAE SYSTEMS’ sole option.” Third, the remedy
provided by the parties’ agreement did not fail its essential purpose, which
precludes Spacekey from receiving any remedy for BAE’s asserted breach of
warranty other than the one described in the terms of sale.

substantial value of the contract or the use or disposition for which the seller at the time of contracting had
reason to know the goods were intended, remedy may be had as provided in this Act.
24 st
752 F. 3d 72 (1 Cir. N.H. 2014).
22


The buyer, Spacekey alleged that a credit or refund cannot serve its
essential purpose unless it permits the acquisition of a conforming
substitute. To this argument the court stated that: “Neither Stearns v. Select
Comfort Retail Corp.,25 nor White v. Microsoft Corp.,26 stand for “the
proposition that a buyer who returns a defective product for a refund does
receive the substantial value of his or her bargain,” irrespective of whether a
conforming product can be obtained. Nor do any of the other authorities the
Court cites.”
This answered the question asked above as to whether or not the
substantial value of the bargaining was the end-value of the contract. For
the Court, a refund does not equal to the substantial value of the parties
bargaining and it is irrespective of whether a conforming product can be
obtained. Jonathan A. Eddy27 clarifies this position by referring to the draft’s
language of the UCC in date of 1944. According to him, the language of the
1944 draft may be located in two sections of the 1941 draft Revised Uniform
Sales Act. In that Act section 57A allowed a limitation of remedy to repair or
replacement, provided that "the time required does not defeat the buyer's
intended use or disposition. Section 57B disallowed limitation to repair or
replacement "when the results thereof fail, in the circumstances of the
contract and breach, to give the buyer the substantial value contracted for.”

25
No. 08-2746 JF, 2009 U.S. Dist. LEXIS 48367, 2009 WL 1635931 (N.D. Cal. June 5, 2009)
26
454 F. Supp. 2d 1118 (S.D. Ala. 2006)
27
See Jonathan Eddy, On the “Essential” Purpose of Limited Remedies, citing White & Summers,
Handbook of the Law Under the Uniform Commercial Code 380 (1972).
23


Thus, it appears that this language, was associated with a particular type of
limited remedy, the "essential purpose" of which was to provide an economic
means of assuring goods of warranted characteristics.28 And, an exclusion of
consequential damages does not define a means of obtaining the end-value
of the parties' bargain, but itself aids in defining that bargain.29
It appears here that the “essential purpose” of the clause is not the
end-value of the bargaining in the U.S., position which is contrary to the
French doctrine of “essential obligation” where courts and scholars found
that it corresponds to the “cause of the contract”, a consideration without
which one party would not enter into contract. However, an older comment
of the same draft, not in use and not retained by courts in the U.S.
interpreted the “essential purpose” as to the end value in the terms that:
“[…] provided for limitation of remedy to repair or replacement, except
where this limitation deprived the buyer of the substantial value of the goods
contracted for, or of the use or disposition for which the seller at the time of
contracting had reason to know they were being procured”.30 This later
position is the one adopted by the French jurisprudence in the notion of
“Failure of the essential obligation”.

28
See I.d.
29
See Id.
30
See Id. citing the 1941 draft Revised Uniform Sales Act.
24


3.1.2. Patent defects v. latent defects
The patent-latent defects criteria are used by courts to determine
whether a party was non-sophisticated when contracting, and thus unable to
have an equal bargaining power as to the obligation of the debtor and the
essential purpose of the clause. As we have discussed it above, contractors
or consumers in adhesion contract are most of the time non-sophisticated
parties and have no bargaining power. Would this situation ultimately imply
a failure of essential purpose when a clause disclaiming or limiting remedies
is introduced in the parties’ agreements? Courts use scrutiny to determine if
a bona fide person in the place of buyer would have known about the
defects.
In Wilson Trading Corp. v. David Ferguson, Ltd,31 the seller sold the
purchaser a quantity of yam. The purchaser knitted the yam into sweaters,
but the finished product, when washed, showed uneven variation in color.
The purchaser refused to pay and got sued for the price by the seller. The
purchaser then counterclaimed for damages. The contract contained a
disclaimer of any warranty extending beyond "delivery of good merchantable
yarn of the description stated herein." The contract further provided: “No
claims relating to excessive moisture content, short weight, count variations,
twist, quality or shade shall be allowed if made after weaving, knitting, or
processing, or more than 10 days after receipt of shipment... The buyer shall

31
Wilson Trading Corp. v. David Ferguson, Ltd., 1967 N.Y. App. Div. LEXIS 7999, 28 A.D.2d 1209, 285
N.Y.S.2d 266 (N.Y. App. Div. 1st Dep't 1967).
25


within 10 days of the receipt of the merchandise by himself or agent
examine the merchandise for any and all defects.” The trial court noted the
contractual time limitation and granted plaintiff's motion for summary
judgment for the price. The appellate division affirmed without opinion, but
the court of appeals reversed and remanded for trial. In its view, a factual
issue existed as to whether the defects alleged were reasonably discoverable
before knitting and processing. If not, in the court's view, the time limit
would "fail of its essential purpose," and the buyer would have available all
article 2 UCC32 remedies.
The interpretation to give to court decision in this case is that allowing
10 days to a non-sophisticated party to “examine the merchandise for any
and all defects” could not permit her to discover potential defects of the
product when these defects are not reasonably discoverable before knitting
and processing. Was the purchaser a sophisticated party, the court decision
would have certainly changed in favor of the seller. While the discovery of
the defect will be easy in contract between professionals or sophisticated
parties, in an adhesion contract, the consumer most often has a limited
knowledge on the specificity or intrinsic characteristics of the product and a
limited bargaining power. When there is no reasonable believe that a non-
sophisticated party could have discovered or have reasons to know about

32
Under subsection 2 of UCC § 2-719, where an apparently fair and reasonable clause because of
circumstances, fails in its purpose or operate to deprive either party of the substantial value of the
bargain, it must give way to the general remedy of this article.

26


the defects, the courts allow the benefit of remedies under section 2 of the
UCC.
3.2. A distinction from the theory of “Unconscionability”
As we have discussed it above, there is a failure of essential purpose
when the circumstance to which the clause is intended, is different from the
one occurring actually. In the case of unconscionability, there is no new
circumstance that makes the clause fail its purported goal. There is
unconscionability when the clause still applies to circumstances intended to,
but seems currently unfair. The unfairness of the clause limiting or excluding
the liability seems to exist at the inception of the clause. The theory of
“unconscionability” is set out under UCC sections 2-302 and 2-719(3).
In their approach to define the notion, courts have seized upon a
formulation that links unconscionability to "an absence of meaningful" choice
for one party and contract terms which unreasonably favor the other party.33
This is usually the case in adhesion contracts. No meaningful choice for the
consumer or non-sophisticated party, and a contract which unreasonably
favor one party (the drafter). So, view the concept has both a "procedural"
element, which focuses upon the bargaining process, and a "substantive"
element.

33
Citation omitted.
27


The procedural unconscionability supposes an absence of meaningful"
choice for one party and focuses upon the bargaining process. It highlights
two forms of abuse: oppression and surprise. The oppression refers to the
inability of one party to bargain about a particular term (which is the case
always in adhesion contract), and this might result in "gross inequality of
bargaining power," often in association with lack of an alternative source of
supply. The surprise arises afterwards and that is often the case of latent
defects as result of the absence of equal bargaining power.
The substantive unconscionability focuses on the nature of the
contested term. It highlights contract terms that are excessively
“oppressive” or “harsh”, and suspected transaction/terms. The substantive
unconscionability involves parties’ degree of sophistication which will allow
them to understand the terms of the contract. Thus, a non-sophisticated
party in an adhesion contract could not have reasonably known about some
contracts unfairness terms.
28


IV- Conclusion
The “failure of essential purpose” in the U.S. and the “failure of
essential obligation” in France are ways and means for courts to resolve
issues involving disclaimers or limitation of liabilities clauses. This article
helps shed the light on the criteria taken into account by courts in asserting
unfairness in contracts or in disclaimers of liability and/or remedies clauses.
At the term of our analysis it appears that the U.S. developments on the
“failure of essential purpose” and the subsequent “unconscionability”
principle, serve more complicated contractual situations than the theory
developed by the French jurisprudence: ([The] “failure of the essential
obligation”). In fact, the French approach can still create confusion and
judicial muddle as it has not distinguished when a new circumstance not
initially intended caused a clause to fail its purpose, and when the
circumstance purported to, appeared unfair at the inception and thus
causing unconscionability.
The U.S. doctrine will far beyond solve much complicated cases even if
it is not without criticisms.
29


V- REFERENCES
Jonathan Eddy, On the “Essential Purpose of Limited Remedies: The
Metaphysics of UCC Section 2-719(2), 65 Cal. L. Rev. 28 (1977).
Alima Sanogo, “L’obligation Essentielle dans le Contrat”, University de
Bourogne, Master II Recherche Droit des Marches des Affaires et d
l’Economie, 2005.
Milton Roberts, Unconscionability, under UCC § 2-302 or § 2-719(3), of
disclaimer of warranties or limitation or exclusion of damages in
contract subject to UCC article 2 (sales), 38 A.L.R.4th 25.
V. Woener, "Unconscionability" as ground for refusing enforcement of
contract for sale of goods or agreement collateral thereto, 18
A.L.R.3d 1305
Michael j. Phillips, Unconscionsbility and Article 2 Implied Warranty
Disclaimers, 62 Chi.-Kent L. Rev. 199.
Robert J. Williams, GETTING WHAT YOU BARGAINED FOR: HOW COURTS
MIGHT PROVIDE A COHERENT BASIS FOR DAMAGES THAT ARISE
WHEN REMEDIES FAIL OF THEIR ESSENTIAL PURPOSE, 5 Va. L. &
Bus. Rev. 131.
Edith Resnick Warkentine, ARTICLE 2 REVISIONS: AN OPPORTUNITY TO
PROTECT CONSUMERS AND "MERCHANT/CONSUMERS" THROUGH
DEFAULT PROVISIONS, 30 J. Marshall L. Rev. 39.
30


Peter C. John, A New Approach of limitation of Remedies and Damages
Under the UCC: Damages and Remedies, 222 Ill 2d 75, 854 NE2d
607 (2006).
31


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Limitation

of Liability in Adhesion Contracts Dogbevi

LIMITATION OF LIABILITY IN ADHESION CONTRACT: A

COMPARATIVE ANALYSIS BETWEEN THE FRENCH THEORY OF

“FAILURE OF ESSENTIAL OBLICATION” AND THE U.S. THEORY OF

“FAILURE OF THE ESSENTIAL PURPOSE”

“failure of essential obligation” and “failure of essential purpose”, and

of referring to the failure of essential purpose and unconscionability

doctrines, prefer to rely on the “failure of the essential obligation” in the

contract. While in France consideration is only given to the “failure essential

obligation” to determine whether the clause is derisory or inapplicable to the

the “unconscionability”. This paper analyzes the economy of the doctrines

retained respectively in France (II) and in the United States (III), by

exploring their similarities and potential gaps, and providing for

recommendation as to which of the doctrines is better suitable in resolving

issues inherent to disclaimer and limitation of liability clauses.

Keywords: Adhesion contract; limitation of liability; disclaimer of warranty;

unconscionability; unfair clauses of the contract; patent – latent defects;

essential obligation; essential purpose; object of the contract; cause of the

contract; Uniform Commercial Code.

An adhesion contract is a one-sided agreement, fully drafted by one party

choice, to agree to the terms of the agreement or refrain to contract.

one whose general conditions, exempted from negotiation, are determined in

by one of the parties or on her/its behalf or according to her/its instructions,

with their customers. These standardized forms of contracts offer goods or

services to consumers on essentially a "take it or leave it" basis without

giving them realistic opportunities to negotiate terms that would benefit

product or service unless he or she acquiesces to the form of contract.4 The

direct consequence of adhering to a contract without any bargaining chip is

contract have the freedom to limit or disclaim liabilities inherent to their

agreements, this freedom is not without control. The Uniform Commercial

Code (UCC)5 in its section 2-719(2) provides that: where circumstances

cause an exclusive or limited remedy to fail of its essential purpose, remedy

section §2-719 (3) that consequential damages may be limited or excluded

unless the limitation or exclusion is unconscionable.7 This raises the

following questions: how do courts proceed to determine that a clause has

failed its essential purpose or is unconscionable? Is the approach adopted in

“failure of essential obligation” and “failure of essential purpose”, and

of referring to the failure of essential purpose and unconscionability

Electronic copy available at: https://ssrn.com/abstract=3036654

doctrines, prefer to rely on the “failure of the essential obligation” in the

contract. While in France consideration is only given to the “failure essential

obligation” to determine whether the clause is derisory or inapplicable to the

the “unconscionability”. This paper analyzes the economy of the doctrines

retained respectively in France (II) and in the United States (III), by

exploring their similarities and potential gaps, and providing for

recommendation as to which of the doctrines is better suitable in resolving

issues inherent to disclaimer and limitation of liability clauses.

II- The French doctrine of “[Failure of] essential obligation”

The definition of the “Essential obligation” is not without difficulty even if

the notion, professor Delebecque asserted that: “parties are free to do

which parties’ agreement is emptied of its substance, as the case when a

creditor cannot obtain performance [constitutes the failure of the essential

obligation]”8. In other words, the essential obligation can be said the

Electronic copy available at: https://ssrn.com/abstract=3036654

This definition has been subject to many controversies. Some scholars

which a reasonable person would not enter into the agreement.

Face to this controversy, a look to the U.S. doctrine of “failure of the

in use in French and an in-depth analysis of courts considerations will help

essential obligation theory, our analysis will distinguish between the

characteristic performance of the contract or the object of the contract, and

Electronic copy available at: https://ssrn.com/abstract=3036654