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Facts[]

The respondents were affiliated companies providing pipeline systems to carry natural gas to rural co-ops. They shared common ownership, management and goals. Dow sold defective resin to two of the respondents. Dow did not have a contractual relationship with the other respondents. One of the contracts contained clauses limiting Dow's liability by stating that Plas-Tex accepted all liability for loss or damage resulting from use of the resin. Dow knew that that the resin was defective and that some respondents would use the resin to manufacture pipe installed by other respondents to carry natural gas. The pipe was dangerous and allowed natural gas to escape. The respondents were forced to undertake major remedial operations and use of the pipe was eventually prohibited. Plas-Tex's reputation was damaged, which caused it to lose some of its customers and be petitioned into bankruptcy. The trial judge found Dow liable in contract and tort. The respondents were awarded damages for the purchase price of the resin, cost of pipe repairs and lost profits, which Dow appealed.

Issue[]

  1. Are the limitation clauses in the contracts valid or void for unconscionability?

Decision[]

Picard, writing for a unanimous court, held that Dow was in fundamental breach of the contract with Plas-Tex and could not rely on the limitation of liability clauses. Before signing the contract with Plas-Tex, Dow knew that defects in the product would cause the pipe manufactured from it to fail. Rather than disclosing this knowledge, Dow protected itself with limitation of liability clauses. While the relationship between the respondents could not support an exception to the doctrine of privity of contract, it did support an award for loss of profits to the plaintiffs as a unit in tort. Dow knew of the corporate structure of the respondents and their working relationships. Dow had a duty to warn all the respondents of the resin dangers and to take reasonable care not to distribute a dangerous product. There was a reasonable foreseeability of harm to each respondents and no policy reason to limit the duty of care. In the absence of fraud or wrongdoing, the respondents were entitled to organize their business to lessen risk and protect resources without prejudicing their right to claim against wrongdoers. It did not matter that Dow had a contractual relationship with certain plaintiffs but not others. Dow breached the standard of care. The receivership of all the plaintiffs was a reasonably foreseeable economic loss. There were no policy reasons why Dow should not be liable for the costs of repairs and loss of profits the respondents suffered.

Ratio[]

A party to a contract will not be permitted to engage in unconscionable conduct secure in the knowledge that no liability can be imposed upon it because of an exclusionary clause.

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