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May 4, 1981


The opinion of the court was delivered by: Shadur, District Judge.


Defendant Honeywell, Inc. ("Honeywell") formerly sold parts to plaintiffs KKO, Inc. ("KKO") and Keating of Chicago, Inc. ("Keating"), to be incorporated into electric deep fat fryers ("fryers") manufactured by plaintiffs for sale to commercial establishments. Plaintiffs now sue Honeywell for breach of warranty and fraudulent misrepresentation in connection with Honeywell's sales. Counts III and VIII of plaintiffs' Amended Complaint (the "Complaint") seek direct and consequential damages for the alleged breach of warranty. Honeywell has moved for summary judgment as to any consequential damages, relying on a contract provision that expressly precludes such relief. Plaintiffs claim that provision is ineffective because (1) Honeywell's warranty "failed of its essential purpose" and (2) the provision is unconscionable. For the reasons stated in this memorandum opinion and order Honeywell's motion is denied, but this Court concurs in Honeywell's legal position as to the scope of application of the unconscionability defense.


KKO and Keating are related corporations engaged in the business of manufacturing, designing and selling ovens, fryers and other cooking equipment to food-related businesses. KKO is one of the largest manufacturers and Keating one of the largest distributors of fryers in the United States.

Until 1972 KKO purchased from Honeywell electrical contactors ("contactors") for installation in their bun toasters and ovens. Contactors regulate the flow of electricity through such cooking units by use of magnetic pole faces ("E and I magnets"). During operation of a cooking unit the magnets are normally in contact with each other, closing the circuit so that electric current flows through the unit. When the unit reaches a preset temperature the magnets automatically disengage, breaking the electrical circuit until the temperature again falls below the designated level. At that point the circuit again closes and the electrical flow is restored.

In 1972 plaintiffs began manufacturing and selling fryers. Like the bun toasters and ovens, fryers were designed to use contactors as temperature controls. Plaintiffs determined that the Honeywell contactors used in bun toasters and ovens were also usable without alteration in fryers, and they began to purchase contactors from Honeywell for their new product. Individual purchase orders sent to Honeywell by KKO stated the contactors would be used on commercial cooking equipment, but at least initially Honeywell was not specifically informed that they would be used in fryers. Upon receiving each purchase order Honeywell sent KKO an "acknowledgement" (the "contract"), on the back of which was printed the following terms:

  1. GUARANTEE. The Company warrants all equipment
  manufactured by it or bearing its nameplate to be
  free from defects in workmanship and materials, under
  normal use and service, as follows: (a) Equipment not
  installed by the Company which is received,
  transportation prepaid, at the factory originating
  shipment (i) within twelve months after date of
  manufacture, or (ii) within twelve months after date
  of installation, as evidenced by a certification by
  the installer, and is found by the Company's
  inspection to be defective in workmanship or
  materials within the guarantee, will be repaired or
  replaced, at the Company's option, free of charge and
  returned transportation prepaid. (b) Equipment
  installed by the Company, or under the direct
  supervision of the Company, which within twelve
  months after date of installation, is found by the
  Company inspection to be defective in workmanship or
  materials with the guarantee, will be repaired or
  replaced, at the Company's option, free of charge. If
  inspection by the Company does not disclose any
  defect covered by this guarantee, the equipment will
  be repaired or replaced and the Company's regular
  service charges will apply. WITH EXCEPTION OF THE
  the Company be responsible for consequential damages
  of any nature whatsoever.

Until February 1973 Honeywell had used Speedfam 205 oil as the "lapping compound" in its contactors. Lapping compounds are lubricants that facilitate "grinding down and making smooth" the E and I magnets, allowing the contactor to function properly. In mid-February 1973 Honeywell began to mix a new lapping compound, Speedfam 210 oil, with Speedfam 205. Next month, when its supply of the 205 compound was exhausted, Honeywell began to use only the 210 compound.

Honeywell assumed the two compounds were functionally interchangeable. But because of the manner in which Speedfam 210 interacted with the magnets and with silicon particles and iron filings in the chambers of the contactors, it produced a sticky adhesive substance that could (and on occasion did) cause the contactor to stick in the "power on" position. Temperature in the fryer would then escalate beyond the designated level and create a serious fire hazard.

Sales to plaintiffs continued without interruption until November 1973, when Honeywell discovered that contactors bearing the manufacturing date codes CW through KW (corresponding to the period March 1973 to November 1973) were thus potentially defective. Honeywell then commenced a nationwide recall of the contactors in which Speedfam 210 had been used, allegedly 200,000 in number, including those purchased by plaintiffs.*fn1 Honeywell obtained a list of plaintiffs' customers and replaced the existing contactors with completely new models.

Plaintiffs contend they too were promised new contactors in exchange for the models still in their possession (and therefore unused). However, Honeywell repaired rather than replaced the unused contactors by disassembling them and cleaning the E and I magnets with a vapor degreaser. Honeywell deleted the original manufacturing code date on each repaired contactor and replaced it with a new one. In addition, Honeywell apparently "cleaned" a large quantity of the E and I magnets from used contactors and used them in "new" contactors later offered for sale.

Plaintiffs continued to purchase contactors from Honeywell. Then in late 1974 they complained that a number of contactors not subject to Honeywell's recall campaign were malfunctioning. Honeywell examined certain of those contactors and determined that the malfunctions were attributable to the seepage of cooking grease into the contactors. It therefore concluded the malfunctions were caused by "an incorrect application rather than a product defect" and that those malfunctions were accordingly not covered by its warranty.

Plaintiffs assert that the defective contactors are those in which recalled, rather than new, E and I magnets were used and that the defects are attributable to the fact that Honeywell's cleaning process failed to "decontaminate" those magnets. As Honeywell concedes, the cleaning process did not remove all Speedfam 210 from the magnets. However Honeywell contends that the residue "was insufficient to cause a failure in a proper application of the contactor." Plaintiffs claim the residue migrates to the surface of the magnets, causing the same problem that led to the recall. Furthermore they allege that Honeywell knew or plainly had reason to know that the cleaning process would be ineffective.

When Honeywell refused to repair the malfunctioning contactors plaintiffs commenced their own recall program to replace all Honeywell contactors in their fryers. In this action they seek damages occasioned by the contactor malfunctions, including lost profits and ...

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