NEC Technologies, Inc. v. Nelson

• Decision Date: 25 November 1996
• Docket Number: S96G0292 and S96G0310,Nos. S96G0289,s. S96G0289
• Citation: 267 Ga. 390,478 S.E.2d 769
• Parties: , 31 UCC Rep.Serv.2d 992, Prod.Liab.Rep. (CCH) P 14,795, 96 FCDR 4136 NEC TECHNOLOGIES, INC. v. NELSON et al. C.M. CITY, INC. et al. v. NELSON et al. (Two Cases).
• Court: Georgia Supreme Court

Page 769

478 S.E.2d 769

267 Ga. 390, 31 UCC Rep.Serv.2d 992,

Prod.Liab.Rep. (CCH) P 14,795, 96 FCDR 4136

NEC TECHNOLOGIES, INC. v. NELSON et al.

C.M. CITY, INC. et al. v. NELSON et al. (Two Cases).

Nos. S96G0289, S96G0292 and S96G0310.

Supreme Court of Georgia.

Nov. 25, 1996.

Reconsideration Denied Dec. 20, 1996.

Bryant H. Bower, Jr., Dillard, Bower & East, Waycross, Robert W. Lamb, Jenkins & Nelson, Cartersville, Glen M. Darbyshire, Hunter, Maclean, Exley & Dunn, Savannah, for NEC Technologies, Inc.

Molly M. Howard, Thomas G. Whatley, Jr., Howard & Whatley, Savannah, Julian B. Smith, Jr., David N. Nelson, Jones & Smith, Metter, for C.M. City et al.

Howard C. Kaufold, Jr., Robert E. Perrine, Jr., Vidalia, for Nelson et al.

HUNSTEIN, Justice.

Arthur and Kathy Nelson brought suit against Curtis Mathes Corporation, C.M. City, Inc. d/b/a Curtis Mathes Home Entertainment Center, and NEC Technologies, Inc. ("NEC"), seeking to recover property damages they sustained in a fire allegedly caused by a defect in the Curtis Mathes television set they had purchased. The Nelsons asserted causes of action sounding in strict liability, negligence, and breach of warranty. Based on language in the express warranty on the television set which provided that the warranty "Excludes All Incidental and Consequential Damages," Curtis Mathes and C.M. City moved for partial summary judgment on the Nelsons' claim for consequential property damages under the breach of warranty claim. Holding as a matter of law that the exclusion was not unconscionable at the time of the sale to the Nelsons, the trial court granted the motion. In regard to the Nelsons' claim that NEC was liable to them as the manufacturer of the television set's electronic components, the trial court granted summary judgment to the corporation, finding that it did not manufacture the electronic components but instead was the exclusive importer, marketer and distributer of the components; the manufacturer of the components was NEC Home Electronics (USA), Ltd. (hereinafter "NEC Ltd."). The trial court further found that NEC was not the alter ego of NEC Ltd. The Court of Appeals reversed the trial court on both issues. Nelson v. C.M. City, Inc., 218 Ga.App. 850(4), (6), 463 S.E.2d 902 (1995). We granted certiorari to consider that court's rulings on both of these issues. We reverse.

1. Georgia law expressly allows manufacturers of products to limit or exclude consequential damages. OCGA § 11-2-719(3). However, manufacturers may not limit or exclude such damages where the result would be unconscionable. Id. The Legislature recognized both the distinction between consumer and commercial purchasers of products and the distinction between personal injury and property damages, in that OCGA § 11-2-719(3) expressly states that a limitation on consequential damages for personal injury in the case of consumer goods is prima facie unconscionable. ¹ The Legislature could have provided that a limitation on consequential property damages in the case of consumer goods is prima facie unconscionable, as it did with consequential damages for personal injuries, but it chose not to do so. Warranty limitations on the recovery of consequential damages to property in consumer cases have been upheld. E.g., McCrimmon v. Tandy Corp., 202 Ga.App. 233(3) , 414 S.E.2d 15 (1991); Sharpe v. General Motors Corp., 198 Ga.App. 313(5), 401 S.E.2d 328 (1991). It follows from a review of OCGA § 11-2-719(3) and case law that only those limitations/exclusions on consequential property damages in consumer cases that are "unconscionable" are barred under Georgia law.

The Uniform Commercial Code and the Georgia UCC, see OCGA § 11-1-101 et seq., contain no definition of "unconscionability." This Court has noted that the basic test for determining unconscionability is

"whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract." Comment 1 to Uniform Commercial Code § 2-302.

R.L. Kimsey Cotton Co. v. Ferguson, 233 Ga. 962, 965(3), 214 S.E.2d 360 (1975). ² However, the process by which a court reaches the conclusion that a contract provision is unconscionable has been discussed by our appellate courts only in abbreviated and conclusory fashion. E.g., Ga. Magnetic Imaging v. Greene County Hosp. Auth., 219 Ga.App. 502(5), 466 S.E.2d 41 (1995); Fiat Auto U.S.A. v. Hollums, 185 Ga.App. 113(2), 363 S.E.2d 312 (1987). Thus, to assist this Court in resolving this appeal, we have found it helpful to conduct a review of foreign authorities.

It has been recognized that "unconscionability" as set forth in UCC § 2-302 is "not a concept, but a determination to be made in light of a variety of factors not unifiable into a formula." (Footnote and emphasis deleted.) Vol. 1, White & Summers, Uniform Commercial Code (4th Ed.), § 4-3, p. 213. See also A & M Produce Co. v. FMC Corp., 135 Cal.App.3d 473, 186 Cal.Rptr. 114, 120 (1982) (unconscionability is "a flexible doctrine designed to allow courts to directly consider numerous factors which may adulterate the contractual process"). Foreign courts have generally divided the relevant factors into procedural and substantive elements. See UCC-Unconscionability Warranty Disclaimer, 38 A.L.R.4th 25, §§ 2, 3(a)(b). Procedural unconscionability addresses the process of making the contract, while substantive unconscionability looks to the contractual terms themselves. Id.; White & Summers, supra. A non-inclusive list of some factors courts have considered in determining whether a contract is procedurally unconscionable includes the age, education, intelligence, business acumen and experience of the parties, their relative bargaining power, the conspicuousness and comprehensibility of the contract language, the oppressiveness of the terms, and the presence or absence of a meaningful choice. See, e.g., Fotomat Corp. of Fla. v. Chanda, 464 So.2d 626, 629 (Fla.App. 5 Dist.1985); Wille v. Southwestern Bell Telephone, 219 Kan. 755, 549 P.2d 903, 906-907 (1976) (commercial transaction); Schroeder v. Fageol Motors, 86 Wash.2d 256, 544 P.2d 20, 23 (1975). See also White & Summers, supra, § 4-3, p. 215, fn. 15. As to the substantive element of unconscionability, courts have focused on matters such as the commercial reasonableness of the contract terms, the purpose and effect of the terms, the allocation of the risks between the parties, and similar public policy concerns. See, e.g., Fotomat Corp. of Fla. v. Chanda, supra, 464 So.2d at 629; A & M Produce Co. v. FMC Corp., supra, 186 Cal.Rptr. at 122 (commercial transaction). See also White & Summers, supra, §§ 4-4 through 4-6. We find the procedural-substantive analysis of unconscionability helpful and apply it to the case at bar.

2. For purposes of addressing the motion for partial summary judgment on the consequential property damages issue, the trial court assumed, despite sharply contested evidence adduced by the parties, that the television set was indeed defective. ³ The trial court then considered the evidence before it, consisting of documentary evidence such as the warranty issued by Curtis Mathes ⁴ as well as the affidavits and depositions of the parties and other witnesses regarding matters such as the manner in which the Nelsons chose a Curtis Mathes television set and how the parties contracted for the purchase of the television set. The trial court expressly pronounced this evidence sufficient to render it unnecessary to hold a hearing as to the warranty's commercial setting, purpose, and effect under OCGA § 11-2-302(2). The trial court granted partial summary judgment to Curtis Mathes and C.M. City on the basis that it was not unconscionable at the time of the sale of the product, see OCGA § 11-2-302(1), to exclude recovery of consequential property damages and limit recovery to the replacement of parts, service, labor and like matters.

Our review of the record regarding all of the circumstances surrounding the process in which these parties entered into the contract for the purchase of the television set reveals no basis for concluding the warranty exclusion should be voided for procedural unconscionability. The language setting forth the warranty exclusion was conspicuous and comprehensible; the warranty apprised consumers that the absolute language in an exclusion may not apply to them; and the warranty itself provided a source to be contacted if further information or clarification was desired. See fn. 4, supra. Ms. Nelson in her deposition detailed the manner in which the television set was purchased. ⁵ She deposed that she had owned for five years a 40-inch Curtis Mathes television when she decided (during the course of moving furniture to another home) that rather than move the old set, she would exchange it for a new set. She contacted C.M. City and asked a salesperson if the store was interested in an exchange. She was informed that the 40-inch model was no longer available and that the most comparable model had a 46-inch screen. Ms. Nelson arranged during this telephone conversation to have C.M. City pick up the old set and deliver a new 46-inch television to the other home. She received $500 for the trade-in and paid the $1,970.80 balance on the new set in cash. She was aware there was a six-year warranty on the set; the sales receipt also reflects a handwritten notation regarding the six-year warranty. Although employees of C.M. City were deposed, they were unable to provide any further details regarding the transaction.

The record as developed reveals no evidence that the Nelsons looked at other manufacturers' sets, compared warranties between sets available on the market, or made any inquiry of C.M. City or other dealers regarding the extent of warranties available on such sets. The record does reflect that Ms....