American Nursery Products, Inc. v. Indian Wells Orchards

Decision Date20 September 1990
Docket NumberNo. 54612-6,54612-6
CourtWashington Supreme Court
Parties, 12 UCC Rep.Serv.2d 928 AMERICAN NURSERY PRODUCTS, INC., a corporation, d/b/a Mount Arbor Nurseries, Appellant, v. INDIAN WELLS ORCHARDS, a limited partnership, and Harvey Chaussee, general partner, Respondents. En Banc

Lane, Powell, Moss & Miller, Michael D. Dwyer, Douglas E. Wheeler, Seattle, for appellant.

Velikanje, Moore & Shore, John S. Moore, Yakima, Corinna D. Ripfel-Harn, Seattle, for respondents.

DOLLIVER, Justice.

In the fall of 1983 defendant Indian Wells Orchards decided to acquire apple trees for development of a 500-acre orchard. After contacting various commercial nurseries to grow the trees. Indian Wells entered negotiations with plaintiff American Nursery Products, Inc., doing business as Mount Arbor Nurseries (Mt. Arbor). Pursuant to preliminary discussions between the parties, Mt. Arbor drafted a proposed contract for approval by Indian Wells. After discussing the proposed contract, a revised contract was delivered to the general manager of Indian Wells during December 1983. On January 18, 1984, after reading the revised contract and reviewing it with other Indian Wells representatives, the general manager executed the contract on behalf of Indian Wells.

The entire contract consists of six pages, the last of which is exclusively devoted to signatures and arrangements on financing. It is written in normal size type and double spaced between paragraphs. The terms of the agreement include the duties of the parties, the allocation of risk, guidelines for acceptance and rejection of deliveries, and the available remedies. Under the terms of the agreement, Mt. Arbor was to grow 200,000 grafted apple trees and 500,000 budded apple trees for Indian Wells. Indian Wells was to provide the 700,000 trees for growing and Mt. Arbor was to provide up to 65,000 understocks for grafting and budding as necessary to compensate for mortality during the nursery phase. Trees produced by grafting were to be delivered in the fall of 1984 or spring of 1985, and trees produced by budding were to be delivered in the fall of 1985 or spring of 1986. By agreement of the parties, the deliveries took place in the spring of 1985 and 1986.

The parties agreed they were entering into a service agreement and no warranties, express or implied, were given which extended beyond the conditions and services in the contract. Mt. Arbor did warrant, however, that at least 88 percent of the delivered trees would have a caliper size greater than five-sixteenths of an inch. Any trees not meeting this standard could be rejected by Indian Wells.

The contract provided for a 15-day period within which Indian Wells could inspect and count the delivered trees and give notice of rejection of the delivery or adjustment to the bill of lading. In the event of rejection by Indian Wells, paragraph 5.2 provided for a limited remedy whereby "Grower [Mt. Arbor], at its option, shall replace the non-conforming Trees or reduce the purchase price."

Once the trees were accepted, the contract placed the risk of loss upon Indian Wells. Paragraph 3.4 provided:

All Trees shall be maintained by Grower in a moist condition between the time of harvest and the time of delivery to Owner [Indian Wells], after which delivery Owner accepts all maintenance responsibility for, and risk of loss to, the Trees.

The contract in section 9 entitled "Default; Remedies " further provided in paragraph 9.3:

The party declaring default shall have all rights provided under the Washington Uniform Commercial Code and other applicable laws of the State of Washington and the terms and provisions of this Agreement; provided that in no event shall Grower be subject to or liable for incidental or consequential damages. All rights and remedies of either party may be exercised consecutively, successively and cumulatively. The prevailing party shall be entitled to reimbursement for any expenses incurred by it in enforcing and protecting its rights under this Agreement, including but not limited to reasonable attorney fees and expenses.

Pursuant to the contract, the rootstocks and the budding and grafting wood were delivered by Indian Wells to Mt. Arbor. Prior to planting the grafted and the to-be-budded rootstocks in 1984, Mr. Arbor dipped the rootstocks in various fungicides and bactericides, including Ridomil 2E. Ridomil 2E is considered by its manufacturer to be an extremely erratic chemical which can, and does, cause damage to rootstocks at lesser concentrations than those used by Mt. Arbor. After the dipping in Ridomil, many of the grafted rootstocks broke and died and many of the to-be-budded rootstocks died prior to budding or failed to grow in a normal manner. Consequently, Mt. Arbor delivered only 108,158 of the 200,000 grafted trees and 372,360 of the 500,000 budded trees anticipated under the contract. Of those trees delivered, approximately 32,750 were rightfully rejected by Indian Wells. Of those accepted and planted, 89,983 later died. Indian Wells was able to cover 190,790 of the 342,215 trees short under the contract. Of the trees covered, 73,164 are 1 year behind in production.

In April 1986, Mt. Arbor brought suit against Indian Wells in the Superior Court for Yakima County to recover the sums due under the contract. Indian Wells counterclaimed alleging breach of contract and negligence.

The trial court, sitting without a jury, found the dipping of the rootstocks in Ridomil proximately caused over $2.3 million in direct and consequential damages and constituted negligence per se and a breach of contract. Over $1.7 million of these damages resulted from production losses. The damages, plus attorney fees and costs of $147,198.01, were reduced by the $383,528.44 still due under the contract, and a judgment of $2,081,854.10 was awarded to Indian Wells. In awarding these damages, the trial court held the provision in the agreement which excluded incidental and consequential damages was unconscionable, unenforceable and against public policy. We granted Mt. Arbor's appeal. We affirm in part and reverse in part.

The first issue is whether the contractual limitation on incidental and consequential damages is unconscionable under RCW 62A.2-719(3). We have held RCW Title 62A applicable to bailments arising from a service transaction. Mieske v. Bartell Drug Co., 92 Wash.2d 40, 593 P.2d 1308 (1979). RCW 62A.2-719(3) provides:

Limitation of ... consequential damages is valid unless it is established that the limitation is unconscionable.

Whether an exclusionary clause is unconscionable is determined as a question of law. Schroeder v. Fageol Motors, Inc., 86 Wash.2d 256, 262, 544 P.2d 20 (1975). Exclusionary clauses in purely commercial transactions, such as the one at hand, are prima facie conscionable and the burden of establishing unconscionability is on the party attacking it. See Schroeder, at 262-63, 544 P.2d 20. Appellate review of a conclusion of law, based upon findings of fact, is limited to determining whether a trial court's findings are supported by substantial evidence, and if so, whether those findings support the conclusion of law. Willener v. Sweeting, 107 Wash.2d 388, 393, 730 P.2d 45 (1986). Substantial evidence is evidence sufficient to persuade a fair minded person of the truth of the declared premise. Holland v. Boeing Co., 90 Wash.2d 384, 390-91, 583 P.2d 621 (1978). In reviewing the record, we find there is substantial evidence to support the trial court's findings of fact. However, we do not agree these findings support the legal conclusion of unconscionability.

Unconscionability is determined in light of all the surrounding circumstances, including (1) the manner in which the parties entered into the contract, (2) whether the parties had a reasonable opportunity to understand the terms of the contract, and (3) whether the important terms were hidden in a maze of fine print. Schroeder, 86 Wash.2d at 260, 544 P.2d 20. None of these factors is conclusive; rather, unconscionability is determined under the totality of the circumstances. Schroeder, at 260, 544 P.2d 20. The party defending the clause may prove the clause is conscionable regardless of the surrounding circumstances if the general commercial setting indicates a prior course of dealing or reasonable usage of trade as to the exclusionary clause. See Mieske v. Bartell Drug Co., supra 92 Wash.2d at 49, 593 P.2d 1308; Schroeder, 86 Wash.2d at 260-61, 544 P.2d 20; Hartwig Farms, Inc. v. Pacific Gamble Robinson Co., 28 Wash.App. 539, 546-47, 625 P.2d 171 (1981). The trial court found no prior dealings between the parties and no trade usage. Therefore, whether the exclusionary clause is conscionable is controlled by an analysis of the three Schroeder factors.

In consumer sales transactions, the manner in which parties enter into contracts is strictly regulated. In order to uphold an exclusionary clause in the consumer sales context, the clause must be "explicitly negotiated between buyer and seller", and the remedies being excluded must be "set forth with particularity". See Berg v. Stromme, 79 Wash.2d 184, 196, 484 P.2d 380 (1971); Miller v. Badgley, 51 Wash.App. 285, 293, 753 P.2d 530 (1988); Thomas v. Ruddell Lease-Sales, Inc., 43 Wash.App. 208, 213, 716 P.2d 911 (1986). While Berg involved a disclaimer in a consumer sales transaction, the Berg rule has been extended to cases involving exclusionary clauses under RCW 62A.2-719(3). Baker v. Seattle, 79 Wash.2d 198, 484 P.2d 405 (1971).

In Schroeder, we stated the Berg rule also applied to commercial transactions in which both litigants were business persons. Schroeder, 86 Wash.2d at 261, 544 P.2d 20 (citing Dobias v. Western Farmers Ass'n, 6 Wash.App. 194, 491 P.2d 1346 (1971)). However, a close reading of Schroeder indicates that, rather than extending the Berg rule to all commercial transactions, the concern was to prevent the...

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