Cate v. Dover Corp.

• Decision Date: 06 June 1990
• Docket Number: No. C-9186,C-9186
• Citation: 790 S.W.2d 559
• Parties: 12 UCC Rep.Serv.2d 47 Edward CATE, Jr., d/b/a Cate's Transmission Service, Petitioner, v. DOVER CORPORATION, Respondent.
• Court: Texas Supreme Court

Page 559

790 S.W.2d 559

12 UCC Rep.Serv.2d 47

Edward CATE, Jr., d/b/a Cate's Transmission Service, Petitioner, v. DOVER CORPORATION, Respondent.

No. C-9186.

Supreme Court of Texas.

June 6, 1990.

Michael D. Peek, Texarkana, for petitioner.

Louise Tausch, Texarkana, for respondent.

OPINION

DOGGETT, Justice.

We consider the enforceability of a disclaimer of implied warranties. The trial court upheld the disclaimer and granted summary judgment in favor of Dover Corporation. The court of appeals affirmed. 776 S.W.2d 680. We reverse the judgment of the court of appeals and remand this cause to the trial court for further proceedings consistent with this opinion.

In September 1984, Edward Cate, doing business as Cate's Transmission Service, purchased from Beech Tire Mart three lifts manufactured and designed by Dover Corporation to elevate vehicles for maintenance. Despite repairs made by Beech and Dover, the lifts never functioned properly. Dover contends that Cate's subsequent claim against it for breach of the implied warranty of merchantability is barred by a disclaimer contained within a written, express warranty.

This warranty is set forth on a separate page headed in blue half inch block print, with the heading: "YOU CAN TAKE ROTARY'S NEW 5-YEAR WARRANTY AND TEAR IT APART." The statement is followed by bold black type stating, "And, when you are through, it'll be just as solid as the No. 1 lift company in America. Rotary." The text of the warranty itself is in black type, contained within double blue lines, and appears under the blue three-eighths inch block print heading "WARRANTY." The disclaimer of implied warranties, although contained in a separate paragraph within the warranty text, is in the same typeface, size, and color as the remainder of the text. [Publisher's Note: See Appendix for illustration of warranty and disclaimer.]

An implied warranty of merchantability arises in a contract for the sale of goods unless expressly excluded or modified by conspicuous language. Tex.Bus. & Com.Code Ann. §§ 2.314(a), 2.316(b) (Vernon 1968). Whether a particular disclaimer is conspicuous is a question of law to be determined by the following definition:

A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in a body of a form is conspicuous if it is larger or of other contrasting type or color. But in a telegram, any stated term is conspicuous.

Id. § 1.201(10). Further explanation is provided by comment 10 thereto:

This [section] is intended to indicate some of the methods of making a term attention-calling. But the test is whether attention can reasonably be expected to be called to it.

In interpreting this language, Dover argues that a lesser standard of conspicuousness should apply to a disclaimer made to a merchant, such as Cate. Admittedly, an ambiguity is created by the requirement that disclaimer language be conspicuous to "a reasonable person against whom it is to operate." Comment 10, however, clearly contemplated an objective standard, stating the test as "whether attention can reasonably be expected to be called to it."

We then turn to an application of an objective standard of conspicuousness to Dover's warranty. The top forty percent of the written warranty is devoted to extolling its virtues. The warranty itself, contained within double blue lines, is then set out in five paragraphs in normal black type under the heading "WARRANTY." Nothing distinguishes the third paragraph, which contains the exclusionary language. It is printed in the same typeface, size and color as the rest of the warranty text. Although the warranty in its entirety may be considered conspicuous, the disclaimer is hidden among attention-getting language purporting to grant the best warranty available. ¹ Dover cites Ellmer v. Delaware Mini-Computer Systems, Inc., 665 S.W.2d 158 (Tex.App.--Dallas 1983, no writ), as authority for imposing a subjective standard of conspicuousness. In finding a disclaimer conspicuous, that court did look to the circumstances surrounding the transaction. That particular language, however, was in bold print, unlike the language under review here. Nor did that court give consideration to the effect of comment 10. Nevertheless, to the extent that Ellmer may be read as imposing a subjective standard, we disapprove it. ²

Although this is a case of first impression in Texas, the facts here parallel those reviewed in other states. In Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57, 59 (Ky.Ct.App.1969), a disclaimer hidden under the heading "WARRANTY and AGREEMENT" was found not to be conspicuous:

It is true that the heading was in large, bold-face type, but there was nothing to suggest that an exclusion was being made; on the contrary, the words of the headings indicated a making of warranties rather than a disclaimer.

(Emphasis in original.) Similarly, in Hartman v. Jensen's, Inc., 277 S.C. 501, 289 S.E.2d 648 (1982), the court found that placing a disclaimer under the bold heading "Terms of Warranty" failed to alert the consumer to the fact that an exclusion was intended. ³ Dover's disclaimer similarly fails to attract the attention of a reasonable person and is not conspicuous.

Dover argues that Singleton v.

LaCoure, 712 S.W.2d 757 (Tex.App.--Houston [14th Dist.] 1986, writ ref'd n.r.e.), held that a disclaimer in the same print as the rest of a form contract was conspicuous. While the disclaimer on the back of the form in Singleton was undistinguished in typeface, size and color from the remainder of the text, the same provision was repeated in a box as the only preprinted paragraph on the front of the contract. 712 S.W.2d at 758-59. Singleton is thus distinguishable from the case at bar.

Dover argues that even an inconspicuous disclaimer should be given effect because Cate had actual knowledge of it at the time of the purchase. Because the object of the conspicuousness requirement is to protect the buyer from surprise and an unknowing waiver of his or her rights, inconspicuous language is immaterial when the buyer has actual knowledge of the disclaimer. This knowledge can result from the buyer's prior dealings with the seller, or by the seller specifically bringing the inconspicuous waiver to the buyer's attention. The Code appears to recognize that actual knowledge of the disclaimer overrides the question of conspicuousness. For example, Section 2.316(b) does not mandate a written disclaimer of the implied warranty of merchantability but clearly provides that an oral disclaimer may be effective. ⁴ Similarly, Section 2.316(c)(3) allows an implied warranty to be excluded or modified by methods other than a conspicuous writing: course of dealing, course of performance, or usage of trade. When the buyer is not surprised by the disclaimer, insisting on compliance with the conspicuousness requirement serves no purpose. See R. Anderson, Uniform Commercial Code § 2-316:49-50 (1983). The extent of a buyer's knowledge of a disclaimer of the implied warranty of merchantability is thus clearly relevant to a determination of its enforceability. See Singleton v. LaCoure, 712 S.W.2d 757, 759 (Tex.App.--Houston [14th Dist.] 1986, writ ref'd n.r.e.) (relying in part on buyer's acknowledgement to enforce disclaimer). The seller has the burden of proving the buyer's actual knowledge of the disclaimer.

As this is a summary judgment case, the issue on appeal is whether Dover met its burden by establishing that there exists no genuine issue of material fact thereby entitling it to judgment as a matter of law. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 (Tex.1979). All doubts as to the existence of a genuine issue of material fact are resolved against the movant, and we must view the evidence in the light most favorable to the Petitioner. Great American Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex.1965). In support of its claim that Cate had actual knowledge of the disclaimer, Dover relies on Cate's deposition testimony, as follows:

Q: Do you know, or do you remember what kinds of warranties you received when you bought the lifts?

A: I may be wrong, but I think it was a five year warranty.

Q: What was your understanding of that warranty?

A: Any problems would be taken care of within the five year period.

Q: Do you know if that warranty was from Beech Equipment, or from Dover?

A: I believe it was from Dover.

Q: Did you receive any written documentation in regard to that warranty?

A: Yes, ma'am.

Although it is clear that Cate understood the warranty to extend for only five years, it is not clear that he understood any other limitations or exclusions. Merely providing a buyer a copy of documents containing an inconspicuous disclaimer does not establish actual knowledge. Dover has failed to establish that as a matter of law Cate had actual knoweldge of the disclaimer.

We hold that, to be enforceable, a written disclaimer of the implied warranty of merchantability made in connection with a sale of goods must be conspicuous to a reasonable person. We further hold that such a disclaimer contained in text undistinguished in typeface, size or color within a form purporting to grant a warranty is not conspicuous, and is unenforceable unless the buyer has actual knowledge of the disclaimer. For the reasons stated herein, we reverse the judgment of the court of appeals and remand to the trial court for further proceedings consistent with this opinion.

Concurring opinion by SPEARS, J., joined by MAUZY, J.

Concurring and dissenting opinion by RAY, J.

APPENDIX

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

SPEARS, Justice, concurring.

Although I concur in the court's opinion, I write separately to declare that the time has come for the legislature to consider the realities...