Insurance Co. of North America v. Automatic Sprinkler Corp. of America

• Decision Date: 08 July 1981
• Docket Number: 80-620,Nos. 80-619,s. 80-619
• Citation: 21 O.O.3d 58,423 N.E.2d 151,67 Ohio St.2d 91
• Parties: , 21 O.O.3d 58, 31 UCC Rep.Serv. 1595 INSURANCE COMPANY OF NORTH AMERICA et al. v. AUTOMATIC SPRINKLER CORPORATION OF AMERICA, Appellee. YOUNGSTOWN STEEL AND ALLOY CORPORATION et al. v. AUTOMATIC SPRINKLER CORPORATION OF AMERICA, Appellee. Appeal of The ANSUL COMPANY, two cases.
• Court: Ohio Supreme Court

Page 91

67 Ohio St.2d 91

423 N.E.2d 151, 21 O.O.3d 58, 31 UCC Rep.Serv. 1595

INSURANCE COMPANY OF NORTH AMERICA et al. v. AUTOMATIC SPRINKLER CORPORATION OF AMERICA, Appellee.

YOUNGSTOWN STEEL AND ALLOY CORPORATION et al. v. AUTOMATIC SPRINKLER CORPORATION OF AMERICA, Appellee.

Appeal of The ANSUL COMPANY, two cases.

Nos. 80-619, 80-620.

Supreme Court of Ohio.

July 8, 1981.

Syllabus by the Court

1. "As is" language describes the quality of the goods sold. (R.C. 1302.29(C)(1), applied.)

2. An inconspicuous provision will not exclude liability for consequential damages arising from a sale of goods if an implied warranty or warranties exist. (R.C. 1302.93(C) and 1302.29(D), applied.)

3. A reviewing court may, in its discretion, remand to the trial court the issue of whether an indemnity provision relating to a sale of goods is unconscionable. (R.C. 1302.15, 2505.27 and 2505.28, applied.)

Appellee, Automatic Sprinkler Corporation of America ("Automatic Sprinkler"), purchased the components of a dry chemical fire protection system from appellant, The Ansul Company ("Ansul"). Both parties understood that Automatic Sprinkler would install this system in a building occupied by Youngstown Steel and Alloy Corporation ("Youngstown Steel").

A representative of Ansul signed a "Proposal," dated February 13, 1970. No one signed the proposal on behalf of Automatic Sprinkler. This document is five pages long. The front of each page includes typewritten or printed information which either describes the goods or states the price. Only the fifth and last page has printing on the back including:

"This sale is subject to the following terms and conditions:

" * * * "9. The Ansul extinguisher is warranted to the original purchaser for five years from date of delivery against defects in workmanship and material. The Ansul Company will replace or repair any metal parts which in its opinion are defective and have not been tampered with or subjected to misuse, abuse or exposed to highly corrosive conditions. This warranty is in lieu of all other warranties express or implied. The Ansul Company assumes no liability for consequential or other loss or damage whatsoever arising out of injuries to or death of persons and damages to or destruction of property in any manner caused by, incident to, or connected with the use of the equipment, and the Buyer shall indemnify and save harmless the Seller from and against all such claims, loss, cost or damage. In addition, unless the Ansul equipment is maintained per Ansul's recommendations, Ansul hereby disclaims all liability whatsoever, including, but not limited to, any liability otherwise attaching under the warranty provisions of this paragraph." (Emphasis added.)

There are 15 paragraphs in all each without a heading, each without extraordinary capitalization.

Ansul delivered the goods under a "Purchase Order," dated April 14, 1970, "per Ansul Quotation 8674 signed 2-13-70." ¹

A fire occurred on September 9, 1974, at the building occupied by Youngstown Steel. The Ansul fire extinguisher system did not discharge.

None of the aforementioned facts is disputed. Two lawsuits did result, however.

Insurance Company of North America ("INA"), subrogee to the building owner, complained against Automatic Sprinkler and Ansul (case No. 80-619). Automatic Sprinkler ultimately cross-claimed against Ansul. Youngstown Steel and its insurer sued Automatic Sprinkler (case No. 80-620). Automatic Sprinkler then filed a third-party complaint against Ansul. In both cases, the claims alleged breach of warranty and negligence.

Later, the Court of Common Pleas consolidated these cases. The trial judge granted Ansul's motion for summary judgment and dismissed Automatic Sprinkler's claims against Ansul in both cases because (1) Ansul had disclaimed all warranties on sale and limited Automatic Sprinkler's remedies to repair and replacement of defective parts and (2) Automatic Sprinkler agreed to indemnify Ansul and hold it harmless from all claims. The Court of Appeals reversed the trial court, holding that the disclaimer and exclusion of consequential damages fail because they are not conspicuous.

The Court of Appeals also held that "there is no basis for summary judgment in favor of the Ansul Company on the indemnity provision question at this stage of the case," because paragraph 9 is not conspicuous. The court reversed and remanded the cause to the trial court for further proceedings on this issue.

The cause is now before this court pursuant to the allowance of motions to certify the record.

Calfee, Halter & Griswold, William Tousley Smith, Cleveland, and Norman A. Rheuban, Canfield, for appellee.

Harrington, Huxley & Smith, Eldon S. Wright and Frederick S. Coombs, III, Youngstown, for appellant.

LOCHER, Justice.

This case presents three issues: (1) whether Ansul has effectively disclaimed all implied warranties with Automatic Sprinkler; (2) whether Ansul has effectively excluded all liability for consequential damages; and (3) whether Automatic Sprinkler must indemnify Ansul against all claims arising in this litigation. Resolving each of these issues requires an interpretation of paragraph 9.

We hold that Ansul has neither disclaimed its liability for implied warranties nor excluded its liability for consequential damages.

I.

Ansul attempted to disclaim all liability to Automatic Sprinkler for breach of implied warranties by including the following language in paragraph 9: "This warranty is in lieu of all other warranties express or implied." Automatic Sprinkler argues that this language fails as a disclaimer because it does not mention merchantability and is not conspicuous as required by R.C. 1302.29(B). ² Ansul, on the other hand, suggests that the "in lieu of" language is similar to "as is" under R.C. 1302.29(C)(1). ³ Under Ansul's view, the disclaimer is effective regardless of whether it is conspicuous or whether it mentions merchantability.

We hold that the "in lieu of" language is not similar to "as is" under R.C. 1302.29(C)(1). The effort to disclaim liability for all implied warranties fails because paragraph 9 is not conspicuous and because the disclaimer does not mention merchantability.

"As is" language describes the quality of the goods sold. As an example of "as is" language, R.C. 1302.29(C)(1) expressly includes "with all faults." See footnote 3, supra. Official Comment 7 to R.C. 1302.29 further explains the intent of the drafters:

"Paragraph (1) of division (C) deals with general items such as 'as is,' 'as they stand,' 'with all faults,' and the like. Such terms in ordinary commercial usage are understood to mean that the buyer takes the entire risk as to the quality of the goods involved. * * * " (Emphasis added.)

R.C. 1302.29(C)(1) also codifies the holdings of the cases which antedate the Uniform Commercial Code. See, e. g., West v. Anderson (1831), 9 Conn. 107 (seller is not liable for unsoundness of horse sold "sound or unsound"); Washington & Lincolnton Railroad Co. v. Southern Iron & Equipment Co. (1922), 28 Ga.App. 684, 112 S.E. 905 (all warranties are waived where vendee accepted locomotive engine "in its present condition"); Detroit Trust Co. v. Engel (1916), 192 Mich. 62, 158 N.W. 123 (implication of a warranty is forbidden where automobiles were "sold as they are of this date"); Covas v. Bingham (Q.B., 1853), 118 Eng.Rep. 980 ("as it stands" expressed agreement as to the quality of the ship's cargo); Baglehole v. Walters (K.B., 1911), 170 Eng.Rep. 1338 (a sale "with all faults as they now lie" is without a warranty of "soundness"); Pickering v. Dowson (C.P., 1813), 128 Eng.Rep. 537 (there is no warranty for a ship and stores purchased "with all faults, in the condition they now lie"). See, also, Annotation, 58 A.L.R. 1181. Cf. Annotation, 24 A.L.R.3d 465.

We recognize that the courts have held that "in lieu of" language eliminates implied warranties. See, e. g., Sterner Aero AB v. Page Airmotive, Inc. (C.A. 10, 1974), 499 F.2d 709; Construction Aggregates Corp. v. Hewitt-Robins, Inc. (C.A.7, 1969), 404 F.2d 505, certiorari denied, 395 U.S. 921, 89 S.Ct. 1774, 23 L.Ed.2d 238; Cox Motor Car Co. v. Castle (Ky., 1966), 402 S.W.2d 429; Marshall v. Murray Oldsmobile Co., Inc. (1967), 207 Va. 972, 154 S.E.2d 140. We reject this conclusion.

Under R.C. 1302.29(C)(1), "other language which, in common understanding, calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty" must be language which is consistent with the intention of the drafters and the General Assembly. This language must describe the quality of the goods.

Accordingly, the "in lieu of" language in paragraph 9 falls outside R.C. 1302.29(C)(1).

This "in lieu of" provision does not qualify, therefore, as a disclaimer of implied warranties under R.C. 1302.29(B). There is no mention of merchantability. In addition, we have held that paragraph 9 is inconspicuous.

R.C. 1301.01(J) defines "conspicuousness" as follows:

" 'Conspicuous': 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 the body of a form is 'conspicuous' if it is in larger or other contrasting type or color. But in a telegram any stated term is 'conspicuous.' Whether a term or clause is 'conspicuous' or not is for decision by the court."

Paragraph 9 appears among 15 other paragraphs on the back of the last page of the Proposal. This is the only page with writing on the back and is unnumbered. None of these paragraphs has a heading, extraordinary capitalization or contrasting type. Furthermore, Ansul alone executed the Proposal which contained paragraph 9 approximately two months before Automatic Sprinkler submitted its purchase order. In light of all these circumstances, therefore, it is clear that ...