A & M Produce Co. v. FMC Corp.

• Decision Date: 27 August 1982
• Court: California Court of Appeals Court of Appeals
• Parties: , 38 A.L.R.4th 1, 34 UCC Rep.Serv. 1129 A & M PRODUCE CO., Plaintiff, Cross-Defendant and Respondent, v. FMC CORPORATION, Defendant, Cross-Complainant and Appellant. Civ. 24731.

Page 114

186 Cal.Rptr. 114

135 Cal.App.3d 473, 38 A.L.R.4th 1, 34 UCC Rep.Serv. 1129

A & M PRODUCE CO., Plaintiff, Cross-Defendant and Respondent, v. FMC CORPORATION, Defendant, Cross-Complainant and Appellant.

Civ. 24731.

Court of Appeal, Fourth District, Division 1, California.

Aug. 27, 1982.

Rehearing Denied September 24, 1982.

Hearing Denied December 20, 1982.

Paul, Hastings, Janofsky & Walker and Douglas C. Conroy, Claudia A. Carver, Los Angeles, Byrd, Sturdevant, Pinney, Caldwell & Krutzsch and Andrew S. Krutzsch, Brawley for defendant, cross-complainant and appellant.

Thomas M. Heim and Roger T. Benitez, El Centro, for plaintiff, cross-defendant and respondent.

WIENER, Associate Justice.

Defendant FMC Corporation (FMC) appeals from the judgment entered in favor of plaintiff A & M Produce Co. (A & M) in the net sum of $255,000 plus $45,000 attorney's fees. ¹ Although this case has a rather humble origin arising from the simple business transaction in 1974 when FMC sold A & M an agricultural weight-sizing machine for $32,000, the issues now require our traversing the labyrinthine complexities of the Uniform Commercial Code, only partially illuminated by California precedent. Because of the nature of this case, we believe it helpful to state the facts before describing the issues and the manner in which they are resolved.

I

A & M, a farming company in the Imperial Valley, is solely owned by C. Alex Abatti who has been farming all of his life. In late 1973, after talking with two of his employees, Mario Vanoni and Bill Billingsley, he decided to grow tomatoes. Although they had grown produce before, they had never grown tomatoes or any other crop requiring a weight-sizer and were not familiar with weight-sizing equipment. At the suggestion of Billingsley, they first spoke with a salesman from Decco Equipment Company regarding the purchase of the necessary equipment. The salesman explained A & M would need a hydrocooler in addition to a weight-sizer and submitted a bid of $60,000 to $68,000 for the equipment. Abatti thought the Decco bid was high, and Billingsley suggested Abatti contact FMC for a competitive bid.

In January 1974, A & M called FMC whose representative, John Walker, met with them at A & M's office. Walker admitted he was not an expert on the capacity or specifics of weight-sizing equipment. Later he brought Edgar Isch of FMC into the negotiations to assist in making the determination on the proper type of equipment. Isch did not say a hydrocooler was required. According to Abatti, Isch recommended FMC equipment because it operated so fast that a hydrocooler was unnecessary thereby saving A & M about $25,000.

The parties discussed the capacity of the sizing equipment recommended by Isch. Walker and Isch proposed a preliminary bid of $15,299.55 for the weight-sizer. They obtained Abatti's signature to a "field order" for the equipment to "secure Abatti's consent" to order the equipment. The field order did not state the final price nor list all the necessary material and equipment. The order was on a standard form, printed on both sides, the terms of which were identical to the written contract which Abatti later received. Along with the order, Abatti delivered his $5,000 check as a deposit. Walker and Isch left a copy of the capacity chart for FMC weight-sizers which had been referred to in the negotiations.

The field order was sent to FMC where the proposed lay-out of the packing shed was analyzed by the engineering department, and a final list of essential materials was compiled. Abatti then received a copy of the form contract in the mail. It contained a list of all the equipment and materials being purchased, either typed in blanks on the front of the contract, or handwritten on an attached order sheet. The total bill was for $32,041.80. An exact copy of the contract appears as an appendix to this opinion. (See post.)

For our purposes the provisions of the agreement which are important are: paragraph 3, "Seller's Remedies" outlining the buyer's obligation to pay seller's reasonable attorney's fees in connection with any defaults by the seller; paragraph 4, "Warranty" containing a disclaimer of warranties, in bold print; and paragraph 5, "Disclaimer of Consequential Damages" stating in somewhat smaller print that "Seller in no event shall be liable for consequential damages arising out of or in connection with this agreement...."

Abatti signed the agreement and returned it to FMC with his check for an additional $5,680.60 as a down payment. He never paid the $21,361.20 due "on delivery of equipment." In April 1974 FMC delivered and installed the machinery. A 20-foot extension to A & M's packing house was required to house the equipment. A & M's problems with the FMC equipment began during the third week of May, when it started to pick the tomatoes. Tomatoes piled up in front of the singulator belt which separated the tomatoes for weight-sizing. Overflow tomatoes had to be sent through the machinery again, causing damage to the crop. The damage was aggravated because the tomatoes were not cooled by a hyrdocooler, allowing a fungus to spread more quickly within the damaged fruit. Walker was called out and managed to control the overflow by starting and stopping the machine. This effort was counterproductive, however, because it significantly reduced the processing speed. Unlike the Decco machinery, the FMC equipment did not have a speed control.

Abatti unsuccessfully attempted to get additional equipment from FMC and/or Decco. There was insufficient time to set up a new packing shed to hand-pick the tomatoes. Moreover, a search for other packing operators to handle A & M's tomatoes was unavailing. On June 17, A & M closed its shed because the return on the fruit--some of which had been damaged--was inadequate to cover costs. Some tomatoes were sold to a canning plant; most were rejected because they were not cannery tomatoes.

Shortly thereafter, A & M offered to return the weight-sizer to FMC provided FMC would refund A & M's down payment and pay the freight charges. FMC rejected this offer and demanded full payment of the balance due.

A & M then filed this action for damages against FMC for breach of express warranties, breach of implied warranty for a particular use and misrepresentation. A & M dismissed the misrepresentation cause of action at trial. By stipulation the trial was bifurcated to permit the judge to decide FMC's cross-complaint for the balance due on the purchase price and the issue of attorney's fees after the jury returned its verdict on the complaint.

This appeal is the result of a third trial. In the earlier two cases special verdict forms were used. The first case resulted in a hung jury; a new trial was ordered in the second. ²

After hearing evidence presented to the jury, and additional evidence in the absence of the jury on the nature of the contract's formation and the bargaining position of the respective parties, the court ruled:

"[I]t would be unconscionable to enforce [the waivers of warranties and waiver of consequential damage] provisions of the agreement, and further that they are not set out in a conspicuous fashion.

"The Court's ruling is based on all of the circumstances in this case in connection with how the negotiations were conducted, the fact that initially a down payment of--a substantial down payment of $5,000 was made and later on the contract was signed."

Accordingly, the jury viewed only the front of the contract, not the reverse side with its lengthy provisions.

The jury returned a general verdict for $281,326 which the parties agreed to reduce by $12,090.70, the amount already paid to FMC for the machinery. The court found for FMC on its cross-complaint, but awarded plaintiff $45,000 in attorney's fees and prejudgment interest from September 18, 1976.

II

The history of this litigation reveals a grueling and time consuming path. The inability of the jury in two earlier trials to successfully resolve the issues in dispute is not totally surprising. The evidentiary record is long and complex; the intricacies of commercial agricultural technology are not easy to comprehend. To compound the difficulties, the court was required to make several preliminary fact determinations as the predicate for ruling on legal motions. To a significant extent, these preliminary factual questions overlap the critical factual issues before the jury and correspondingly increase the importance of the trial judge's role. We wish to stress the factual nature of the issues substantially limits our appellate role. Where the resolution of several key legal issues turns largely on inferences drawn from the facts presented, we are hesitant to interfere with the sound judgment of the trial court.

The major issues in this case involve the validity of FMC's purported disclaimer of warranties and limitation on the buyer's ability to recover consequential damages resulting from a breach of warranty. ³ Resolution We then proceed to examine FMC's final contentions relating to the trial court's decision to award attorney's fees and prejudgment interest to A & M, concluding that the claimed breach of warranty is an "action on a contract" within the meaning of California's reciprocal attorney's fees statute, Civil Code section 1717, and that the trial court properly exercised its discretion under Civil Code section 3287, subdivision (b) in awarding prejudgment interest. Accordingly the judgment must be affirmed.

[135 Cal.App.3d 482] of both these issues turns largely on the proper application of the doctrine of unconscionability, which the trial court utilized in precluding enforcement of the warranty disclaimer and the consequential damage limitation. Although FMC concedes that California Uniform Commercial Code section 2719 ⁴ allows a court under proper circumstances to declare a consequential damage limitation unconscionable, it argues that...