Majors v. Kalo Laboratories, Inc.

• Decision Date: 02 October 1975
• Docket Number: Civ. A. No. 75-187-N.
• Citation: 407 F. Supp. 20
• Parties: Herman Edward MAJORS, Individually and d/b/a Majors Farms, Plaintiff, v. KALO LABORATORIES, INC., a corporation, and Helena Chemical Company, a corporation, Defendants.
• Court: U.S. District Court — Middle District of Alabama

407 F. Supp. 20

Herman Edward MAJORS, Individually and d/b/a Majors Farms, Plaintiff, v. KALO LABORATORIES, INC., a corporation, and Helena Chemical Company, a corporation, Defendants.

Civ. A. No. 75-187-N.

United States District Court, M. D. Alabama, N. D.

October 2, 1975.

William D. Coleman, Capell, Howard, Knabe & Cobbs, Montgomery, Ala., for plaintiff.

Robert S. Lamar, Jr., Ball, Ball, Matthews & Lamar, Montgomery, Ala., for Kalo Laboratories.

Bibb Allen, London, Yancey, Clark & Allen, Birmingham, Ala., Charles E. Porter, Rushton, Stakely, Johnston & Garrett, Montgomery, Ala., for Helena Chemical.

ORDER

VARNER, District Judge.

There are now presented to this Court issues concerning the conscionability or unconscionability under the applicable provisions of the Uniform Commercial Code of certain limitations or exclusions of consequential damages in connection with the sale of the soybean inoculant product Triple Noctin manufactured by Defendant, Kalo Laboratories, Inc. hereinafter Kalo, and sold to Plaintiff by Defendant, Helena Chemical Company hereinafter Helena. The conscionability of these exclusions, more particularly described hereinafter, has been drawn into issue by the third claim of the complaint herein, by the motion of Plaintiff to strike Kalo's second defense to the complaint, and by the motion of Helena to strike Kalo's second defense to Helena's cross-claim. An evidentiary hearing on these questions of conscionability was held in open court on September 18 and 19, 1975, all parties being present by counsel. Parties agree that the question of conscionability is for the Court.

The pleadings herein, together with the evidence introduced at the aforesaid hearing, establish the following uncontested facts:

1. (a) Prior to Plaintiff's purchase of Triple Noctin and as part of the sales talk of a representative of Helena in connection with said purchase, Plaintiff was given a promotional brochure or pamphlet prepared by Kalo which contained the following language:

"100% GROWER GUARANTEED Satisfaction guaranteed or the purchase price of this product will be refunded immediately by KALO Laboratories, Inc. Manufacturer's liability is limited to the refund, sic There are no warranties which extend beyond the description on the face hereof and the manufacturer is not liable for consequential damages."

The underlined caption was distinguished by being in larger, capital type and by being printed in red. Other print was black.

(b) Upon each package of Triple Noctin sold to Plaintiff appeared the following language:

"GUARANTEE: Satisfaction guaranteed or the purchase price of this product will be refunded immediately by KALO Laboratories, Incorporated.

Manufacturer's liability is limited to this refund. There are no warranties which extend beyond the description on the face hereof and the manufacturer is not liable for consequential damages."

2. The distributorship contract between Kalo and Helena, by which Helena purchased the Triple Noctin, ultimately sold to Plaintiff herein, contained the following language:

"All claims for alleged defective Products, shortages or other cause shall be deemed waived unless made in writing and received by Kalo within 15 days after distributor learns of the alleged defect, but in no event later than 120 days after Distributor's receipt of the products. Distributor's exclusive remedy and Kalo's limit of liability for any and all losses or damages resulting from defective Products or from any other cause shall be for the purchase price of the particular delivery. * * *"

Upon consideration of the pleadings herein, the briefs of the parties, and the evidence and arguments presented at the aforesaid conscionability hearing, it is the opinion and judgment of this Court that the exclusions of consequential damages in issue are unconscionable, both as to Plaintiff and as between Helena and Kalo, within the meaning of Code of Alabama, Title 7A, §§ 2-719(3) and 2-302.

By the representations on the Triple Noctin packages and in the advertising brochure as set out above, Kalo attempted to sell its product as "100% guaranteed" while limiting this guarantee to a return of the purchase price. Upon consideration of the "commercial setting, purpose and effect" of the exclusion, as provided for in § 2-302(2), it clearly appears that the exclusion is unconscionable on the facts of this case.

At the conscionability hearing, Plaintiff presented evidence of tests conducted before the sale to Plaintiff herein which established that there was grave doubt as to whether the new freeze-drying process relied upon by Kalo for the effectiveness of Triple Noctin and other Kalo products employing the same method for preserving essential bacteria in a live state was, in fact, an effective process. The evidence also establishes that Kalo knew of this uncertainty as to the effectiveness of its new product. Yet, the advertising brochure handed to Plaintiff prior to his purchase makes no mention of the experimental nature of the product.

Were this exclusion to operate merely to prevent Kalo from becoming an insurer of crop yields, which are affected by numerous and incalculable variables of weather and other factors, a different case might be presented. It is clear from the allegations of the complaint herein, however, that Kalo seeks to use this exclusion as a defense to a claim for consequential damages based upon an alleged latent defect in the product itself, which will, of course, be a matter of proof at trial. In this case the undisputed testimony is that there is no means by which a farmer, with the naked eye and without the assistance of scientific examination not ordinarily available, can discern whether or not the bacteria in the product are dead or alive and, thus, whether or not Kalo's freeze-drying process is working or whether or not the product will be effective. Discovery of any such defect must await the development of the crop, by which time large consequential damages may be expected to have arisen, caused by the passing of the planting season and by large expenditures in cultivation.

If the exclusion is conscionable, the remedy of an aggrieved purchaser will be limited to the purchase price of the product, which undisputed testimony established to be about 30 cents per acre. At the conscionability hearing, Plaintiff testified that his cost per acre of cultivating, planting and harvesting the crop was $90.00 to $100.00 per acre, and it is clear that Kalo, an established manufacturer of agricultural products, knew that expenditures would normally be in that range. Thus, the remedy left to a purchaser after operation of the exclusion is grossly disproportionate to the expenditures an injured party would be expected to make in order to avail himself of the value of the product. This Court is of the opinion that, in the case of a latent defect such as is alleged here, an exclusion such as the one herein makes the remedy available to a purchaser an illusory one which "represents no remedy at all", Neville Chemical Co. v. Union Carbide Corp., 294 F.Supp. 649 (WD Pa. 1968), affm'd. in part, vacated on other grounds 422 F.2d 1205 (3rd Cir. 1970), and that such an exclusion leaves only a remedy which can be said to "fail of its essential purpose." § 2-719(2). In the words of the Official Comment to § 2-719:

"It is of the very essence of a sales contract that at least minimum adequate remedies be available * * * the parties must accept the legal consequence that there be at least a fair quantum of remedy for breach of the

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