Osgood v. Medical, Inc., C5-87-986
| Decision Date | 01 December 1987 |
| Docket Number | No. C5-87-986,C5-87-986 |
| Parties | 5 UCC Rep.Serv.2d 943 Clare T. OSGOOD, et al., Respondents, v. MEDICAL, INCORPORATED, Appellant, General Atomic Company, et al., Respondents. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. The trial court was correct in its determination of the terms of the sales contract.
2. The indemnity and warranty exclusion provisions of the contract were not unenforceable as unconscionable, as inconspicuous, or for failing of their essential purpose under the Uniform Commercial Code.
3. The indemnity provisions were not ambiguous.
4. The parties' settlement was reasonable as a matter of law.
Peter J. Krieser, Minneapolis, for respondents.
Robert E. Salmon, Kenneth W. Dodge, Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, Minneapolis, for appellant.
Scott B. Lundquist, Austin & Roth, Minneapolis, for respondents.
Considered and decided by WOZNIAK, P.J., and NORTON and IVERSON *, JJ., with oral argument waived.
After settling the underlying products liability suit, the components parts manufacturer (General) and the finished product manufacturer (Medical) pursued their claims for indemnification. General prevailed, based on the purchase order form for the component part. Pursuant to General's requirements, Medical had typed a caption on its order form incorporating an indemnification term into the contract. The trial court, in separate proceedings, granted summary judgment for General on (1) Medical's duty to indemnify, and (2) the reasonableness of the settlement. We affirm.
Plaintiff Clare Osgood was injured in July 1979 when a component part (a Pyrolite coated disc) of a mitral heart valve fractured, resulting in emergency open heart surgery. The disc was designed, manufactured, and fabricated by General Atomic Company (a partnership consisting of Gulf Oil Corporation and Scallop Nuclear, Inc.). The disc was purchased by appellant Medical, Inc. (Medical) and incorporated into its mitral heart valve. The valve was implanted in Osgood's heart on October 5, 1972.
Osgood commenced a personal injury action against both Medical and General to recover damages suffered as a result of the allegedly defective heart valve.
The sales transaction involving the disc.
Medical was formed by Marshall Kriesel in July 1971, for the express purpose of manufacturing heart valves. Kriesel had just purchased the license to manufacture this particular type of heart valve. Prior to formation of the company, Kriesel talked with Dr. John Bokros, head of General's medical products department, about supplying Medical with Pyrolite coated discs. They discussed a number of terms (including price and quantity), but never came to an agreement whereby General would sell the discs exclusively to Medical.
Medical ordered discs from General on Medical's order form. The form contained the following indemnification clause on the back:
14. INDEMNITY--Seller shall indemnify and hold Buyer harmless against any liability, loss, damages or expense resulting from personal injury, death, or property damage arising from or in connection with Seller's performance of this Order.
Initially, General normally acknowledged receiving the orders without any change in terms.
By March 1972, Medical was well into manufacture of their valves. By cover letter dated March 8, 1972, General sent its Special Terms of February 24, 1972 ("Special Terms") to Medical.
The Special Terms provided that Medical was to hold General harmless for any damages resulting from the use of the discs. In capital letters, the terms also specifically disclaimed any warranties of fitness for their intended purpose or of merchantability.
Medical and General thereafter had many discussions over the applicability of the new terms to disc sales; at General's insistence, however, Medical began typing the following language onto the face of its order forms:
Special Terms and Conditions dated February 24, 1972, Applicable to Sales of Gulf Energy and Environmental Systems Pyrolite Carbon Coated Heart Valve Parts for Clinical Use.
The order form for the particular disc involved in this case was Medical's usual printed form, but contained the above caption (relating to the Special Terms) typed on its face.
The personal injury trial.
The personal injury jury trial began in June 1982. After five days of trial, General negotiated a Pierringer settlement agreement with Osgood, settling their portion of the liability for $150,000. Medical then decided to settle for $60,000, and both settlements were drawn up under one agreement. The settlement document left open the cross-claims between Medical and General for later resolution, and both parties expressly denied any liability to plaintiff.
Medical now contends they were forced to settle because of their inability to defend the case on the merits after General concluded a settlement with plaintiffs. By way of their attorney's affidavit, Medical asserts it had to settle because the expert witnesses involved in their defense of the action were under the "actual or constructive control of [General]." Medical also asserts that the liability experts necessary to defend the action were out of Minnesota, and hence not subject to subpoena. They also assert that the pretrial depositions of all liability witnesses were taken "exclusively by plaintiff's counsel, hence could not be used to effectively present Medical's case to the jury[.]"
Trial on indemnity cross-claims.
A large portion of the two-day bench trial was devoted to testimony regarding the suitability of the Pyrolite disc for inclusion into Medical's valve. Medical acknowledges the testimony was an attempt to fulfill the requirements for a showing that the contract terms were unenforceable as a contract of adhesion under the analysis outlined in Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920 (Minn.1982). 1
The trial court ruled that General had a right to indemnification from Medical. The court made the following specific fact findings:
5. That the particular Pyrolite-coated disc involved, a component of the heart valve, was purchased from General by Medical using an order form which contained the following language typewritten on its face:
Special Terms and Conditions dated February 24, 1972, Applicable to Sales of Gulf Energy and Environmental Systems Pyrolite Carbon Coated Valve Parts for Clinical Use * * *.
6. That Medical itself typed the language on the order form; that said language was conspicuous and incorporated by reference the text of General's February 24, 1972 special terms and conditions.
7. That Medical's actions constituted acceptance of General's terms and conditions and operated to negate Medical's terms and conditions printed on the reverse side of the form.
8. That the text of the February 24, 1972 terms and conditions contains, inter alia, the following specific and conspicuous language:
GULF MAKES NO WARRANTY OF FITNESS FOR THE PURPOSE INTENDED AND NO WARRANTY OF MERCHANTABILITY.
* * *
* * *
10. That Medical knew of the indemnity and hold harmless language in the February 24, 1972 terms and conditions when it typed the caption on the order form, and was not a victim of surprise or oppression.
11. That the text of the February 24, 1972 terms and conditions does not specifically mention "negligence" but does contain language which necessarily includes claims alleging negligence on the part of General.
12. That the essential purpose of the agreement is an allocation of risks between merchants, which it has done.
The court concluded that Medical must indemnify General for any claims arising out of the use of the disc in question.
The trial court made it clear that it did not apply the Schlobohm analysis. It noted the adhesion contract analysis only applied where a defendant attempts to insulate himself from liability and not, as the case was here, where two defendant manufacturers have settled with a plaintiff and are asserting cross-claims for indemnification.
The trial court also found that the Schlobohm test did not apply because this was a sale of goods, to be governed by the Uniform Commercial Code. It noted that this was not a contract for "services," also required under the Schlobohm analysis, and that there was no disparity in bargaining power between the two parties.
Hearing on reasonableness of settlement.
General filed a motion for summary judgment regarding the reasonableness of the settlement agreement. The trial court granted General's motion for summary judgment in the amount of $150,000. The trial court memorandum accompanying its order states:
Here the fact and the amount of liability were determined by the settlement agreement. Medical could have refused to join in the settlement and proceeded to trial. However, rather than seeking a jury determination as to the amount of damages, Medical chose to participate in the collective settlement agreement. This participation, as well as Medical's failure to object in any way to the settlement amount paid by [General], establish the reasonableness of the damages.
1. Was the trial court's determination of the terms of this sales contract erroneous?
2. Under the Uniform Commercial Code, were the indemnity and warranty exclusion provisions of the contract unenforceable as unconscionable, as inconspicuous, or for failing of their essential purpose?
3. Were the indemnity provisions ambiguous?
4. Did the reasonableness of the parties' settlement present a question of fact precluding summary judgment?
1. The construction and effect of a contract are questions of law. Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn.1979). Where the critical evidence is documentary, there is no necessity for the reviewing court to defer to the trial court's judgment of the meaning and credibility of the evidence. In Re Trust Known as Great Northern Iron Ore...
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