Schroeder v. Fageol Motors, Inc.

Decision Date18 December 1975
Docket NumberNo. 43634,43634
Citation86 Wn.2d 256,544 P.2d 20
Parties, 18 UCC Rep.Serv. 584 John SCHROEDER, Respondent, v. FAGEOL MOTORS, INC., a Washington Corporation, and Cummins Engine Company, Inc., a Foreign Corporation, Petitioners.
CourtWashington Supreme Court

Ryan, Bush, Swanson & Hendel, David H. Oswald, Riddell, Williams, Ivie, Bullitt & Walkinshaw, Robert S. Ivie, Seattle, for petitioners.

Schweppe, Doolittle, Krug, Tausend, Beezer & Bierele, Fredric C. Tausend and Mark M. Hough, Seattle, William L. Dwyer, John J. Dystel, Seattle, amicus curiae.

Davies, Pearson, Anderson, Gadbow & Hayes, John C. Kouklis, Tacoma, for respondent.

Karr, Tuttle, Koch, Campbell, Mawer/Morrow, Seattle, amicus curiae.

HUNTER, Associate Justice.

In June of 1970, the plaintiff (respondent), John Schroeder, purchased a used 1970 White truck from the defendant (petitioner), Fageol Motors, Inc., to be used in the hauling of automobiles between California and Washington. The odometer showed 6,180 miles, and Fageol assured the plaintiff that the original warranty, which was still in effect, would cover the vehicle for an additional 94,000 miles. The new truck warranties were set out in an 'Owner Book' which was separate from the purchase order signed by the plaintiff. While the plaintiff admitted that he would not have purchased the truck without the warranties, it is evident that Fageol did not go through the 'Owner Book' and explain the intricacies of the warranties and the various disclaimers. In fact, the plaintiff was not advised of the existence of any disclaimers or exclusionary clauses. Upon signing the order, the plaintiff was given his 'Owner Book' and directed to place it in the glove box.

On October 5, 1970, while the truck was in California, the engine exploded. At this time the vehicle still had more than 50,000 miles remaining on the warranty. The plaintiff notified Cummins Engine Co., Inc., also a defendant (petitioner) herein, whose separate warranty appeared in the 'Owner Book.' At its direction, the plaintiff took the truck to a local Cummins dealer, who undertook repairs without costs to the plaintiff. It was then determined that the engine failure was the result of a casting defect in a piston rod cap.

Upon completion of the repairs, the truck was returned to the plaintiff, yet it never functioned properly. The plaintiff, experiencing heating and vibration problems, made repeated complaints to both Cummins and Fageol. While numerous attempts were made to correct the problems, neither defendant was ever successful.

The plaintiff ultimately brought suit against Fageol and Cummins for damages resulting from the defendants' failure to properly effectuate repairs in accordance with their own respective warranties. The complaint alleged that the plaintiff had incurred $8,431.45 in repair bills, and $12,160 in lost profits. The trial court concluded that the defendants had both made independent express warranties to repair the vehicle and that the damages alleged were proximately caused by a failure to fulfill these warranties. In reaching its decision, the court refused to recognize Fageol's claim that it was protected from any consequential damages due to an exclusionary clause contained in the White truck comprehensive warranty, which stated in normal size print: 'In no event shall the Seller be liable for special or consequential damages.' Relying on Berg v. Stromme, 79 Wash.2d 184, 484 P.2d 380 (1971), the court held that there had been no discussion nor explicit negotiations between Fageol and the plaintiff regarding limitations or disclaimers of liability, but rather that the plaintiff had merely been handed the 'Owner Book' and instructed to keep it in the truck. Furthermore, there was no showing of a bargain and the clause was neither conspicuous nor were the limitations set forth with particularity. Secondly, the trial court held that Fageol was not entitled to indemnity against Cummins since both defendants had actively attempted, and failed, to make proper repairs.

The Court of Appeals affirmed all of the holdings of the trial court, Schroeder v. Fageol, 12 Wash.App. 161, 528 P.2d 992 (1974), and this court granted the defendants' petition for review.

The facts of this case present a question of first impression arising under the Washington state adaptation of the Uniform Commercial Code, to wit: whether a clause excluding consequential damages under RCW 62A.2--719(3) must be negotiated between the parties and set forth with particularity in a conspicuous manner. Put another way, do the requirements set forth in Berg v. Stromme, supra, apply with equal force to an exclusionary clause under RCW 62A.2--719(3)? The defendant Fageol contends that the criteria utilized by the trial court is limited to cases arising under RCW 62A.2--316, and is not intended to apply to cases pertaining to RCW 62A.2--719(3). Furthermore, the defendant argues that 'negotiations' and 'conspicuousness' are only relevant in those instances involving consumers as opposed to a purely commercial transaction between businessmen.

We agree that the trial court and the Court of Appeals failed to properly distinguish between disclaimer and exclusionary clauses.

A disclaimer clause is a device used to exclude or limit the seller's warranties; it attempts to control the seller's liability by reducing the number of situations in which the seller can be in breach. An exclusionary clause, on the other hand, restricts the remedies available to one or both parties once a breach is established.

J. White & R. Summers, Handbook of the Law under the Uniform Commercial Code, § 12--11, at 383--84 (1972). The functional purpose of RCW 62A.2--719(3) is to allow the parties to allocate their risks. Official Comment 1, RCWA 62A.2--719.

While the two sections are clearly distinguishable, they are not mutually exclusive, since both disclaimers and exclusionary clauses can be invalidated upon being declared unconscionable under RCW 62A.2--302. In fact, by its use of the word 'unconscionable,' RCW 62A.2--719(3) conditions the validity of an exclusionary clause on one factor--the standards set forth in RCW 62A.2--302. Cryogenic Equipment, Inc. v. Southern Nitrogen, Inc., 490 F.2d 696 (8th Cir. 1974). Therefore, once placed in its proper perspective, the true issue becomes whether 'conspicuousness' and 'the presence of negotiation' are relevant when defining the elusive concept of Unconscionability.

While it is extremely difficult to articulate an operational definition of unconscionability, those cases interpreting the doctrine appear to fall within two classifications: (1) substantive unconscionability; and (2) procedural unconscionability. Substantive unconscionability involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh, while procedural unconscionability relates to impropriety during the process of forming a contract. J. White & R. Summers, Handbook of the Law under the Uniform Commercial Code, § 4--2, at 117 (1972). In Williams v. Walker-Thomas Furniture Co., 121 U.S.App.D.C. 315, 350 F.2d 445 (1965), the court pronounced that procedural unconscionability was best described as a lack of 'meaningful choice.' In discussing the various factors to be considered in determining whether a meaningful choice is present, the court noted that consideration must be given to 'all the circumstances surrounding the transaction,' including '(t) he manner in which the contract was entered,' whether each party had 'a reasonable opportunity to understand the terms of the contract,' and whether 'the important terms (were) hidden in a maze of fine print . . .' Williams v. Walker-Thomas Furniture Co., supra at 449; Reynolds v. Preferred Mutual Ins. Co., 11 U.C.C. Reporting Serv. 701 (Mass.App.1972). It is readily apparent that both 'conspicuousness' and 'negotiations' are factors, albeit not conclusive, which are certainly relevant when determining the issue of conscionability in light of All the surrounding circumstances. Furthermore, the question of unconscionability cannot be judged in the abstract, but rather it must be determined in light of the general commercial setting. Kohlenberger, Inc. v. Tyson's Foods, Inc., 510 S.W.2d 555 (Ark. 1974); Dow Corning Corp. v. Capitol Aviation, Inc., 411 F.2d 622 (7th Cir. 1969). Therefore, several additional factors which must be considered, especially in purely commercial transactions, are prior course of dealings between the parties and usage of trade. RCW 62A.1--205(1) and (2); Reynolds v. Preferred Mutual Ins. Co., supra. Placing the above criteria within the context of the instant case, we must consider whether the plaintiff and Fageol, through prior contracts had established a consistently adhered to policy of excluding consequential damages, or whether it is a recognized practice within the trade to exclude consequential damages. The presence of either of these elements, unless the trade practice as related to the plaintiff was clearly unreasonable, 1 would support a finding of conscionability in spite of a lack of 'negotiations' or the 'inconspicuous' appearance of the clause.

We are fully aware that the rule enunciated in Berg v. Stromme,supra, was premised predominately on policy grounds. However, this does not support Fageol's...

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