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ADAMS v. AMERICAN CYANAMID CO. 498 N.W.2d 577 (Neb. Ct. App. 1992)
CONNOLLY, Judge.
I. INTRODUCTION
This appeal arises from an action based on theories of strict liability and breach of warranty of merchantability under the Uniform Commercial Code. William Timothy “Tim” Adams and Carol Adams brought suit against American Cyanamid Company, and Panhandle Cooperative Association for damages sustained to a crop of edible beans which was lost after a herbicide manufactured by American Cyanamid was applied to the Adamses’ fields. The jury awarded a judgment for the Adamses in the amount of $193,500 against American Cyanamid. American Cyanamid appeals. We affirm in part, and in part reverse and remand for a new trial.
II. FACTUAL BACKGROUND
In 1989, Tim Adams planned to grow beans on 860 acres of center-pivot irrigated fields. He sought the services of Glenn Johnson of Servi-Tech crop consultants to inspect his fields, to make recommendations as to fertilizers, herbicides, and seed, and to observe the crop through the growing season. Johnson recommended a combination of the herbicides Eptam and Prowl. Prowl herbicide is manufactured by the defendant, American Cyanamid. Adams purchased these herbicides from Panhandle Co-op, whose employee applied the herbicides at the application rate specified by Johnson. In early June, the fields were planted with great northern and pinto beans.
At first, the bean crop grew well, but after the first of July, Adams noticed that the plants in field No. 8 began to look weakened, and plants in the other fields followed suit. The beans flourished in a strip of field No. 1 where no herbicide had been applied due to a parked center pivot. The beans also flourished in a 10-acre area of field No. 5 where no herbicide was applied because the sod had recently been brought under cultivation.
Prowl, the trade name for the herbicide used, is a dinitroaniline herbicide, which can destroy plants by causing a swollen hypocotyl, i.e. , the plant’s main root stem, and a reduction of the secondary root system.
Prowl was applied in combination with Eptam, a thiocarbamate herbicide. A thiocarbamate herbicide produces a type of plant injury different from that produced by a dinitroaniline herbicide. A thiocarbamate herbicide causes early leaf effect and lasts in the soil for a few weeks. The Adamses’ expert was able to exclude the possibility that Eptam had caused the plant injury.
The jury entered a general verdict for the Adamses for $193,500, the amount of the lost crop. The jury entered special verdicts finding that the defendant … had breached the warranty of merchantability. The defendant moved for judgment notwithstanding the verdict and for a new trial, which motions were overruled.
(b) Breach of Warranty
The defendant also claims that the Adamses presented insufficient evidence to prove there was a breach of the implied warranty of merchantability and that the trial court erred by failing to direct a verdict against the Adamses on this theory of recovery.
….
There is no question that American Cyanamid is a merchant, i.e. , one that deals in the goods of the kind involved in the transactions under consideration. See Neb. U.C.C. § 2-104.
After goods are accepted, the buyer has the burden of establishing any breach with respect to those goods. Laird v. Scribner Coop , 237 Neb. 532, 466 N.W.2d 798 (1991).
The plaintiffs’ prima facie case for breach of warranty of merchantability has been described in Delgado v. Inryco, Inc. , 230 Neb. 662, 433 N.W.2d 179 (1988):
[T]here must be proof that there was a deviation from the standard of merchantability at the time of sale and that such deviation caused the plaintiff’s injury both proximately and in fact. Thus, a breach of the warranty has been found to exist where the item sold failed to perform adequately because of a lack of quality inherent within the item itself.
Id. at 668, 433 N.W.2d at 183-84 (quoting O’Keefe Elevator v. Second Ave. Properties , 216 Neb. 170, 343 N.W.2d 54 (1984)).
The Delgado court also stated, “In proving a deviation from the standard of merchantability, some proof of noncompliance with the warranty must be presented.” Id. at 668, 433 N.W.2d at 184. A plaintiff may not rely on the sole fact that an accident occurred. See Delgado v. Inryco, Inc. , supra.
In the case at bar, the defendant argues that “[t]here was no proof by the plaintiffs that the risk of harm from the Prowl herbicide was any greater than herbicides in its class generally, and there was no evidence as to any breach of a standard of merchantability.”
In Laird v. Scribner Coop , supra , the Supreme Court held that “‘reliance on eyewitnesses alone is not fatal when the defect is obvious to a layman , but when standards of performance of the product are not generally known, other evidence, usually expert testimony, is necessary to prove proper or acceptable standards of performance.’” 237 Neb. at 539, 466 N.W.2d at 804 (quoting Durrett v. Baxter Chrysler-Plymouth, Inc. , 198 Neb. 392, 253 N.W.2d 37 (1977)).
It would seem apparent to a layperson that the standard of merchantability for herbicides is that they should not damage the crops to which they are applied. Therefore, expert testimony was not required to establish a standard of merchantability.
3. LABEL CONSPICUOUS AS A MATTER OF LAW
The defendant claims that its disclaimer was conspicuous as a matter of law and that the court ought to have directed a verdict against the Adamses on their theory of recovery for breach of warranty….
The warranty in the instant case mentions merchantability, and the heading “DISCLAIMER” is prominently displayed. The disclaimer is sufficiently set off from other material so as to draw attention to itself. Also, the disclaimer is on the third page of the label, although the record establishes that the only label presented to Adams was contained in a manual. Therefore, notwithstanding the fact that the label appears in a manual, we hold that the disclaimer was conspicuous as a matter of law. See Architectural Aluminum Corp. v. Macarr, Inc. , 333 N.Y.S.2d 818 (N.Y. Sup. Ct. 1972) (disclaimer in catalog furnished to buyer conspicuous, where it was separately set forth from other matter).
- ADAMS’ ACTUAL KNOWLEDGE OF THE DISCLAIMER
A closely related issue, which is likely to be confused with the issue of receipt by Adams, is whether the Code requires that a disclaimer actually be read or whether it only requires that the disclaimer be conspicuous. Section 1-201(10) reads: “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.” On the basis of § 1-201(10), some courts have held that a disclaimer may be effective notwithstanding the fact that a buyer has not read it. See Earl Brace & Sons v. Ciba-Geigy Corp. , 708 F. Supp. 708 (W.D. Pa. 1989) (farmer who was presented disclaimer but did not read it was bound because he had read similar disclaimers); Childers & Venters, Inc. v. Sowards , 460 S.W.2d 343 (Ky. 1970) (buyer of coal truck presented disclaimer on contract, but did not read it before signing); Architectural Aluminum Corp. v. Macarr, Inc. , supra (disclaimer contained in manual which was not read); 3 RONALD A. ANDERSON, A NDERSON ON THE UNIFORM COMMERCIAL CODE §§ 2-316:32 to 2-316:33 (3d ed. 1983). However, in all these cases it was undisputed that the buyer had actually received the label containing the disclaimer.
In the case at bar, by contrast, Adams denied receiving the label at the time he purchased the herbicides. Some testimony indicated that Adams was presented [the] 107-page manual on various herbicides, which contains the disclaimer at page 19. Dan Keener, the fertilizer manager of the Panhandle Co-op, testified that he gave the manual to Adams when Adams came into the office to purchase the herbicides.
Adams testified that Keener did not give him the manual; Adams also stated that he felt no need to read the directions because he was not applying the herbicide.
The defendant claims that a disclaimer is effective so long as it is conspicuous and that it is unnecessary that it be received by the buyer….
…. Because Adams denies that he received possession of either the article or the disclaimer, this case is governed by the reasoning of Eichenberger v. Wilhelm , 244 N.W.2d 691 (N.D. 1976). In Eichenberger , a spraying service applied herbicide to a farmer’s wheat crop to
control wild oats. The herbicide as applied resulted in a “despoliation” of the wheat. The court held that the disclaimer was ineffective and stated:
[T]he evidence in this case establishes that Eichenberger was not shown the label. Where the buyer is given no opportunity to see and read the label, this court will not elevate the disclaimer to status as a part of the bargain. Since Eichenberger did not read the label, we also agree with the trial court’s finding that he did not assume the risk that his wheat crop would be substantially and permanently damaged.
Id. at 697.
Similarly, in Willoughby v. Ciba-Geigy Corp. , 601 S.W.2d 385 (Tex. Civ. App. 1979), the plaintiff farmers asked the herbicide dealer to apply a postemergence herbicide to control weeds in corn. The herbicide dealer applied the substance to the corn plants, which were killed. The court held:
The evidence in this case clearly shows the disclaimer of warranty was never disclosed or brought to the attention of appellants, who had not, at any time, come into possession of the container. Appellants did not see the disclaimer; the container upon which the disclaimer appeared was never in their possession, and it was not called to their attention by [the herbicide dealer]. Under these circumstances, we hold the disclaimer relied upon by appellees was ineffective to relieve appellees of liability.
Id. at 388; see also Board of Directors v. Southwestern Petro. , 757 S.W.2d 669 (Tenn. App.
- (there must be assent to terms of disclaimer and proof that the parties actually bargained over terms).
It is clear from these cases that the mere fact that a disclaimer of the implied warranty of merchantability is conspicuous will not relieve a seller of liability if the buyer never receives the disclaimer. See Eichenberger v. Wilhelm , supra ; Willoughby v. Ciba-Geigy Corp. , supra. Conversely, if a disclaimer is conspicuous, it is effective so long as the buyer receives the disclaimer and has a reasonable opportunity to read it. See Earl Brace & Sons v. Ciba-Geigy Corp. , 708 F. Supp. 708 (W.D. Pa. 1989); Childers & Venters, Inc. v. Sowards , 460 S.W.2d 343 (Ky. 1970). Therefore, we hold that in order for the disclaimer in the case at bar to be effective, the defendant must establish that the disclaimer came into Adams’ possession, so that he had an opportunity to see and read the disclaimer or, at the least, that the terms of the disclaimer were brought to Adams’ attention….
- UNCONSCIONABILITY
….
(d) Determination of Unconscionability
The defendant claims that it was error for the trial court not to address the unconscionability of the exclusion. Since the issue is likely to arise again on remand, we provide direction for the lower court by determining in advance whether American Cyanamid’s limitation of remedies is unconscionable.
The concept of conscionability is not defined by the Code. The Supreme Court has quoted with approval from the comments to § 2-302: “The basic test is whether in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract ....” T.V. Transmission v. City of Lincoln , 220 Neb. 887, 896, 374 N.W.2d 49, 56 (1985).
Although the test is stated in T.V. Transmission , we have not found a Nebraska case that has applied it. Accordingly, we must determine how the concept of unconscionability is to be applied. The Code’s concept of unconscionability developed in the context of consumer transactions. Since our concern here is solely with a commercial contract, we must determine how the concept applies in a commercial setting.
Generally, the issue of unconscionability is divided into substantive unconscionability and 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.” Schroeder v. Fageol Motors , 544 P.2d 20, 23 (Wash. 1975). Generally, a contract is not substantively unconscionable unless the terms are grossly unfair under the circumstances as they existed at the time the contract was formed. See Guthmann v. La Vida Llena , 709 P.2d 675 (N.M. 1985). An often-quoted formulation of substantive unconscionability is the following:
In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered “in the light of the general commercial background and the commercial needs of the particular trade or case.” Corbin suggests the test as being whether the terms are “so extreme as to appear unconscionable according to the mores and business practices of the time and place.”
Williams v. Walker-Thomas Furniture Co. , 350 F.2d 445, 450 (D.C. Cir. 1965). Accordingly, to determine whether a contract clause is substantively unconscionable, a court asks “whether under the circumstances existing at the time of making of the contract, and in light of the general commercial background and commercial needs of a particular case, clauses are so one-sided as to oppress or unfairly surprise one of the parties.” Barnes v. Helfenbein , 548 P.2d 1014, 1020 (Okla. 1976).
In the present case, the limitation of consequential damages clause would leave the herbicide user without any substantial recourse for his loss. “One-sided agreements whereby one party is left without a remedy for another party’s breach are oppressive and should be declared unconscionable.” Durham v. Ciba-Geigy Corp. , 315 N.W.2d 696, 700 (S.D. 1982); see also Campbell Soup Co. v. Wentz , 172 F.2d 80 (3d Cir. 1948). We conclude that the provision excluding consequential damages is substantively unconscionable.
Substantive unconscionability in a commercial setting, standing alone, is insufficient to void a contract or clause. See, e.g. , 1 E. ALLAN FARNSWORTH, CONTRACTS § 4.28 (2d ed. 1990). The remaining question, therefore, is whether there is evidence of procedural unconscionability. The factors involved in determination of procedural unconscionability have been formulated in American Nursery v. Indian Wells , 797 P.2d 477 (Wash. 1990). In American Nursery , the court stated that a clause excluding damages may be found to be conscionable when “the general commercial setting indicates a prior course of dealing or reasonable usage of trade as to the exclusionary clause.” Id. at 481. Otherwise,
[u]nconscionability is determined in light of all the surrounding circumstances, including (1) the manner in which the parties entered into the contract, (2) whether the parties had a reasonable opportunity to understand the terms of the contract, and (3) whether the important terms were hidden in a maze of fine print.
Id. at 481. None of the factors is conclusive; rather, unconscionability is determined under the totality of the circumstances.
Applying the American Nursery analysis, we first look to evidence of a prior course of trade. This inquiry has been explained as follows:
[A court] must consider whether the plaintiff and [defendant], 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, would support a finding of conscionability in spite of a lack of “negotiations” or the “inconspicuous” appearance of the clause.
Schroeder , 544 P.2d at 23-24.
Although the evidence supports the conclusion that there is a trade practice among chemical firms related to excluding consequential damages, we find it unreasonable to impose the trade practice on the Adamses. In selecting Prowl herbicide, Adams was merely following the advice of Johnson. He was not independently assessing the risks involved in the use of particular chemicals; and the use of middlemen, as in the case at bar, appears to be a common trade practice in the agricultural industry.
Therefore, we examine the totality of the circumstances. In this case, Adams was in no position to bargain with American Cyanamid. Johnson testified that all herbicide manufacturers
