Source: http://courts.mrsc.org/supreme/086wn2d/086wn2d0256.htm
Timestamp: 2019-04-19 01:08:31+00:00

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86 Wn.2d 256, JOHN SCHROEDER, Respondent, v. FAGEOL MOTORS, INC., ET AL, Petitioners.
 Sales - Warranties - Disclaimer and Exclusionary Clause - Distinction. A disclaimer under RCW 62A.2-316 is an exclusionary device used to limit a seller's warranty by limiting the possible types of breach. An exclusionary clause under RCW 62A.2-719(3) is an exclusionary device used to limit possible remedies following a breach of warranty.
 Sales - Exclusionary Clause - Unconscionability - Factors. Whether or not an exclusionary clause in a commercial sales agreement is unconscionable and against the public policy disfavoring such limitations is determined by examining all surrounding circumstances including its conspicuousness in the agreement, the presence or absence of negotiation regarding the clause, the custom and usage of the trade, and any policy developed between the parties during the course of prior dealings.
 Sales - Exclusionary Clause - Unconscionability - Determination. An exclusionary clause is determined to be, or not be, unconscionable as a matter of law under the provisions of RCW 62A.2-302.
 Warranties - Manufacturer and Seller - Separate Warranties - Effect. In the absence of any indemnification agreement between a manufacturer and a seller of a defective product, a seller's express warranty of a product creates joint liability with the manufacturer for damages flowing from the defect.
Review of a decision of the Court of Appeals, December 2, 1974, 12 Wn. App. 161. Reversed in part.
The Court of Appeals affirmed a judgment of the Superior Court for Pierce County, No. 206212, William L. Brown, Jr., J., entered March 20, 1973. The appellants (defendants) petitioned the Supreme Court for review.
Action for damages. The defendants appealed to the Court of Appeals from a judgment in favor of the plaintiff.
Ryan, Bush, Swanson & Hendel and David H. Oswald, for petitioner Fageol Motors, Inc.
Riddell, Williams, Ivie, Bullitt & Walkinshaw, by Robert S. Ivie, for petitioner Cummins Engine Co.
Davies, Pearson, Anderson, Gadbow & Hayes, P.S., by John C. Kouklis, for respondent.
Fredric C. Tausend, Mark M. Hough, Coleman P. Hall, Michael R. Sorensen, William L. Dwyer, and John J. Dystel, amici curiae.
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 cost to the plaintiff. It was then determined that the engine failure was the result of a casting defect in a piston rod cap.
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 Wn.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 Motors, Inc., 12 Wn. App. 161, 528 P.2d 992 (1974), and this court granted the defendants' petition for review.
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. Tn 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 Equip., 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.
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.
«1» "[I]t Is essential that `trade custom' be considered a rule of thumb, to be disregarded when the crucial analysis of relative bargaining positions indicates that the consumer has been disadvantaged." (Footnote omitted.) Terry and Fauvre, The Unconscionability Offense, 4 Ga. L. Rev. 469, 503 (1970).
It is the unreasonableness and unfairness of a contract term which is the primary target of U.C.C. 2-302. See Spanogle, Analyzing Unconscionability Problems, 117 U. Pa. L. Rev. 931, 943 (1969).
transactions. However, the single most important concept intertwined throughout the entire code is that of good faith dealings. The mere fact that both parties are businessmen does not justify the utilization of "unfair surprise" to the detriment of one of the parties. Reynolds v. Preferred Mut. Ins. Co., supra. The code specifically provides for consequential damages and an individual should be able to rely on their existence in the absence of being informed to the contrary, either directly, or constructively through prior course of dealings or usage of trade.
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
of establishing that a clause is unconscionable lies upon the party attacking it. Kohlenberger, Inc. v. Tyson's Foods, Inc., supra; Bill Stremmel Motors, Inc. v. IDS Leasing Corp., 89 Nev. 414, 514 P.2d 654 (1973). In view of the fact that the trial court based its decision entirely on Berg v. Stromme, supra, without addressing the fundamental question of unconscionability in a manner required under the provisions of RCW 62A.2-302, we hold that the decisions of the trial court and the Court of Appeals are reversed, and this cause is remanded for a hearing consistent with the requirements set forth herein.
A subsidiary issue raised by Fageol is whether it is entitled to indemnification from Cummins for any damages assessed against it. Fageol argues that since Cummins manufactured the engine, it should be solely responsible. We disagree.
 This is not a situation in which the plaintiff seeks to recover for the breach of an implied warranty of merchantability resulting from a defectively produced product, in which case the retailer acts merely as a conduit. Rather, Fageol made an express warranty under which it promised to make all repairs necessary. This warranty was independent from any agreement entered into between the plaintiff and Cummins. The trial court predicated the defendants' liability on the fact that they both had made express warranties to repair the truck; they both were given an opportunity to fulfill their respective warranty, and they both failed to do so, which proximately resulted in the plaintiff's damages. Therefore, in the absence of a separate contract for indemnification between Fageol and Cummins, there is no basis for imposing the entire burden of liability on the manufacturer, and insofar as this issue is concerned, the decisions of the trial court and the Court of Appeals are affirmed.
the issue of consequential damages, remanding this case for further proceedings consistent with this opinion.
STAFFORD, C.J., and FINLEY, ROSELLINI, HAMILTON, WRIGHT, UTTER, BRACHTENBACH, and HOROWITZ, JJ., concur.

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