Opinion ID: 2521251
Heading Depth: 1
Heading Rank: 5

Heading: Enforceability of Liability Limitation

Text: Having determined that the liability limitation is included in the contract between Factors and Unisearch, we must now determine whether these liability limitations are enforceable. The liability limitations will not be enforceable if they are unconscionable. Mortenson, 140 Wash.2d at 585, 998 P.2d 305. Whether an exclusionary clause [12] is unconscionable is determined as a matter of law. Am. Nursery Prods., Inc. v. Indian Wells Orchards, 115 Wash.2d 217, 222, 797 P.2d 477 (1990) (citing Schroeder v. Fageol Motors, Inc., 86 Wash.2d 256, 262, 544 P.2d 20 (1975)). Thirty years ago this court set the standard for applying warranty disclaimers in transactions involving a noncommercial entity. See Berg v. Stromme, 79 Wash.2d 184, 484 P.2d 380 (1971). According to the decision in Berg, warranty disclaimers in a contract must be both (1) explicitly negotiated and (2) set forth with particularity. Id. at 196, 484 P.2d 380. The presumption leans against the warranty disclaimer, and the burden lies on the party seeking to include the disclaimer to prove its legality. Id. at 194, 484 P.2d 380. Berg involved the sale of a car from a car dealer to a consumer. The car had numerous mechanical problems, but the dealer claimed that the purchaser could not recover because the purchase contract contained warranty disclaimers. Id. at 185, 484 P.2d 380. The Berg court noted that printed disclaimers of warranty in the purchase of new automobiles are now regarded with increasing disfavor by the courts. Id. at 187, 484 P.2d 380 (citing Norway v. Root, 58 Wash.2d 96, 361 P.2d 162 (1961)). Accordingly, the court stated, unless there is proof of explicit departure from [the implied warranty of fitness with a new car], the presumption is that the dealer intended to deliver and the buyer intended to receive a reasonably safe, efficient and comfortable brand new car. Id. at 195, 484 P.2d 380. A few years later this court held that Berg applied in commercial transactions, but with some modifications to the original Berg analysis. In Schroeder, we shifted the presumption from the party seeking to validate the disclaimer to the party seeking to invalidate the liability limitation by presuming that the limitation was prima facie conscionable in a commercial transaction. 86 Wash.2d at 262-63, 544 P.2d 20. We stated, 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.  Id. at 260, 544 P.2d 20. Thus, in Schroeder we adopted a totality of the circumstances approach for interpreting the permissibility of exclusionary clauses [13] in a commercial setting, instead of the two-prong approach applied to warranty disclaimers in Berg for a consumer transaction. The nonexclusive factors for assessing the totality of the circumstances include: (1) the conspicuousness of the clause in the agreement; (2) the presence or absence of negotiation regarding the clause; (3) the custom and usage of the trade; and (4) any policy developed between the parties during the course of dealing. Id. at 259-61, 544 P.2d 20. By extending part of Berg to commercial transactions, we expressed the intent to prevent unfair surprise in business dealings. Id. at 260, 544 P.2d 20. In American Nursery this court made another modification and extension of the Berg/Schroeder analysis. In that case we confirmed the use of the two-prong Berg analysis for consumer transactions involving warranty disclaimers and in commercial transactions for the sale of goods where there is sufficient evidence of unfair surprise. 115 Wash.2d at 223-24, 797 P.2d 477. We thus also confirmed the Schroeder totality of the circumstances analysis for clauses excluding (or limiting) liability for consequential damages in commercial transactions for services where there is insufficient evidence of unfair surprise. Id. at 222-23, 797 P.2d 477; see also Cox v. Lewiston Grain Growers, 86 Wash.App. 357, 367-70, 936 P.2d 1191 (1997). Finding no indicia of unfair surprise, this court then specifically applied the Schroeder analysis to a contract for services between commercial parties. Am. Nursery, 115 Wash.2d at 224-25, 797 P.2d 477. In applying the Schroeder totality of the circumstances analysis to determine conscionability, we referenced RCW 62A.2-719(3), which states, Limitation of other consequential damages is valid unless it is established that the limitation is unconscionable. [14] The Court of Appeals in this case stated that the exclusionary clause would not be valid if it was not explicitly bargained for. Unisearch, No. 46705-1-I, slip op. at 11-12. This consideration comes from Berg and is, therefore, not controlling in these circumstances. Berg involved a consumer transaction for a warranty disclaimer, which has been distinguished from a liability limitation clause in a commercial transaction, such as that presented by Factors and Unisearch. In a commercial transaction, as Schroeder and American Nursery make clear, whether the liability limitations clause was negotiated (or bargained for) is merely a factor and it is not necessarily the determinative factor in assessing the enforceability of the clause. Am. Nursery, 115 Wash.2d at 222, 797 P.2d 477 (citing Schroeder, 86 Wash.2d at 260, 544 P.2d 20). Significantly, in American Nursery, we limited the application of the Berg rule for explicit policy reasons: In consumer sales transactions, intervention is warranted to counteract the inherent inequality of bargaining power and the resultant inequities. Parties to a commercial contract, however, generally have equal bargaining power and an equal ability to seek advice and alternative offers. As a result, commercial contracts are less subject to the type of unfair surprise which may be found in consumer sales transactions. This being so, only those commercial transactions with sufficient indicia of unfair surprise in the negotiations should be subject to the Berg rule. Id. at 224, 484 P.2d 380. We find these distinctions applicable to the case presented and conclude that American Nursery governs our analysis. As a threshold matter, we conclude that there were no indicia of unfair surprise under these circumstances. Unlike the concern for unfair surprise, most commonly associated with a maze of fine print in warranty disclaimers, the search reports and invoices in this case were brief. The liability limitation clause printed on the invoice did not alter or change during any of the 48 transactions. Additionally, the invoices were directed to the attention of Factors' principals and Factors' president testified that he contemporaneously examined the invoices. Factors had received and paid numerous invoices prior to this dispute. We find all of these factors conclusive that there was no unfair surprise in this case. Next, by evaluating the totality of the circumstances, we further conclude that the liability limitation clause in the contract for services between Factors and Unisearch is not unconscionable and is therefore enforceable. In Schroeder we recognized the following nonexclusive factors to consider in assessing the unconscionability of a liability exclusionary clause: (1) the conspicuousness of the clause in the agreement; (2) the presence or absence of negotiations regarding the clause; (3) the custom and usage of the trade; and (4) any policy developed between the parties during the course of dealing. 86 Wash.2d at 259-61, 544 P.2d 20. Additionally, in American Nursery, we noted that [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. 115 Wash.2d at 222, 797 P.2d 477 (citing Schroeder, 86 Wash.2d at 260, 544 P.2d 20).