Court Opinion

ID: 9554078
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:41:08.500918+00
Date Added: 2024-06-11T15:32:57.718092
License: Public Domain

Dore, J.
(dissenting)—The majority and Justice Utter in his concurrence correctly conclude that an unconscionability analysis does not render the parties' consequential damages exclusionary clause (paragraph 9.3) unenforceable. *261A procedural unconscionability analysis is inapplicable to this contract between parties of equal bargaining power dealing at arm's length; a substantive unconscionability analysis is inapplicable to events occurring after the formation of the contract, i.e., the Ridomil dipping.
Moreover, Justice Brachtenbach's suggestion that RCW 62A.1-204 invalidates the parties' exclusionary clause is unfounded. RCW 62A.1-204 invalidates a time limitation which is manifestly unreasonable. While this statutory provision might render the parties' 15-day notice period (paragraph 5.1) unenforceable, it has no effect on the parties' exclusionary clause (paragraph 9.3). The clause excluding consequential damages would stand.
I would hold the exclusionary clause unenforceable for still a different reason, however. Although parties are free to contractually limit remedies, including incidental and consequential damages, RCW 62A.2-719, the limitation of remedy cannot operate to deprive a buyer of all remedies for a seller's breach: there must remain "at least a fair quantum of remedy for breach of the obligations or duties outlined in the contract." Official Comment 1, RCWA 62A.2-719. Because enforceability of the parties' exclusionary clause would leave Indian Wells without the fair quantum of remedy required by the U.C.C., I dissent.
The Limited Remedy
When a limited remedy fails to provide the minimum relief required by RCW 62A.2-719, it fails of its essential purpose. RCW 62A.2-719(2) provides: "Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Title." (Italics mine.) Comment 1 to RCWA 62A.2-719 explains that this subsection applies to "an apparently fair and reasonable clause", which "because of circumstances fails in its purpose or operates to deprive either party of the substantial value of the bargain . . .". Official Comment 1, RCWA 62A.2-719. Thus, unlike the substantive unconscionability analysis, the failure of essential purpose *262analysis " 'is not concerned with arrangements which were oppressive at their inception, but rather with the application of an agreement to novel circumstances not contemplated by the parties.'" J. White & R. Summers, Uniform Commercial Code, § 12-10, at 466 (2d ed. 1980) (quoting 1 New York State Law Revision Comm'n, 1955 Report 584).
Applying this analysis in the instant case, it is clear that the limited remedy made available to Indián Wells failed of its essential purpose. In paragraph 1.1 of the parties' contract, Mt. Arbor agreed to grow for Indian Wells 700,000 apple trees, using "all growing and cultural practices standard within the nursing industry ..." and taking "all appropriate and reasonable action which, in [Mt. Arbor's] judgment may be necessary to . . . protect the Trees . . . until delivery to [Indian Wells]". This statement by Mt. Arbor constitutes an express warranty.7
The limited remedy provided in the event of a breach of this warranty can be found in paragraph 5 of the parties' contract. Paragraph 5.1 provides in relevant part:
Any claim made pursuant to the terms of Paragraph 1 shall be made by written notice to [Mt. Arbor] within fifteen (15) days of delivery .... If no written notice is received by [Mt. Arbor] within the specified period, then it shall be deemed that [Indian Wells] has received and accepted the Trees . . ..
Normally, a buyer who has accepted goods has the right to revoke acceptance upon the discovery of latent defects and to recover damages. RCW 62A.2-608. However, paragraph 3.4 of the parties' agreement provides that, after delivery, Indian Wells accepts all risk of loss to the trees. The practical effect of these contractual provisions is to deny Indian Wells any remedy for defects not discoverable within 15 *263days of delivery which were caused by Mt. Arbor's failure to use standard growing practices and to protect the trees.
The trial court recognized the lack of remedy available to Indian Wells:
[W]hen you accept this language that is in this contract right now as I read it, it just says that, "If something happens to his [sic] these trees, no matter what it is, we don't pay you anything." It's an all or nothing contract, quite frankly. The only thing that is in the contract as far as any remedy is concerned is, "If we don't deliver you some trees, then you don't pay us for them." That's it, period. And whatever else may have occurred or anything else like that, there is just no remedy at all. . .. There just is no remedy, period.
Trial Judge's oral ruling, at 22 (Aug. 7, 1987).
Thus, this contract involves precisely the situation that RCW 62A.2-719(2) was intended to address. At the time the parties entered the contract, there was no reason to believe that requiring Indian Wells to make a claim within 15 days of delivery would not provide an adequate remedy for any breach of the contract. Clearly what was contemplated by the parties was the use of standard growing techniques in the development of normal trees. If such had been the case, the remedies provided by the contract would have been adequate.8
But standard growing techniques were not used. In the majority's own words,
Prior to planting the grafted and the to-be-budded rootstocks in 1984, Mt. Arbor dipped the rootstocks in . . . Ridomil 2E. Ridomil 2E is considered by its manufacturer to be an extremely erratic chemical which can, and does, cause damage to rootstocks at lesser concentrations than those used by Mt. Arbor.
*264Majority, at 221. The trial court determined this rootstock dipping was not only unwise but also a violation of state and federal pesticide laws. When, as a direct result of Mt. Arbor's misuse of Ridomil, the trees died after planting, Indian Wells was left with no remedy.
Thus, an apparently fair and reasonable clause, i.e., the 15-day limitation period, worked to deprive Indian Wells of the substantial value of its bargain through "novel circumstances not contemplated by the parties.'" J. White & R. Summers, Uniform Commercial Code § 12-10, at 466 (2d ed. 1980) (quoting 1 New York State Law Revision Comm'n, 1955 Report 584). See also Wilson Trading Corp. v. David Ferguson, Ltd., 23 N.Y.2d 398, 244 N.E.2d 685, 297 N.Y.S.2d 108 (1968) (in contract for sale of yarn, clause precluding claims made more than 10 days after receipt of shipment fails of essential purpose if latent defects render yarn unmerchantable); Earl M. Jorgensen Co. v. Mark Constr., Inc., 56 Hawaii 466, 540 P.2d 978 (1975) (alternative remedies of refund and repair/replacement fail because latent defects caused additional damages).
The Exclusionary Clause
Although this court has never reached the question,9 I conclude that the failure of the limited remedy available to Indian Wells requires the invalidation of the exclusionary clause in this case:
Section 2-719(2) states in unequivocal terms that when an exclusive [or limited] remedy fails, "remedy may be had as provided in this Title." The comment also states that a remedy that fails "must give way to the general remedy provisions of this Article." Those general remedy provisions include consequential damages. Accordingly, most courts have held that failure of the limited remedy causes the clause excluding consequential damages to fail also.
*265(Footnotes omitted.) Roth, To Have and Have Not: The Application of U.C.C. § 2-719 to Clauses Limiting Remedy to Repair or Replacement and Excluding Liability for Consequential Damages in Commercial Contracts, 2 U. Puget Sound L. Rev. 289, 307 (1979).
This result is consistent with the policies of the code and the clear intentions of the parties. Indian Wells paid the purchase price to get trees that were grown as warranted and agreed to forgo consequential damages in return for the remedies it would be provided when it notified Mt. Arbor of defects within 15 days of delivery. When Mt. Arbor, by dipping the rootstocks in Ridomil, caused latent defects which were not visible within the 15-day period, Indian Wells lost the benefit of its bargain because it then had to bear more consequential damages than bargained for, i.e., removal and replanting of trees and production losses. See Roth, 2 U. Puget Sound L. Rev. at 309.
Indian Wells is entitled to recover all of the consequential damages the trial court found Indian Wells properly proved:
Because it would be difficult to partition the final consequential damages into an amount. . . which the buyer should bear, and an amount . . . which the seller should bear, the Code indicates that the total loss should be borne by the seller. After all, the seller contracted to be in the active position and always had the option of limiting liability by [ensuring the success of the limited remedy].
(Footnotes omitted.) 2 U. Puget Sound L. Rev. at 309-10.
Indian Wells incurred substantial consequential damages, including removal and replanting costs and production losses as a result of Mt. Arbor's misuse of the Ridomil. Because of the difficulty in partitioning these damages into amounts which should be borne by either party, Indian Wells should recover all the consequential damages awarded it by the trial court.10
*266Conclusion
Justice Dolliver's majority opinion focuses primarily on the conscionability of the parties' consequential damages exclusionary clause, paragraph 9.3 of the contract. He upholds the clause as conscionable because it was entered into by parties of equal bargaining power dealing at arm's length.
I agree that parties are free to contractually limit available remedies. However, a party cannot contract away all liability for damages caused by its own negligence. This is where Justice Dolliver and I disagree. Justice Dolliver declines to apply the failure of essential purpose doctrine to invalidate the exclusionary clause because he believes adequate remedy is provided Indian Wells by the contract even if the exclusionary clause is enforced. Specifically, he maintains, Indian Wells may recover its cover costs, the estimated value of trees short which could not be covered, and the price of the Belgian rootstocks purchased by Mt. Arbor but not paid for less the contract cost avoided for trees that were not delivered. What Justice Dolliver ignores is that there is absolutely no remedy available to Indian Wells for the latent defects not discoverable within 15 days. This complete lack of remedy contravenes both the U.C.C. and public policy for the law does not permit a party to insulate itself from its own negligence.
*267Justice Brachtenbach in his dissent would hold the exclusionary clause unconscionable because Mt. Arbor dipped the trees in Ridomil in violation of state and federal pesticide law. He would uphold the trial court's award, including the award of consequential damages. Although I believe Justice Brachtenbach reaches the correct conclusion, his analysis is faulty. The unconscionability analysis is simply inapplicable to events that occurred after the formation of the contract, i.e., the Ridomil dipping. See RCW 62A.2-302 and Official Comment 1, RCWA 62A.2-302. The proper analysis is the failure of essential purpose analysis.
In sum, I would uphold the trial court's entire award of $2,081,854 because of the failure of the limited remedy made available to Indian Wells. Enforcing the clause leaves Indian Wells with no remedy for the latent defects caused by the Ridomil dipping. This result is simply not permitted by the U.C.C. or by public policy which prohibits a party from insulating itself from liability for conduct caused by its own negligence.
Reconsideration denied January 9, 1991.

Paragraph 1.6 of the parties' contract provides: " [Mt. Arbor] warrants only that the Trees delivered to [Indian Wells] shall have a caliper size greater than or equal to five-sixteenths of an inch . . .".To the extent this statement is intended to disclaim Mt. Arbor's express warranty to use standard techniques and to protect the trees, it is invalid. RCW 62A.2-316(1). See also Consolidated Data Terminals v. Applied Digital Data Sys., Inc., 708 F.2d 385 (9th Cir. 1983) (disclaimer ineffective against express warranty that a computer terminal would operate at a certain speed).

Por the trees that were not delivered and those that were rejected because of caliper size, the contract provided a number of nonexclusive remedies, and the U.C.C. provided still others, including cover and market price damages. Because these minimal remedies were available for other breaches, the majority concludes that a fair quantum of remedy was available to Indian Wells and, thus, there was no failure of essential purpose. What the majority ignores, however, is that there was absolutely no remedy available for the latent defects caused by the Ridomil dipping.

But see Fiorito Bros., Inc. v. Fruehauf Corp., 747 F.2d 1309 (9th Cir. 1984) (applying Washington law to invalidate exclusionary clause for failure of limited remedy) and Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable & Cold Storage Co., 709 F.2d 427 (6th Cir. 1983) (applying Washington law and reaching opposite result). The Ninth Circuit in Fiorito Bros., at 1314, specifically declined to follow the Sixth Circuit's opinion in Lewis Refrigeration Co.

Justice Brachtenbach cites cases in which a contract or contract provision has been held unconscionable under RCW 62A.2-302 because latent defects caused a remedy to fail of its essential purpose under RCW 62A.2-719. See, e.g., Trinkle v. Schumacher Co., 100 Wis. 2d 13, 301 N.W.2d 255 (Ct. App. 1980). I *266would decline to follow these cases. The unconscionability and failure of essential purpose doctrines are distinct, and confusing them, as in these cases, is unwise. Because the unconscionability analysis applies as of the date of the contract's formation, it must be the mere potential for latent defects that causes a limited remedy to fail under an unconscionability analysis. This analysis logically exposes any contract with the mere potential for latent defects, i.e., virtually every sales contract, to the risk of being declared unconscionable at its inception regardless of whether the limited remedy actually fails! This gives a buyer an unbargained-for advantage.
The unconscionability analysis applies to circumstances existing as of the contract's formation. The failure of essential purpose analysis applies to events occurring after formation, such as the Ridomil dipping. I would refrain from confusing the two.