A & M Produce Co. v. FMC Corp.

Court of Appeals of California, Fourth District, Division One · 1982 · Contracts

ContractsUnconscionabilityWarranty disclaimersLimitation of consequential damagesAttorney's feesPrejudgment interestUCCform contract

Facts

A & M, an Imperial Valley farming company with no prior experience using tomato weight-sizing equipment, consulted FMC about buying a machine for its tomato operation. FMC representatives recommended equipment and, according to A & M, represented that a hydrocooler was unnecessary because FMC's equipment operated fast enough; the final preprinted contract later mailed to A & M contained on its reverse side a warranty disclaimer and a consequential-damages exclusion. After delivery and installation, the machine could not process the tomatoes adequately, causing overflow, crop damage, and shutdown of A & M's packing shed. A & M sued for breach of warranty, and the trial court found the disclaimer and exclusion unconscionable.

Issue

Whether the trial court properly held FMC's preprinted warranty disclaimer and consequential-damages exclusion unconscionable and unenforceable in this commercial sales contract. The court also considered whether the consequential-damages award was too speculative and whether A & M could recover attorney's fees and prejudgment interest.

Rule

Unconscionability has both procedural and substantive elements. Procedural unconscionability focuses on oppression, arising from unequal bargaining power and lack of meaningful choice, and surprise, arising from terms hidden in a prolix printed form; substantive unconscionability concerns overly harsh, one-sided, or unjustified allocations of risk evaluated at the time of contracting. A court may refuse to enforce not only an unconscionable consequential-damages limitation, but also an unconscionable warranty disclaimer, even if the disclaimer technically satisfies the specific statutory requirements for disclaimers.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Sierra Valley Orchards, a midsize grower near Fresno, bought a specialized fruit-sorting machine from Golden Mesa Systems, a national equipment manufacturer. Golden Mesa's salesperson recommended the model after learning Sierra Valley had never used such machinery; the signed order form later mailed to Sierra Valley contained, on the back, a conspicuous disclaimer of all implied warranties in bold type.

If the machine cannot perform the sorting capacity Golden Mesa's representatives said Sierra Valley would need, which is the strongest argument that the disclaimer may be unenforceable?

Explanation. The majority held that unconscionability review applies to warranty disclaimers even if they technically satisfy the statute governing disclaimers. The court looked to procedural unconscionability (oppression and surprise) and substantive unconscionability (an overly harsh, unjustified allocation of risk). A disclaimer that leaves the buyer with no enforceable assurance of basic performance, especially where the buyer relied on the seller's expertise, may be unenforceable.