Adams v. American Cyanamid Co.

Court of Appeals of Nebraska
498 N.W.2d 577 (1992)

ELI5:

Rule of Law:

For a manufacturer's disclaimer of the implied warranty of merchantability to be effective, it must not only be conspicuous but must also be provided to the buyer, affording them a reasonable opportunity to read it. A contractual limitation on consequential damages is unenforceable if it is found to be both substantively and procedurally unconscionable.

Facts:

In 1989, William Timothy Adams hired a crop consultant, Glenn Johnson, who recommended applying Prowl herbicide, manufactured by American Cyanamid Company, to Adams's 860 acres of bean fields.
Adams purchased the Prowl herbicide from Panhandle Cooperative Association, whose employee applied it to the fields.
Following the application, the bean plants in the treated fields became weakened and the crop was ultimately lost.
In two areas where Prowl was not applied—a strip where a center pivot was parked and a 10-acre section of new sod—the bean plants flourished.
An expert testified that Prowl, a dinitroaniline herbicide, causes a specific type of root damage consistent with the damage observed in Adams's bean plants.
The label for Prowl, which contained a disclaimer of warranties and a limitation of remedies, was located within a 107-page manual.
Adams testified that he never received this manual or the label at the time he purchased the herbicide.

Procedural Posture:

William and Carol Adams sued American Cyanamid Company and Panhandle Cooperative Association in a Nebraska trial court.
The case was tried before a jury on theories of strict liability and breach of the implied warranty of merchantability.
The jury returned a general verdict for the Adamses in the amount of $193,500.
The jury also entered special verdicts finding that American Cyanamid was strictly liable and had breached the warranty of merchantability.
American Cyanamid filed a motion for judgment notwithstanding the verdict and a motion for a new trial, both of which the trial court overruled.
American Cyanamid, as appellant, appealed the judgment to the intermediate appellate court.

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Issue:

Does a manufacturer's conspicuous disclaimer of the implied warranty of merchantability and limitation of consequential damages shield it from liability for crop loss when the buyer disputes ever receiving the disclaimer and the limitation clause is unconscionable?

Opinions:

Majority - Connolly, Judge

No. A manufacturer's disclaimer and limitation of remedies do not shield it from liability if the buyer never had an opportunity to see them or if the terms are unconscionable. While there was insufficient evidence to support a claim for strict liability because the plaintiffs failed to prove the herbicide was 'unreasonably dangerous,' there was sufficient evidence for a jury to find a breach of the implied warranty of merchantability. A herbicide that damages the crop it is intended to protect is not fit for its ordinary purpose. The court held that the disclaimer of warranty, though conspicuous as a matter of law, is ineffective if the buyer never received it. A factual dispute existed as to whether Adams was ever given the manual containing the disclaimer, and the trial court's failure to instruct the jury on this critical issue of receipt constitutes plain error requiring a new trial. Furthermore, the court found the clause limiting consequential damages to be both substantively and procedurally unconscionable. It was substantively unconscionable because it was a one-sided agreement that left the farmer without any substantial recourse for his loss. It was procedurally unconscionable because Adams had no bargaining power, as all herbicide manufacturers used similar clauses, and he was not in a position to negotiate more favorable terms.

Analysis:

This decision reinforces that the effectiveness of Uniform Commercial Code (UCC) disclaimers hinges on them being part of the 'bargain in fact' between the parties, which requires more than just conspicuous drafting; it requires communication to the buyer. The court's robust application of the unconscionability doctrine in a commercial setting demonstrates a willingness to protect parties with vastly inferior bargaining power, even outside of typical consumer transactions. This case establishes a significant precedent in agricultural law by holding that standard industry-wide liability limitations may be voided if they are oppressively one-sided and imposed without a meaningful opportunity for negotiation, thereby impacting how manufacturers of agricultural products structure their warranties and remedy limitations.

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