Will an Alabama court enforce this clause excluding or capping our liability?
Which test applies turns on what the court calls the clause, and the line is less clean than the labels suggest. For an exculpatory clause, the Supreme Court of Alabama in Morgan v. South Central Bell Telephone Co. concluded that the best rule, and the simplest in application, is that exculpatory clauses affecting the public interest are invalid, and adopted the six criteria from Tunkl v. Regents of the University of California to identify the kind of agreement in which an exculpatory clause is invalid as contrary to public policy. It held that the transaction before it, a telephone company's Yellow Pages advertising contract, clearly met those criteria, found that the plaintiffs did not have a meaningful choice and that the defendants had the bargaining power in a gross and unbalanced manner, held the clause unenforceable as invalid and contrary to public policy, and reversed and remanded for a new trial. For a clause the court treats as capping rather than eliminating liability, the Court in Fox Alarm Co. v. Wadsworth held the plaintiff's reliance on Morgan misplaced: an exculpatory clause, on the definition the Court took from a dictionary of law, relieves a party from liability resulting from a negligent or wrongful act, while at issue there was a limitation-of-liability clause, not an exculpatory clause. On the authority of Fleming Farms v. Dixie AG Supply, once the party seeking to enforce a limitation-of-liability clause makes a prima facie showing that the clause is not unconscionable, the burden shifts to the plaintiff to present substantial evidence to the contrary: in Fleming Farms the plaintiffs failed to meet that burden and the clause precluded recovery of consequential damages, and in Fox Alarm the Court held the $250 clause enforceable, reversed a $200,000 negligence verdict and remanded with directions to limit the award to $250. Four Justices concurred in part and dissented in part from that reversal, on preservation rather than on the doctrine.
The trap
Do not read the label as a safe harbour. The clause Morgan struck down was itself a cap: liability for an omitted Yellow Pages advertisement "shall in no event exceed the amount of charges for the advertising which was omitted", discharged "by an abatement of the charges". Morgan called that an exculpatory clause and measured it against the Tunkl criteria, all six of them: a business of a type generally thought suitable for public regulation; a service of great importance to the public, often a practical necessity; the party holding itself out as willing to perform the service for any member of the public who seeks it; a decisive advantage of bargaining strength; a standardized adhesion form with no provision letting the purchaser pay more for protection against negligence; and the purchaser's person or property placed under the seller's control, and voided it. Twenty years later Fox Alarm upheld a $250 cap in an alarm-monitoring contract by holding the plaintiff's reliance on Morgan misplaced. Part of what differed was the record, not the doctrine: Fox Alarm made a prima facie showing of no unconscionability and the plaintiff presented nothing to refute it, having raised ambiguity and unconscionability for the first time on appeal, while Fox Alarm's own argument that the contract exculpated it was held unpreserved and never decided. The burden-shift the cap side relies on comes from Fleming Farms, a sale-of-goods case where the clause was tested under §§ 7-2-316(4) and 7-2-719(3) and the prima facie showing rested on agricultural chemicals being sold on an industry-wide basis subject to an exclusion of consequential damages: a usage of trade the court was shown on that record, and a sentence Fleming Farms was itself quoting from Southland Farms. Fox Alarm then carried the same burden-shift across to an alarm-monitoring services contract with no trade-usage finding at all, holding only that Fox Alarm made a prima facie showing that the clause was not ambiguous or unconscionable and that the plaintiff put up nothing against it: having raised ambiguity and unconscionability for the first time on appeal. So what an enforcing party must show to make the shift happen is, on these two cases, unsettled, and it was never contested in the one case that extended it. Two points survive both cases: on an exculpatory clause the burden of proof sits on the party attempting to enforce it, and a cap that leaves a stated money remedy and recites why actual damages are impractical and extremely difficult to fix fared better than one that reduced the remedy to an abatement of the charge. Shifting liability for one's own negligence onto the other party is a different question again, governed by Industrial Tile's clear-and-unequivocal standard.
20 authorities
The words that state the rule
A review of the various methods by which other states have dealt with exculpatory clauses and their refusal to enforce them convinces us that the best rule, and the simplest in application, is that exculpatory clauses affecting the public interest are invalid. That rule was set forth by the California Supreme Court in Tunkl v. Regents of the University of California, 60 Cal.2d 92 , 32 Cal.Rptr. 33 , 383 P.2d 441 (1963). Six criteria were established to identify the kind of agreement in which an exculpatory clause is invalid as contrary to public policy.
The words that state the rule
The transaction before this court clearly meets the Tunkl criteria. The contract arises out of a private business transaction of the telephone company which in all other respects is regulated by the Public Service Commission in performing its services.
The words that state the rule
In Fleming Farms v. Dixie AG Supply, Inc., 631 So.2d 922 (Ala.1994), this Court stated that once the party seeking to enforce a limitation-of-liability clause makes a prima facie showing that the clause is not unconscionable, the burden shifts to the plaintiff to present substantial evidence to the contrary. This Court concluded in that case that the plaintiffs had failed to meet their burden and held, therefore, that the limitation-of-liability clause was not unconscionable.
The words that state the rule
Wadsworth argues that Fox Alarm did not meet its burden under Morgan v. South Central Bell Telephone Co., 466 So.2d 107 (Ala.1985), of showing that the limitation-of-liability clause is enforceable. Wadsworth's reliance on Morgan , however, is misplaced. In Morgan , this Court addressed exculpatory clauses and set out a six-part test for analyzing the validity of such clauses. 466 So.2d at 117 . An exculpatory clause "reliev[es] a party from liability resulting from a negligent or wrongful act." Black's Law Dictionary 608 (8th ed.2004). At issue in this case, however, is a limitation-of-liability clause, not an exculpatory clause. Thus, Wadsworth's reliance on Morgan is misplaced.
The words that state the rule
“... [1] It concerns a business of a type generally thought suitable for public regulation. [2] The party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some member of the public. [3] The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least any member coming within certain established standards. [4] As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. [5] In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract or exculpation, and makes no provision whereby a purchaser may pay additional fees and obtain protection against negligence. [6] Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents.”
The words that state the rule
The liability of the Telephone Company, or of any person or firm soliciting advertising for it, on account of errors in or omissions of the advertising described on the reverse side, or advertising changes or deletions subsequently ordered by the applicant by telephone or otherwise, shall in no event exceed the amount of charges for the advertising which was omitted or in which the error occurred in the then current directory issue, and such liability shall be discharged by an abatement of the charges for the particular listing or advertisement in which the omission or error occurred.
The words that state the rule
We are satisfied that the plaintiffs did not have a meaningful choice relative to the inclusion of an exculpatory clause in the 1980 Bessemer contract and that the defendants had the bargaining power in a gross and unbalanced manner in determining the terms and conditions in the directory advertisement. Therefore, the exculpatory clause is unenforceable because, under the criteria above established, it is invalid as contrary to public policy. For the above stated reasons, we reverse the trial court’s judgment and remand the cause to that court for new trial.
The words that state the rule
We recently considered the issue of exculpatory clauses relative to the residential leases in Lloyd v. Service Corp. of Alabama, 453 So.2d 735 (Ala.1984). There we held that we would refuse to enforce exculpatory clauses in residential leases where not clearly bargained for and where the parties to the contract are not in an equal bargaining position. The burden of proof was placed on the party attempting to enforce the exculpatory clause. The instant case illustrates the need for a more comprehensive rule concerning exculpatory clauses.
The words that state the rule
The limitation-of-liability clause found in the contract states, in pertinent part: "It is impractical and extremely difficult to fix the actual damages, if any, which may proximately result from the failure on the part of [Fox Alarm] to perform any of its obligations hereunder: therefore should [Fox Alarm] be found liable for loss, damage, or injury due to a failure of service or equipment in any respect, its liability shall be limited to a sum equal to the monitoring charge hereunder for a period of service not to exceed (6) months or $250.00 (whichever is greater) as agreed upon damages and not as a penalty, as the exclusive remedy: and the provisions of this paragraph shall apply if loss, damage or injury, irrespective of cause or origin, results directly or indirectly to person or property from the performance or obligator [sic] imposed by this Agreement.
The words that state the rule
Similarly, in this case, Fox Alarm made a prima facie showing that the limitation-of-liability clause is not ambiguous or unconscionable, and Wadsworth did not present evidence to refute that showing.
The words that state the rule
At trial, Wadsworth did not argue that the contract was ambiguous or unconscionable; he argued that Fox Alarm had not met its burden of proving that the limitation-of-liability clause was valid under Camelot Music, Inc. v. Marx Realty & Improvement Co., 514 So.2d 987, 990 (1987)(setting out the criteria for determining whether a limitation-of-liability clause is valid or is a penalty provision that is void as against public policy). This Court will not consider an argument raised for the first time on appeal.
The words that state the rule
Therefore, we hold that Fox Alarm did not preserve for appeal its arguments that it did not owe Wadsworth a duty and that, even if it did, the contract exculpated Fox Alarm.
The words that state the rule
We agree, and we hold that the limitation-of-liability clause found in the contract is enforceable and that the trial court erred when it refused to limit Fox Alarm's damages to $250 and twice overruled Fox Alarm's objections to the instruction on damages.
The words that state the rule
We affirm the judgment of the trial court as to Wadsworth's negligence claim. However, we hold that Wadsworth's contract with Fox Alarm limited Fox Alarm's liability to $250; therefore, we reverse the judgment insofar as it awarded Wadsworth $200,000 and remand this case to the trial court to limit the damages awarded to Wadsworth to $250.
The words that state the rule
NABERS, C.J., and HOUSTON, BROWN, and STUART, JJ., concur. LYONS, JOHNSTONE, HARWOOD, and WOODALL, JJ., concur in part and dissent in part.
The words that state the rule
LYONS, Justice (concurring in part and dissenting in part). I concur in all aspects of the main opinion except insofar as it reverses the damages award entered by the trial court, holding "the trial court erred when it refused to limit Fox Alarm's damages to $250 and twice overruled Fox Alarm's objections to the instruction on damages." 913 So.2d 1077 (emphasis added). Fox Alarm never requested an instruction limiting its damages to $250. The main opinion concludes that Fox Alarm preserved for review the trial court's error in not enforcing the limitation-of-liability clause in the contract. However, the trial court's ruling was based on its erroneous conclusion as to the mootness of the question whether the clause applied. Fox Alarm never called the trial court's attention to the error of that conclusion.
The words that state the rule
Dixie Ag made a prima facie showing that the limitation of liability clause was not unconscionable; this showing shifted the burden to the plaintiffs to present substantial evidence to the contrary, so as to create a genuine issue of material fact. This they failed to do. Therefore, we must conclude that the limitation of liability clause was not unconscionable and, consequently, that it precludes the recovery of consequential damages. Therefore, the summary judgment was proper for Dixie Ag on the plaintiffs' claims alleging breach of express warranty.
The words that state the rule
Thus, as permitted by § 7-2-316 (4), and § 7-2-719 (3), Dixie Ag attempted to contractually limit the plaintiffs' remedies for breach of warranty.
The words that state the rule
The invoices/receipts accompanying the Super Shot 40, and received by the plaintiffs, contained the following language: "WARRANTY DISCLAIMER "SELLER IS A DISTRIBUTOR OF PRODUCTS MANUFACTURED AND WARRANTED BY OTHERS. THE GOODS SOLD TO YOU BY THIS INVOICE AND CONTRACT ARE FURNISHED 'AS IS' BY SELLER AND ARE SUBJECT ONLY TO THE MANUFACTURER'S WARRANTIES WHICH APPEAR ON THE LABELS OF THE PRODUCTS SOLD TO YOU. "SELLER MAKES NO WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. "LIMITATION OF LIABILITY "In no event shall seller be liable for special, incidental, or consequential damages, or for damages in the nature of penalties. "Seller shall not be liable to dealer or, by way of indemnification, to customers of dealers for any damages, sums of money, claims or demands whatsoever, resulting from or by reason of, or arising out of, the misuse, or the failure to follow label warnings or instructions for use, of the products sold by seller to dealer. Conflicts between seller's invoice or delivery ticket and dealer's purchase order regarding issues of liability shall be treated separately and the voidance of such provisions shall not affect the other terms or conditions on the invoice.
The words that state the rule
In Southland Farms, Inc. v. Ciba-Giegy Corp. , 575 So.2d 1077 (Ala. 1991), the United States Court of Appeals for the Eleventh Circuit certified to this Court a question asking whether, under Alabama law, a disclaimer of consequential damages in the sale of agricultural products was reasonable and precluded recovery of such damages. Southland Farms, a corporation engaged in growing and marketing potatoes, purchased a product designed to prevent nut grass and potato rot. After using the product on its potato fields, the corporation experienced damage to a portion of its crop caused by nut grass and potato rot. The product was sold with a label that contained instructions for use, a warranty disclaimer, and a limitation of liability clause. In upholding the limitation of liability clause excluding consequential damages, this Court, recognizing the public policy allowing a seller to limit the remedies available to a buyer, stated: "The Uniform Commercial Code recognizes the validity of a limitation or exclusion of consequential damages where the loss is commercial. [Quoting § 7-2-719 (3).] ". . . . "Where a provision excluding consequential damages is so widely used and accepted in a particular trade that it can be characterized as a 'usage of trade,' it has been found to be reasonable. Comment 6 to § 7-1-205 makes it clear that a contract clause resting on 'usage of trade,' while not immune from a charge of unconscionability, is prima facie 'reasonable' due to its broad-based commercial acceptance: " '6. The policy of this Act controlling explicit unconscionable contracts and clauses (Sections 7-1-203 , 7-2-302 ) applies to implicit clauses which rest on usage of trade and carries forward the policy underlying the ancient requirement that a custom or usage must be 'reasonable.' However, the emphasis is shifted. The very fact of commercial acceptance makes out a prima facie case that the usage is reasonable, and the burden is no longer on the usage to establish itself as being reasonable. But the anciently established policing of usage by the courts is continued to the extent necessary to cope with the situation arising if an unconscionable or dishonest practice should become standard.' " Agricultural chemicals are sold, on an industry-wide basis, subject to an exclusion of liability for consequential damages. . . . Clauses excluding consequential damages are permitted under the U.C.C. because they are an allocation of unknown or undeterminable risks. Comment 3, § 7-2-719 . ". . . . " . . . [A] consequential damages exclusion in the commercial context of the sale of agricultural chemicals is an accepted method of risk-shifting in the industry. " 575 So.2d at 1079-81 .
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.