Colgan v. Agway, Inc.

553 A.2d 143, 150 Vt. 373, 1988 Vt. LEXIS 187

• Court: Supreme Court of Vermont
• Decided: September 9, 1988
• Docket: 85-283
• Status: Published

Opinions

Hill, J.

Defendant-appellant Agway, Inc., appeals from a jury verdict in favor of plaintiff-appellee Colgan. We affirm. ,

After attending a local seminar given by Agway concerning the benefits of modern animal waste disposal systems, Colgan, a dairy farmer, entered into a standard contract with Agway for the construction of a manure storage facility. Under the agreement, plaintiff was responsible for preparing the construction site and providing a dirt berm around the exterior walls of the structure once it was completed. The defendant supplied the plans and agreed to construct the facility. Three years after the facility was completed, one wall of the structure collapsed.

The plaintiff brought suit against the defendant claiming that defendant breached its contract by failing to construct the facility in accordance with the contract specifications. The plaintiff also claimed that defendant failed to design the facility properly. It was further claimed that defendant was careless and negligent in the construction design, distribution, and sale of the facility.

The defendant answered and moved for summary judgment, relying on paragraph nine of the contract which, it claims, generally released it from any liability, except for that arising from defects in work or materials which appear within one year of completion of the contract. Paragraph nine of the contract provides, in relevant part:

ONE YEAR LIMITED WARRANTY — Contractor warrants all work and materials furnished under this contract to be free from defects in materials and faulty workmanship under normal use which appear within one (1) year . . . Contractor’s obligation under this warranty is limited to replacing or repairing at its option without charge any work or materials which examination shall disclose to Contractor’s reasonable satisfaction to be defective. This warranty is expressly IN LIEU OF ANY OTHER WARRANTY, EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND OF ANY OTHER OBLIGATIONS OR LIABILITY ON THE PART OF THE CONTRACTOR.

Defendant argued in its motion for summary judgment that the agreement barred any remedy for plaintiff’s loss as the collapse of the facility occurred more than a year after construction, and because the agreement acted as a general release. The court denied the motion. The defendant brings this appeal after the jury verdict and the denial of its motion for judgment notwithstanding the verdict or a new trial.

The only issue before this Court is whether the trial court erred in not granting defendant’s motion for summary judgment and in not directing a verdict in its favor based upon the agreement between the parties. It is defendant’s position that the above language releases it from any and all responsibility for the design and construction of the building other than the obligation to replace or repair any work and materials which appear defective within one year of completed construction. Defendant asserts that the provision in question is clear and unambiguous such that the plain meaning of the words must apply and no interpretation of the language is necessary.

It has long been the law of this jurisdiction that contractual provisions limiting the tort liability of parties to a contract are not per se unconscionable. See Lamoille Grain Co. v. St. Johnsbury & Lamoille County R.R., 135 Vt. 5, 7, 369 A.2d 1389, 1390 (1976); Osgood v. Central Vermont Ry., 77 Vt. 334, 347, 60 A. 137, 141 (1905). Moreover, this Court has consistently stated that when interpreting this type of contractual provision, the applicable rule of construction is the same as that for other questions of contract construction: “Where the language of the agreement is clear, the intention and understanding of the parties must be taken to be that which their agreement declares.” Lamoille Grain, 135 Vt. at 8, 369 A.2d at 1390 (citing Stevens v. Cross Abbott Co., 129 Vt. 538, 283 A.2d 249 (1971)).

Application of this rule of construction to particular contract language, however, does not yield an obvious result. The rule of construction can only be applied coherently if the applier recognizes that the meaning of particular contract language, like any other language, is not always absolutely clear. Clarity of language, like ambiguity, is a relative and not an absolute concept. See 4 Williston on Contracts § 609, at 402-04 (3d ed. 1961). It is the degree of clarity that language must convey in order to achieve a particular legal result which is the crucial question.

The courts have traditionally disfavored contractual exclusions of negligence liability, and, because of this orientation, have applied more exacting judicial scrutiny when interpreting this type of contractual provision. See Doyle v. Bowdoin College, 403 A.2d 1206, 1208 (Me. 1979); Gross v. Sweet, 49 N.Y.2d 102, 106, 400 N.E.2d 306, 308, 424 N.Y.S.2d 365, 367 (1979), Dilks v.' Flohr Chevrolet, Inc., 411 Pa. 425, 434, 192 A.2d 682, 687-88 (1963); 4 Williston on Contracts § 602A, at 325-26. In other words, a greater degree of clarity is necessary to make the exculpatory clause effective than would be required for other types of contract provisions. Heightened judicial scrutiny of contractual disclaimers of negligence liability take the form in Vermont of the rule that such disclaimers are exculpatory, they must be construed strictly against the parties relying on them. Douglass v. Skiing Standards, Inc., 142 Vt. 634, 637, 459 A.2d 97, 98 (1983).

What this rule of strict construction does is impose the requirement that contractual language disclaiming tort liability be clear enough that the intent of both parties to relieve the defendant of the claimed liability be unmistakable. As stated by one leading commentator:

If an express agreement exempting the defendant from liability for his negligence is to be sustained, it must appear that its terms were brought home to the plaintiff. ... It is also necessary that the expressed terms of the agreement be applicable to the particular misconduct of the defendant

W. Prosser & W. Keeton, The Law of Torts § 68, at 483-84 (5th ed. 1984). The test we adopt today is consistent with the rule of strict construction we have previously recognized: “In order for the agreement to assume the risk to be effective, it must. . . appear that its terms were intended by both parties to apply to the particular conduct of the defendant which has caused the harm.” Restatement (Second) of Torts § 496 B comment d (1965).

Defendant argues that the trial court found that the relevant contract language was clear, and that under Lamoille Grain, supra, the court was bound to apply the plain language of the contract immunizing it from tort liability. In Lamoille Grain, the trial court had expressly found that the contract language unambiguously immunized defendant from plaintiff’s claim, and this Court enforced the contract on that basis. Lamoille Grain, 135 Vt. at 8, 369 A.2d at 1390. What defendant’s argument fails to acknowledge, however, is that unlike, the trial court in Lamoille Grain, the trial court here did not find that the relevant exculpatory language clearly released defendant from all tort liability. Rather, the court merely found that the language was a clear disclaimer of warranty liability with respect to workmanship and materials, and, on that basis, granted defendant’s motion for directed verdict on the plaintiff’s warranty claim. In addition, and most importantly, the court found that, with respect to liability in tort for negligent design of the structure, the contract language was not clear and not specific enough to excuse defendant from such liability. We agree.

The most effective way for parties to express an intention to release one party from liability flowing from that party’s own negligence is to provide explicitly that claims based in negligence are included in the release. Thus, although a specific reference to negligence liability is not essential to effectively immunize a party from such liability, Douglass, 142 Vt. at 636, 459 A.2d at 98; Lamoille Grain, 135 Vt. at 8, 369 A.2d at 1390, in order for the agreement to have such an effect, “words conveying a similar import must appear.” Gross v. Sweet, 49 N.Y.2d at 108, 400 N.E.2d at 310, 424 N.Y.S.2d at 368; see also Lincoln Pulp & Paper Co. v. Dravo Corp., 436 F. Supp. 262, 273 & n.10 (D. Me. 1977) (A specific reference to negligence or a cognate, or the absence of such a reference, is a significant factor in determining whether a limitation clause excludes liability for damages arising from negligence.).

The exculpatory contract language relied on by defendant is contained in a limitation of liability provision of the contract. The title of this paragraph is “One Year Limited Warranty.” The first two sentences of the paragraph, which create the warranty and delineate its scope, refer exclusively to liability for workmanship and materials. Nowhere in these two sentences, nor in the third sentence, which contains the exculpatory language, is there any specific reference to negligence, tort liability, or any cognate, of either of those legal concepts.

Moreover, the purported release is located at the very end of a warranty clause of a performance contract which sets forth with particularity the parties’ respective performance obligations in separate paragraphs. Given the manner in which the remainder of the contract is drafted, it defies both logic and common sense that the parties would intend to release the seller from all liability arising out of defective design of the structure by tacking broad exculpatory language to the end of a limited warranty clause. We conclude that the trial court was correct in ruling that the contract language was not an effective release of defendant’s liability for negligent design of the facility.

Nothing in Douglass, supra, mandates or suggests a contrary result. The contract involved in that case was an agreement, signed by the plaintiff as a condition of his entry into an .inherently dangerous skiing competition, which was specifically drafted and intended to be a general release of the defendant ski area for any injuries suffered by plaintiff “as a result of his participation in the competition.” Douglass, 142 Vt. at 637, 459 A.2d at 98. While the contract did not include the word negligence, it did contain language which, in the context of the transaction in-, volved, manifested unmistakably the parties’ intent to release the defendant from the claimed liability.² That is not the case here.

While not directly applicable here because this case does not involve a contract for the sale of “goods” as defined in 9A V.S.A. § 2-105(1), we note that the principle of unconscionability embodied in 9A V.S.A. § 2-302(1) lends persuasive support to our holding. As stated in Comment No. 1 to § 2-302, “[t]he principle [of unconscionability] is one of the prevention of oppression and unfair surprise . . . .” 9A V.S.A. § 2-302, Uniform Laws Comments No. 1. Apart from the question of the relative bargaining power of the parties, we think that there is no question but that, in the commercial setting of this transaction, and in light of the relevant contract language discussed above, the plaintiff would have been unfairly surprised were he to be informed that, by virtue of the contract, the defendant was protected from any liability flowing from negligent design of the facility.

Affirmed.

2 The release in Douglass stated that plaintiff agreed “to release, hold harmless and forever discharge [defendants] from any and all claims, demands, liability, right or causes of action of whatsoever kind of [sic] nature which [plaintiff] may have, arising from or in any way connected with, any injuries, losses, damages, suffering . . . which” he might sustain as a result of his participation in the competition. Douglass, 142 Vt. at 637, 459 A.2d at 98.