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Cox v. Lewiston Grain Growers Inc.

May 15, 1997


Appeal from Superior Court of Garfield County. Docket No: 5133. Date filed: 06/21/95. Judge signing: Hon. Donald Schacht.

Authored by Philip J. Thompson. Concurring: John A. Schultheis, Ray E. Munson.

The opinion of the court was delivered by: Thompson

THOMPSON, J. William and Terrilie Cox (Mr. Cox) purchased certified winter wheat seed from Lewiston Grain Growers (LGG). The fields where he planted the seed failed to produce a crop. Mr. Cox sued LGG claiming the seed was defective. After a bench trial, the court entered judgment in favor of Mr. Cox. LGG now appeals contending the court erred by: (1) applying Washington law to the transaction; (2) concluding the warranty disclaimer and limitation of remedies clause was unenforceable; (3) concluding an express warranty existed and was breached; (4) concluding several provisions of the Seed Act and the Consumer Protection Act (CPA) were violated; (5) failing to conclude LGG had an applicable defense to the CPA violations; and (6) holding insurance payments Mr. Cox received were collateral source payments. We affirm.

William and Terrilie Cox own and operate a farming and ranch business on leased property in Garfield and Columbia counties. LGG is an Idaho corporation authorized to do business in Washington. LGG sells agricultural seeds to farmers. All of LGG's business operations are located in Idaho except for one in Pullman, Washington.

Kevin W. Whittaker, a former employee of Mr. Cox, worked for LGG in 1991. In the summer of 1991, Mr. Whittaker began contacting Mr. Cox and other Garfield county farmers about buying winter wheat seed from LGG. He initiated all the contacts. Mr. Cox agreed to buy Stephens variety certified winter wheat seed from LGG that year.

In 1991, LGG had several lots of certified Stephens variety winter wheat seed, including Lot No. 44A/3003 (Lot 3). LGG delivered a sample of untreated Lot 3 seed to the Idaho State Seed Laboratory for germination testing. The germination rate for the untreated seed from Lot 3 was 98 percent. After receiving results of the test, Mr. Whittaker treated the seed with insecticides and fungicides to protect the seed. Pursuant to its usual practice, LGG then sent a sample of the treated seed to the lab for germination testing. The report for that test, issued November 4, 1991, stated the germination rate for the treated Lot 3 seed was 82 percent. In order for seed to be certified in either Washington or Idaho, the germination rate must be at least 85 percent.

On October 10, 1991, Mr. Cox made arrangements to pick up a load of certified seed in Idaho. Mr. Whittaker loaded 9,300 pounds of treated seed from Lot No. 44A/3161 (Lot 3161) into Mr. Cox's truck. He issued a delivery ticket to the truck driver stating the seed was certified. The ticket also disclaimed any express or implied warranties, and limited LGG's liability to the purchase price of the seed. The terms on the ticket were never discussed. Thereafter on specified dates, Mr. Cox picked up certified seed in Idaho, all from Lot 3: October 26, 1991 (16,020 pounds); November 15 (15,680 pounds); November 17 (18,140 pounds); November 23 (22,920 pounds). He also picked up 5,360 pounds of certified seed on November 15 from Lot 3161. Mr. Cox received a delivery ticket containing the disclaimer and limited remedy clause for each pick up. He did not receive any bulk sale certificates. Mr. Cox was never told that the minimum germination level was not met on the treated seed. One LGG representative stated he would not have sold the Lot 3 seed as certified given the treated seed test results. Mr. Cox paid for all of the seed.

Mr. Cox seeded 856 acres of his land with Lot 3 seed; 240 acres with Lot 3161 seed, and 6 or 7 acres with seed from another supplier. Weather problems caused Mr. Cox to begin his seeding later than normal. In January 1992, he noticed the acreage that was planted with Lot 3 seed did not have a normal stand. Mr. Cox then contacted Dave Storm of Western Farm Services regarding this crop problem. Chad Shelton, an agronomist with Western Farm Services, went to the Cox farm to examine the crop. Mr. Shelton discovered that the Lot 3 seed had poor emergence, but the non-Lot 3 seed crops planted in the same conditions were doing fine.

Mr. Cox contacted Mr. Whittaker about the crop problems. In February 1992, Mr. Cox and Mr. Shelton met with LGG representatives, Messrs. Whittaker, Mingo and Cannon, to examine the crops. Mr. Cannon collected samples from the fields for testing, but they could not be tested. He then took some Lot 3 seed from LGG's inventory and sent it to Washington State University (WSU) for analysis. Mr. Cannon then met with Mr. Cox and asked him to sign a letter in which LGG disclaimed any seed problem, but agreed to provide barley for reseeding on a deferred billing plan. Mr. Cox refused to sign the letter.

The WSU tests indicated the germination rate for the treated seed from Lot 3 ranged from 22 to 24 percent. Mr. Cannon did not give this information to Mr. Cox. Mr. Cannon then requested additional tests. These tests showed a germination rate of 42 percent. These tests also stated there was extensive seed damage to the seed coat which adversely affected germination. Mr. Cannon did not disclose these test results either. All the fields Mr. Cox planted with Lot 3 seed were deemed total losses, and he was advised to reseed the fields with spring barley. LGG provided the barley seed to Mr. Cox without making any agreements as to payment. LGG received six or seven other complaints about Lot 3 seed, and all complainants received free barley seed.

Mr. Cox had a crop insurance policy with Continental Insurance which covered the wheat crop in question. The policy insured against crop loss due to environmental causes. The policy did not provide relief for losses due to seed problems. Mr. Cox submitted a claim to Continental which attributed his loss to environmental causes. He also submitted a claim for the crop loss due to environmental causes to the federal Agricultural Stabilization and Conservation Service (ASCS). Mr. Cox recovered $52,241 from Continental, and $11,889 from ASCS.

Mr. Cox also sued LGG for money damages alleging Seed Act violations, CPA violations, breach of warranty, and negligence. He claimed damages for the crop failure equaling $106,631.97. He also claimed a $9,185.36 loss from having to plant barley seed, and $8,898.15 for the cost of the defective seed for a total loss of $124,715.48. After a bench trial, the court entered judgment in favor of Mr. Cox for $146,930.93. The award included his attorney fees and costs. LGG now appeals.

The first question before this court is whether Idaho or Washington law should apply to the disclaimer of the warranty of merchantability and the limitation of remedies clause (exclusionary clause) contained in the delivery ticket. A court will engage in a choice of law analysis when an actual conflict exists between Washington law and the law of another state. Rice v. Dow Chem. Co., 124 Wash. 2d 205, 210, 875 P.2d 1213 (1994). When no conflict exists, Washington law applies. Id. When a conflict does exist, the law of the forum which has the most significant contacts to the action will apply. Id. at 213.

The first inquiry for this court is whether a conflict exists between Washington and Idaho law regarding the warranty disclaimer and the exclusionary clause in the contract. In both states the Uniform Commercial Code Article 2 would apply to this transaction because it involves a sale of goods. RCW 62A.2-102; Idaho Code sec. 28-2-102. Under Article 2, in either state, a seller may disclaim the warranty for merchantability so long as it states the word "merchantability" and is conspicuous. RCW 62A.2-316(2); Idaho Code sec. 28-2-316(2). Idaho only applies the requirements of the statute in interpreting warranty disclaimer cases. See Myers v. A. O. Smith Harvestore Prods., Inc., 114 Idaho 432, 757 P.2d 695, 700 (1988); Snake River Equip. Co. v. Christensen, 107 Idaho 541, 691 P.2d 787, 795-96 (1984); Glenn Dick Equip. Co. v. Galey Constr., Inc., 97 Idaho 216, 541 P.2d 1184, 1194 (1975). Idaho courts also strictly construe limitation of remedy clauses. Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784, 796-97 (1978). Washington disfavors disclaimers and finds them to be ineffectual unless they are explicitly negotiated and set forth with particularity. Berg v. Stromme, 79 Wash. 2d 184, 196, 484 P.2d 380 (1971) (Berg rule). See also Schroeder v. Fageol Motors, Inc., 86 Wash. 2d 256, 261, 544 P.2d 20 (1975). ...

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