Keller v. A.O. Smith Harvestore Products, Inc.

Chief Justice ROVIRA

dissenting:

This case arises out of a dispute regarding agricultural feed and storage structures manufactured by A.O. Smith Harve-store Products, Inc. (Harvestore) and purchased and used by the respondents Alfred and Martha Keller (Kellers) on their dairy farm. The written sales agreement contained certain express limited warranties, disclaimers of warranties, and limitations of remedies by and for the benefit of the Kellers, Harvestore, and the seller. It also contained an express acknowledgement by the Kellers that the purchases were not made in reliance upon any advertisements, brochures, or other written statements which they may have read, and that no oral statements or agreements not contained within the agreement would be binding upon any party.

Prior to trial, all of the Kellers’ claims, except claims for fraudulent and negligent misrepresentation, were dismissed. The case proceeded to trial against Harvestore on those claims and the jury found for the Kellers on the negligent misrepresentation claim, and for Harvestore on the fraudu *75 lent misrepresentation claim. After an appeal by Harvestore to the United States Court of Appeals for the Tenth Circuit, that court certified the two questions set out in the majority opinion. Maj. op. at 70.

The majority opinion holds that a cause of action for negligent misrepresentation based upon section 522(1) of the Restatement (Second) of Torts (1965), lies against the manufacturer of a product for representations made during the course of the sale of that product, despite the execution of a fully integrated sales agreement. This conclusion is based on the rationale that: (1) a claim of negligent misrepresentation independent of any principle of contract law may be available to a party to that contract; (2) section 552(1) defines negligent misrepresentation; (3) thus, a party’s negligent misrepresentation of material facts prior to the signing of an agreement may provide the basis for an independent tort claim by the other party. Maj. op. at 72. Because I believe that the majority confuses tort and contract principles and negates the provisions of a contract freely entered into, I dissent.

The majority states that a claim for relief based on section 552 of the Restatement of Torts is available in Colorado. I assume solely for the purpose of this case that such a claim exists, and, as does the first certified question, that manufacturers of products are subject to section 552. I do not express any opinion on whether it is necessary to establish that Harvestore was in the business of supplying information for the guidance of others in their business transactions with third parties before a claim for negligent misrepresentation under section 552 may be maintained.

Allowing a party to sue for representations made prior to the execution of a contract, although the contract specifically states that such representations are not to be relied upon and are not binding, is antithetical to the principles of freedom of contract. The official comment to section 4-1-102 of the Uniform Commercial Code (Code) which governs commercial transactions in Colorado provides that freedom to contract is a principle of the Code. § 4-1-102, comment 2, 2 C.R.S. (1973). Contracts between competent parties, voluntarily and fairly made, should be enforceable according to the terms to which they freely commit themselves. Rio Grande Jewelers v. Data General Corp., 101 N.M. 798, 800 , 689 P.2d 1269, 1271 (1984). Parties to a contract should be able to allocate risk, and determine their rights and liabilities under a contract, such as disclaiming liability for negligent representations made prior to the sale. See Tokio Marine & Fire Ins. Co. v. McDonnell Douglas Corp., 617 F.2d 936 (2d Cir.1980); Berkel & Co. Contractors, Inc. v. Providence Hospital, 454 So.2d 496 (Ala.1984); Burroughs Corp. v. Datacap, 124 A.D.2d 622 , 507 N.Y.S.2d 882 (1986); Stanley v. Miro, 540 A.2d 1123 (Me.1988); Meeting Makers, Inc. v. American Airlines, 513 So.2d 700 (Fla.App.1987).

The majority opinion acknowledges the principle that generally, contracting parties can use integration clauses to limit future contractual disputes relating to the reciprocal obligations expressly set forth in the executed document. Maj. op. at 72. Yet, it holds that when a party claims that another party has negligently misrepresented information essential to an informed decision, the provisions of the contract are of no consequence because the claim is based “on principles of duty and reasonable conduct.” Maj. op. at 73. Tort law should not be a means of circumventing the principles of contract law. “The effect of confusing the concept of contractual duties, which are voluntarily bargained for, with the concept of tort duties, which are largely imposed by law, would be to nullify a substantial part of what the parties expressly bargained for — limited liability.” Isler v. Texas Oil & Gas Corp., 749 F.2d 22, 23 (10th Cir.1984). “Tort law proceeds from a long historical evolution of externally imposed duties and liabilities. Contract law proceeds from an even longer historical evolution of bargained-for duties and liabilities.” Id. “Important to the vitality of contract is the capacity voluntarily to define the consequences of breach of a duty before assuming the duty.” Id. The idea that tort law should not be a means of circumventing the' *76 principles of contract law was expressed in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 , 106 S.Ct. 2295 , 90 L.Ed.2d 865 (1986). In that case, the injury was to the product itself, and the plaintiffs sued under a tort theory. In deciding that contract law and not tort law should control such an action, the Court relied on the principle that the parties should be able to set the terms of their agreements and that in exchange for a restriction on liability, the purchaser pays less for the product. Id. at 872-73 , 106 S.Ct. at 2302-03 .

I disagree that the contract must specifically disclaim negligent misrepresentation claims in order for the disclaimer to be effective, as the majority opinion holds. Maj. op. at 73 (parol evidence rule not applicable where agreement does not bar the assertion of negligent misrepresentation tort claims). Where there is no ambiguity, the agreement will be enforced according to the express provisions of the contract, giving words their plain and generally accepted meaning. See, e.g., Public Serv. Co. v. City & County of Denver, 153 Colo. 396, 403 , 387 P.2d 33, 36 (1963); U.S. Fidelity & Guar. Co. v. First Nat'l Bank of Fort Morgan, 147 Colo. 446, 450 , 364 P.2d 202, 205 (1961). The contract expressly provides that “no oral statements or agreements not confirmed herein, or by a subsequent written agreement, shall be binding on either the Seller or Buyer,” and that “Buyer recognizes that any advertisements, brochures, and other written statements which he may have read ... as well as any oral statement which may have been made to him, concerning the potential of the Harvestore ... are not guarantees and he has not relied upon them as such.” This language makes it clear that representations made prior to signing of the contract were not to be relied upon and would not be binding upon either party. This disclaimer was valid and no specific reference to negligent misrepresentation claims is necessary in order to preclude the bringing of such claims.

Finally, section 4-1-103, 2 C.R.S. (1973), of the Colorado Uniform Commercial Code provides in part: “Unless displaced by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to ... misrepresentation ... or other validating or invalidating cause shall supplement its provisions.” Thus, negligent misrepresentation will not lie if in conflict with the particular provisions of the Code.

A claim of negligent misrepresentation under the Restatement displaces the particular provision of section 4-2-202, 2 C.R.S. (1973). This section provides that terms which are set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms may not be contradicted by evidence of any pri- or agreement or of a contemporaneous oral agreement. “It is well-settled that the par-ol evidence rule excludes extrinsic evidence which varies or contradicts the express terms of a written agreement, and that the rule applies to sales transactions as well as to other types of contracts.” Sentinel Acceptance Corp. v. Colgate, 162 Colo. 64, 66 , 424 P.2d 380, 382 (1967). Thus, representations made prior to the contract are not to be admitted into evidence where the contract expressly provides, as it did here, that the contract is fully integrated and prior oral or written agreements not within the contract are not to be relied upon and are not binding.

The majority is correct in asserting that the parol evidence rule is inapplicable where the allegation is fraudulent misrepresentation that induces the individual to enter into the agreement. Maj. op. at 73. See Bill Dreiling Motor Co. v. Shultz, 168 Colo. 59 , 450 P.2d 70 (1969). However, hére the jury found that there was no fraudulent misrepresentation. The majority cites several Colorado eases where the court refused to apply the parol evidence rule, but none of these cases involved negligent misrepresentations made about the product.

In my opinion, the fully integrated sales agreement precludes the bringing of an action for negligent misrepresentation. Public policy encourages freedom between competent parties to enter into contracts and establish the terms and conditions of *77 the relationship. Unless contrary to established public policy or statutory law, the terms of the contract should be enforced as written, not as a court would wish them to be. I would answer the first question in the negative, and therefore find no need to address the second.

Accordingly, I respectfully dissent.