Sierra Diesel v. Burroughs

Citation: Sierra Diesel Injection Serv., Inc. v. Burroughs Corp., 874 F.2d 653 (9th Cir. 1989).

Factual Background
Plaintiff, Sierra Diesel Injection Services, Inc. (Sierra Diesel), is a family owned and operated business that services the fuel injection portions of diesel engines. Defendant, Burroughs Corporation (Burroughs) is in the business of selling hardware and software to accommodate a wide range of business needs.

In September 1977, a bookkeeper from Sierra Diesel went to the Reno, NV branch of Burroughs with the intent to purchase a posting machine to speed up Sierra Diesel’s invoicing and accounting. When the Sierra Diesel employee arrived at Burroughs, the salespeople at the office convinced the employee to buy the company’s B-80 computer instead of a posting machine.

Sierra Diesel’s bookkeeping along with its owner and operator, Mr. James Cathey, attended a demonstration of the B-80 at Burroughs office to see if the product would work for the company in place of a posting machine. After the demonstration, on September 27th, Burroughs mailed Mr. Cathey a letter stating that the B-80 “can put your inventory, receivables, and invoicing under complete control.” The letter also informed Mr. Cathey that the letter was only a preliminary offer and that the order itself would constitute the “only legally binding commitment of the parties.”

In October 1977, Sierra Diesel decided to purchase the B-80. During the course of purchasing the machine, Mr. Cathey was required to sign various contracts for the sale of hardware, software and maintenance service. At the time of signing the documents Mr. Cathey had no knowledge of computers and only a general knowledge of warranties from his work with Sierra Diesel. Mr. Cathey, who had only a high school education, read the contract solely to see that that it contained the correct pricing information and product description. He did not read the back of the agreement.

After attempting to utilize the B-80 for its intended purpose, Sierra Diesel found that it did not perform any of the invoicing and accounting function for which it had been purchased. Burroughs was informed of the ongoing issues and made several attempts to solve the problems. Eventually, a representative from Burroughs recommended to Sierra Diesel that they purchase the B-91 computer model as a way to remedy the ongoing issues. Much like the B-80, Burroughs B-91 computer model was unable to perform accounting and invoicing functions. Sierra Diesel then employed an independent computer consultant who informed Sierra Diesel that the Burroughs’ computers would never perform the functions that they had been purchased for.

Upon learning that both computers were unable to perform the function they had been purchased for, Sierra Diesel brought suit.

Trial Court Proceedings
The trial court ruled in favor of Sierra Diesel in the amount of $44,000.00. In arriving at this decision, the trial court determined that the exclusion of warranties clauses were not conspicuous enough and that the parties and not intended the contract to be fully integrated. Therefore, the letter sent to Mr. Cathey by Burroughs after the September 27th demonstration that stated the B-80 could satisfy all of Sierra Diesel’s accounting and invoicing needs was part of the agreement between the parties.

After the district court’s ruling, Sierra Diesel and Burroughs entered into settlement proceedings in which the parties stipulated that Burroughs had breached its contracts with Sierra Diesel by failing to put Sierra’s inventory, receivables and invoicing under complete control.

Burroughs appealed the district courts decision, which was limited to the court’s integration and conspicuousness rulings.

Appellate Court Proceedings
On appeal, the court upheld the district court's ruling that the contracts supplied by Burroughs did not represent the final integrated contract. In arriving at this decision, the court looked at the intent of the parties. When doing so they found that Burroughs was fully aware of Sierra Diesel’s needs in purchasing a computer and knew that Mr. Cathey was neither a sophisticated businessman, nor was he knowledgeable in the area of computers. Therefore, it was logical to assume that Mr. Cathey fully expected that the representations made to him by Burroughs’ representatives were to be part of the contract. Furthermore, the court of appeals upheld the trial court ruling that the September 27th letter acted as express warranties that “the B-80 computer would put Sierra Diesel’s inventory, receivables, and invoicing under complete control” and that the warranty disclaimers on the back of the contracts were not effective in waiving this warranty.

Next, the appellate court upheld the trial court's ruling that the warranty exclusion clauses in Burroughs’ contract were not conspicuous and therefore not effective to waive the implied warranty of merchantability. Although Burroughs did include disclaimers of warranty on the back of every form contract, the court determined that Mr. Cathey’s lack of sophistication in the field of contracts in addition to the oral representations made to him by Burroughs representatives requires a heightened degree of notice. The appellate court reasoned that “it would require more than a collection of standardized form contracts. . . to notify a reasonable person in Mr. Cathey’s position that the B-80 came without any warranty of merchantability.”