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Choice Canning Co., Inc. v. MCST Preferred Transportation, Inc.

A-4165-05T3 (N.J. Super. App. Div. 2006) (Unpublished)

WAREHOUSING — Where a warehouse receipt clearly calls attention to a provision limiting the warehouseman’s maximum liability for a loss, even if it excludes any lost profit damages, the customer will be bound by such a limitation unless it is part of an unconscionable adhesion contract.

A transportation company carried frozen shrimp from a marine terminal to a warehouse for storage. When the shrimp were delivered, it was discovered that some of the cartons were in bad condition and that the temperature of the shrimp was slightly higher than it should have been. Instead of selling the shrimp at a salvage price which would have caused the customer to incur a loss, the customer reprocessed the shrimp and resold them for a small profit. It then sued the transportation company for the reprocessing cost. In response, the transportation company argued that the warehouse receipt limited damages when it read: “BUT [the transportation] COMPANY’S MAXIMUM LIABILITY SHALL IN NO EVENT EXCEED THE ACTUAL VALUE OF THE GOODS AND IN NO CASE SHALL THE LIABILITY BE EXTENDED TO INCLUDE ANY LOST PROFIT.” Essentially, the transportation company argued that the customer’s “claim for reprocessing costs was a claim for lost profits barred by the warehouse receipt’s limitation provision.”

The lower court ruled in favor of the transportation company and in the appeal that followed, the Appellate Division agreed. In doing so, it “conclude[d] that the essence of [the customer’s] argument [was] that it could have made a larger profit had it not incurred the reprocessing cost.” According to the Court, “[l]ost profits are ‘the difference between the gross income and the costs and expenses which had to be expended to produce the income.’”

The customer argued that “the liability limitation in [the] warehouse receipt [was] void as contrary to public policy.” According to the Court, the “power to declare a contractual provision void as against public policy must be exercised with caution and only in cases that are free from doubt. ... Courts must perform a balancing test, ‘weighing the legislative policy and the public interest against the enforcement of the contractual provision, to determine whether the ... provision at issue is void.’” A New Jersey statute allows “a warehouseman to limit his liability.” Further, such a limitation provision “is binding against a bailor [such as this particular customer], provided the warehouse receipt calls attention to such provision, such so as to inform the bailor of its terms.” Here, the receipt did call attention to the limitation provision. In fact, the front of the receipt stated: “Your attention is drawn to the terms and conditions on the back of the receipt. For limitation of liability, see Section 9.” The limitation itself was printed in bold face and in capital letters. Further, according to the Court, this was “not a case where a sophisticated party [was] taking advantage of a lay consumer by way of an adhesion contract.” Both parties were commercial entities. In fact, the buyer was “an international company that import[ed] and [sold] shrimp and [the transportation company was] a corporation engaged in the operation of frozen storage facilities.

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