Burroughs Corp. v. Chesapeake Petroleum & Supply Co.

Eldridge, J., delivered the opinion of the Court. The dispute in this case arises out of a contract to sell a computer and certain computer programs. The facts are as follows. By an “Equipment Sale Contract” signed on April 2, 1971, the plaintiff-appellee Chesapeake Petroleum and Supply Company ordered from the defendant-appellant Burroughs Corporation one L-5000 magnetic record computer and “application software.” An “Addendum for Application Software Support,” signed by both parties on the same date and incorporated into the Equipment Sale Contract, described the software as computer programs for “billing, A/R, Inventory, cash receipts, aging, and statement head-up.” Both the Equipment Sale Contract and the Addendum were prepared by Burroughs’s salesman.

The back of the Equipment Sale Contract contained fourteen paragraphs. One of the paragraphs waived all of the purchaser’s rights to damages under the contract and another disclaimed all warranties, express or implied. Chesapeake financed a portion of the purchase price through a third company, the Weston Leasing Company. By the terms of a lease dated October 1971, Weston paid the cash balance due to Burroughs, and Chesapeake agreed to lease the equipment from Weston over a period of sixty months.

Burroughs was to deliver the computer, fully-programmed, to Chesapeake by September 1, 1971. Chesapeake did not actually receive any equipment until mid-October. Further, the computer did not perform all of the functions specified ⁴⁰⁸ in the contract. During the period from October 1971 until the spring of 1974, Chesapeake was only able to use the computer to perform simple debit and credit posting, and Burroughs attempted to correct the other defective programs.

In the spring of 1974, Chesapeake decided to stop using the Burroughs computer and bought another machine which performed satisfactorily. Chesapeake then filed suit against Burroughs on June 6, 1974. In Counts I and II of its declaration, Chesapeake alleged that Burroughs had breached the contract and its warranty under the contract. Chesapeake claimed that, in signing the contract, it had relied on prior oral representations made by agents of Burroughs, and on information printed in Burroughs’s sales literature, to the effect that the specific computer and software purchased would fulfill Chesapeake’s needs.

Chesapeake asserted that Burroughs failed to provide equipment and programs adequate to perform the functions listed in the Addendum. In Count III, Chesapeake alleged negligence by Burroughs in designing, programming, and installing the equipment. Later, Chesapeake amended its declaration by adding Count IV, in which Chesapeake alleged fraudulent misrepresentation by Burroughs as to the capabilities of the equipment sold. Each count contained a prayer for $200,000.00 in damages.

This case was tried before the Circuit Court for Montgomery County (Shure, C. J.). At trial both corporations offered testimony by their employees, and Chesapeake also called two expert witnesses. Chesapeake attempted to prove, by its employees’ testimony, that Burroughs’s salesman represented to Chesapeake that the L-5000 computer plus the six programs would adequately meet all of Chesapeake’s accounting needs and that, when delivered, the equipment failed to perform satisfactorily the tasks designated in the Addendum. Chesapeake also offered testimony by two computer experts to the effect that the Burroughs programs were defective and that it would have been a relatively easy task, by industry standards, to program the L-5000 correctly, according to the contract specifications.

Burroughs introduced testimony by its salesman and supervisory staff ⁴⁰⁹ in an effort to prove that the programs did eventually work and to show the manner in which the sale to Chesapeake was made. In an opinion and order dated March 18, 1977, the circuit court gave judgment for Chesapeake, awarding $30,000.00 in damages. With respect to Counts I and II, the court found that Burroughs had breached the contract and its warranty under the contract because the equipment sold to Chesapeake did not perform in the manner represented to Chesapeake. The trial court went on to hold that it would be unconscionable to enforce the waiver of damages provision printed on the reverse side of the contract.

Alternatively, the trial court held that none of the conditions printed on the reverse side of the contract were part of this particular agreement: “The court notes also that on the first page of the equipment sale contract it states: ‘Terms and conditions on reverse side are part of this security agreement,’ when in fact there was no such security agreement involved.” Since Chesapeake financed its purchase of the equipment through Weston Leasing Company, not through Burroughs, the trial court concluded that there was no security agreement between Chesapeake and Burroughs. Therefore, the waiver of damages and the disclaimer of warranties printed on the reverse side of the agreement were not part of the contract between the parties in this case. The trial court dismissed Count III because no duty or obligation could be found to exist independent of the contract, and the court directed a verdict for Burroughs on Count IY (fraud). The damage award included the cost of the machine less salvage value, the cost for an expert consultant, the value of the useless equipment, and miscellaneous labor expenses.

Burroughs took an appeal to the Court of Special Appeals, and this Court issued a writ of certiorari before any proceedings in the Court of Special Appeals. Burroughs presents three arguments on appeal. First, Burroughs challenges the trial court’s holding that enforcement of the limitation of damages