The Business Court last month resolved a clash between North Carolina's "Seed Law" and the Uniform Commercial Code, in Kornegay Family Farms, LLC v. Cross Creek Seed, Inc., 2016 NCBC 30. The Plaintiff in the Kornegay case is one of eight Plaintiffs in the Business Court suing Defendant Cross Creek Seed for selling them certified tobacco seed that produced "abnormal tobacco crops." Op. ¶2.

The Plaintiffs are seeking millions of dollars in damages for their inadequate crops. They will be limited to recovering the amount they paid for their seed if the limitation of damages clause placed on each container of seed is enforceable. North Carolina's Seed Law may invalidate that limitation.

North Carolina's Seed Law

I had no idea that North Carolina has a "Seed Law." It is codified in G.S. §106-277 to -277.34. North Carolina was one of the first states in the country to enact a Seed Law (in 1891), but now almost every state has one. The North Carolina law imposes penalties for the sale of mislabeled seed (in G.S. §106-277.24).

The purpose of the statute "is to regulate the labeling, possessing for sale, sale and offering or exposing for sale or otherwise providing for planting purposes of agricultural seeds and vegetable seeds; to prevent misrepresentation thereof. . . . " N.C. Gen. Stat. §106-277.

The Public Policy Of The Seed Law

The NC Supreme Court held many years ago that the Seed Law represents a declaration of North Carolina's public policy that a seller of seed cannot enforce a limitation of remedy that limits a buyer's recovery to the purchase price of the seed if the seed was mislabeled. Op. ¶5. It said that the Seed Law:

has declared the policy of North Carolina to be one of protecting the farmer from the disastrous consequences of planting seed of one kind, believing he is planting another. To permit the supplier of seed to escape all real responsibility for its breach of contract by inserting therein a skeleton warranty, such as was here used, would be to leave the farmer without any substantial recourse for his loss.

Gore v. George J. Ball, 279 N.C. 192, 208, 182 S.E.2d 389, 398 (1971). The Gore Court held that It is a violation of North Carolina's public policy to attempt to limit the damages of the purchase of mislabeled seed to the purchase price.

That decision involved a sale of seed before North Carolina adopted the Uniform Commercial Code. If a seller of mislabeled seed after the UCC came into effect can't limit a buyer's damages to the cost of the seed, that runs counter to Section 2-719 of the UCC (N.C. Gen. Stat. §25-2-719), which says that a seller can limit a buyer's damages "by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts."

Judge Gale resolved the question of whether the UCC should yield to the Seed Law in this way:

  • The official comment to G.S. Section 25-2-719 says that "a limitation of remedies that purports to modify or limit the UCC's remedial provisions 'in an unconscionable manner' is unenforceable.
  • Both the UCC and the Seed Law have been amended by the NC Legislature since the Gore decision was handed down. Since "the legislature is always presumed to act with full knowledge of prior and existing law [so] where it chooses not to amend a statutory provision that has been interpreted in a specific way, we may assume that it is satisfied with that interpretation." Op. ¶30 (quoting Polaroid Corp. v. Offerman, 349 N.C. 290, 303, 507 S.E.2d 284, 294 (1998). [Do any of you believe that?]
  • The specific takes precedence over the general. "Where a local non-UCC statute governs a specific point, it prevails over a general provision of the UCC. Op. ¶31 (quoting 1 Lary Lawrence, Lawrence's Anderson on the Uniform Commercial Code §1-102:18 (3d ed. 2002)).

Judge Gale ruled that "Gore does not allow Cross Creek to enforce its limitation of remedies against Plaintiffs if the seed sold to Plaintiffs was mislabeled." Op. ¶38.

Would The Limitation Of Remedy Clause Have Been Enforceable Without The Seed Law?

Many courts have addressed the validity of limitation of remedy clauses when a sale of seed was involved. Many of those courts have refused to enforce them, either on the ground that they "failed of their essential purpose" or because they were unconscionable. See, e.g., Schmaltz v. Nissen, 431 N.W.2d 657, 662 (S.D.1988)(limitation was unconscionable); Latimer v. William Mueller & Son, Inc., 149 Mich.App. 620, 637, 386 N.W.2d 618 (1986)(same); Lutz Farms v. Asgrow Seed Co., 948 F.2d 638, 646 (10th Cir. 1991)(both unconscionable and failed of its essential purpose); Nomo Agroindustrial SA de CV v. Enza Zaden North America, Inc., 492 F. Supp2d 1175, 1185 (D. Ariz. 2007)(limitation of remedy clause was unenforceable because it was both unconscionable and failed of its essential purpose).

Judge Gale said that it was unnecessary to reach the unconscionability/failure of essential purpose argument given that the Seed Law prohibited the enforcement of the limitation of remedy clause. Op. ¶8.

Judge Gale On The Appeal Of His Opinion

One of the most interesting things about Judge Gale's Opinion is his direct request to the North Carolina Supreme Court to consider an appeal of his decision. He acknowledges that any appeal would be interlocutory and therefore not appealable (Op. ¶33) and that he cannot certify it for immediate appeal per Rule 54(a) of the NC Rules of Civil Procedure (because that Rule applies only to "final judgment[s] as to one or more but fewer than all of the claims or parties). Id.

A quick appellate resolution of the Seed Law v. UCC issue makes sense. Judge Gale said:

[w]ithout the ability to seek immediate appellate review of this Order & Opinion, the parties in each of these eight cases must await a final answer on a significant and controlling threshold issue until after a final, appealable judgment, which cannot be entered until complex fact and expert discovery are completed. That discovery is likely to be long, burdensome, and expensive.

Op. ¶35.