Commercial Law: Express and Implied Warranties Under the Uniform Commercial Code

Introduction

Although we think of the Internet, credit cards, and overnight shipping as being responsible for the entire country becoming a single market, in fact, railroads and the telegraph had the same effect many years ago.  Realizing that uniformity and certainty would make interstate transactions easier and more profitable, the Uniform Commercial Code (U.C.C.) was drafted.  The U.C.C. has now been adopted by every state except Louisiana, and its rules provide uniform treatment of most common business transactions.  Article 2 of the U.C.C. deals with the sale of goods, not services.  It covers such things as the offer to sell goods, the acceptance of the offer, and the terms of the sale itself.  Article 2 also outlines certain warranties included as part of the sale.  Because these warranties are imposed by law, it is important to know what is being warranted, as well as how to disclaim these warranties.  An experienced commercial lawyer can help sellers navigate through the complex legal issues involving warranties.

U.C.C. Warranties and Their Disclaimers

When people use the word "warranty," they are typically referring to a specific kind of warranty that the U.C.C. calls an "express warranty."  Express warranties are affirmative promises about the quality and features of the goods being sold.  Claiming a watch is "waterproof to 250 feet," that a car gets "35 mpg on the highway," or that a brand of concrete "cures rock-hard in 5 minutes, no matter what the weather" are all examples of express warranties.  But express warranties under the U.C.C. include more than just affirmative statements.  They also include descriptions of the goods being sold or samples shown to the buyer.  If the buyer is shown a floor sample of the kind of television he/she wants to buy, this sample is an express warranty that the television actually sold is the same type and same quality as the floor sample.

In addition to express warranties, the U.C.C. also creates a second kind of warranty, called an "implied warranty."  As the name suggests, an implied warranty is made, regardless of whether or not it is specifically mentioned.  The implied warranties created by the U.C.C. ended the old rule of caveat emptor-"Let the buyer beware."  Implied warranties allows buyers to purchase goods and be confident that they meet certain minimum standards.  The two implied warranties the U.C.C. creates are the warranty of "merchantability" of the goods being sold, and the warranty that the goods are "fit for a particular purpose."

Under the U.C.C.'s definition of "merchantability," goods must be at least of average quality, properly packaged and labeled, and fit for the ordinary purposes they are intended to serve.  For example, a wristwatch would have to be at least of average quality as compared to other watches in the same price range, it must tell time, and it cannot come in a box labeled "Rolex" unless it is, in fact, a "Rolex."  The application of the implied warranty of merchantability is limited to a seller of "goods of that kind," meaning the kind of goods the seller usually sells in the marketplace.  A seller does not make an implied warranty of merchantability when he sells goods of a kind that he does not normally sell.  For example, a clothing store selling shirts and suits impliedly warrants that the shirts and suits are merchantable because shirts and suits are the kind of goods a clothing store typically sells.  On the other hand, if the store sells to the store next door an extra display case it no longer needs, the display case is not subject to an implied warranty of merchantability because clothing stores generally do not sell display cases.  Of course, if the seller makes an express warranty regarding the display case, it will be held to any such warranty, but none will be implied unless the goods being sold are goods of a kind the seller normally sells.

The implied warranty of fitness for a particular purpose applies if the seller knows or has reason to know that the buyer will be using the goods he is buying for a certain purpose.  If the seller knows the purpose for which the goods are to be used, the seller impliedly warrants that the goods being sold are suitable for that specific purpose.  For example, a car salesman may sell a car that is perfectly suitable for everyday driving, and therefore is merchantable.  But if the car salesman knows the buyer wants to use the car as a race car, the car salesman also impliedly warrants that the car is suitable to use for racing.

The rationale behind the implied warranty of fitness for a particular purpose is that buyers typically rely on the seller's skill and expertise to help them find the specific goods that meet their specific need.  A buyer who goes to an appliance store may know he wants a refrigerator, but he relies on the appliance salesman to find the specific refrigerator that fits his house, is big enough for his family, and meets any other specific requirements he might have.  Accordingly, it is unfair for a seller to sell something they know will not do the job and later tell the buyer it is not his or her fault it did not work.

Because warranties typically only become an issue when a buyer is dissatisfied, a prudent seller tries to limit the scope of the warranties he makes before a problem arises.  The U.C.C. specifically allows sellers to disclaim both express and implied warranties on goods they sell, within certain limits.  Interestingly, the U.C.C. does not provide many specific rules regarding how warranties are disclaimed.  In keeping with the idea that the purpose of the U.C.C. is to make business transactions easier, the U.C.C. provides that attempts to disclaim warranties should be construed reasonably and enforced unless doing so is unreasonable under the circumstances.  This broad rule is followed by some guidelines.

Generally, a seller who wants to disclaim U.C.C. warranties must do so specifically.  A general statement that there are "no warranties, express or implied" is usually ineffective.  Just how express a disclaimer needs to be depends on the kind of warranty being disclaimed.  An express warranty must be expressly disclaimed.  A disclaimer that disclaims the implied warranty of merchantability must specifically mention "merchantability" in the disclaimer.  Finally, a seller may disclaim all implied warranties by stating that the good is being sold "as is," "with all faults," or by stating some other phrase that makes it plain to the buyer there are no implied warranties.

The U.C.C. also requires all disclaimers of implied warranties to be in writing.  However, a warranty disclaimer hidden in the fine print of a three-page sales contract will not be enforced because the U.C.C. also requires that a disclaimer be conspicuous.  A section of a contract is conspicuous if it clearly stands out from the rest of the contract and draws the eye of the reader.  Common ways to make contract provisions conspicuous is to put them in bold type, different colored type, larger type, or in all capitals.  Many disclaimers combine several of these elements, disclaiming implied warranties in bold red capitals when the rest of the contract is in regular black type.

Because some of the U.C.C. rules regarding disclaimers apply to some warranties and not others, a prudent seller ensures that all of his disclaimers meet all of the U.C.C. requirements.  That way, a seller is never left with an insufficient disclaimer because he accidentally forgot to use bold print.  With this in mind, all disclaimers of warranties should be in writing, should be conspicuous, and should specifically mention the warranty being disclaimed.  Some sellers even go so far as to put a line next to the disclaimer for the buyer to initial, just so there is no question that the buyer saw the disclaimer.

But there are outer limits to what even the best-drafted disclaimer of warranties can accomplish.  Just as a disclaimer that is too broad will not be enforced, neither will a disclaimer that takes all rights away from the buyer.  Unless all warranties have been effectively disclaimed, a buyer usually must have some meaningful remedy if the goods he receives are defective.  Additionally, most states have consumer protection statutes for transactions involving the purchase of consumer goods.  These statutes often provide the buyer with remedies other than those provided by the U.C.C., and also often provide that a consumer's rights under the statute cannot be abridged by means of a disclaimer.

Conclusion

The U.C.C. provides a solid, uniform law covering most common business transactions throughout the United States.  As such, it is largely responsible for the ease with which buyers and sellers in different states can enter into contracts.  However, the U.C.C. also places certain responsibilities on sellers by creating express and implied warranties covering the goods they sell.  Sellers need to understand both what the express and implied warranties cover and how to disclaim these warranties with a properly drafted disclaimer.  Thus, it is essential to retain an experienced commercial lawyer to ensure success in drafting these disclaimers.

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