I. Introduction
For sellers of goods, it is all but impossible to escape the reach of the Uniform Commercial Code (“UCC”) because its Article 2 applies to sales of goods. The UCC contains several buyer friendly provisions (including certain warranties that are, by default, implied with most transactions), and also provides sellers with tools to limit their exposure in commercial disputes and cases. Breach-of-warranty claims are an obvious area of liability for sellers in commercial cases, but the UCC provides sellers with many tools to restrict such liability, including limiting express warranties, disclaiming implied warranties, limiting available remedies, shortening the applicable statute of limitations, and choosing the governing law. This article describes these tools as well as the UCC’s required “pre-suit notice” of an alleged breach of warranty.
II. Limiting Express Warranties
Understanding what an express warranty is and how one is created can help a seller ensure that it does not unintentionally create express warranties.An express warranty includes representations about the quality or specification of the goods.
More specifically, under the UCC, a seller creates an express warranty when it:
- Provides an affirmation of fact or a promise about the good
- Describes the good
- Identifies a sample or a model as representative of the good[1]
This may be a claim that a smartwatch can be worn for three days without charging or that tires will last 15,000 miles. Express warranties can go beyond just verbal representations. If a seller places a model product on its showroom floor, that model can create an express warranty that the same “off the shelf” product that is actually sold will be the same quality and type as the sample the buyer saw on the floor.
The UCC nonetheless provides that an “affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.”[2] Courts distinguishing such statements of opinion from express warranties often call opinion statements “puffery.”[3]
Many sellers may wonder if they can just disclaim express warranties altogether so that stray remarks about a particular product are not later deemed to be express warranties. Yes, a seller can disclaim an express warranty (so long as it is consistent with any words or conduct that created the express warranty),[4] but sellers should be mindful of the representations they are making about their goods. Courts can be skeptical of sellers invoking a general warranty disclaimer as a defense to a breach of warranty claim when a specific product representation is found elsewhere in marketing materials or on packaging.
For example, the District Court for South Dakota acknowledged that the defendant’s incorporation of product specifications into a given contract meant that those specifications were express warranties.[5] The court found that, as a result, it would be unjust to allow the defendant “to escape its obligation with regard to them” by relying on a general disclaimer of warranties.[6] Because the court found “no reasonable interpretation of the disclaimer such that both the product specifications and disclaimer remain operative,” the court held that the more specific provision containing the production description must be given effect over the more general disclaimer of warranties.[7] See id.
As this case illustrates, courts are unlikely to permit a seller to give an express warranty and then take it away with a general warranty disclaimer. Instead, sellers should be careful to select language that describes their products while still avoiding creating an undesired express warranty.
III. Disclaiming Implied Warranties
Unlike express warranties, which are created by the seller, implied warranties exist by default under the UCC. That does not mean sellers are powerless.
There are two types of implied warranties that may arise in general commercial sales. “[A] warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.”[8] And if a seller knows the buyer has a particular purpose that requires the goods and is relying on the seller’s judgment to select those goods, there is an implied warranty of fitness for a particular purpose.[9]
The UCC permits a seller to disclaim those warranties, but to ensure its disclaimers are effective, sellers should be mindful of the requirements the UCC imposes for such disclaimers with different types of implied warranties.
A seller can exclude or modify the implied warranty of merchantability, so long as it mentions merchantability as part of the disclaimer and, if in a writing, makes the disclaimer “conspicuous.”[10] Similarly, a seller can exclude an implied warranty of fitness for a particular purpose so long as it is in a “conspicuous” writing.[11]
“Conspicuous” is defined by the UCC as something written in such a way that “a reasonable person against which it is to operate ought to have noticed it.”[12] Under the UCC, “[w]hether a term is ‘conspicuous’ or not is a decision for the court.”[13] But the UCC does suggest that size, contrasting font or color, or the space or placement of text are all to be considered in making that determination.[14]
The UCC also permits blanket disclaimers of implied warranties as a general matter, but a seller typically has to do more than simply say that “there are no implied warranties.” For example, sellers can typically exclude implied warranties with language like “as is” or “with all faults.”[15] The statement that “[t]here are no warranties which extend beyond the description on the face hereof” would be effective to exclude all warranties of fitness for a particular purpose.[16]
Disclaimers are an important means through which a seller can control its exposure. As described above, the UCC provisions regarding the disclaimer of warranties impose different requirements for disclaiming different implied warranties. As a result, it is wise to ensure that each disclaimer of implied warranties meets all of the requirements imposed by the UCC in order for a particular disclaimer to be effective. In other words, a seller should make sure that every disclaimer is in writing, is conspicuous, and mentions the implied warranty being disclaimed.
IV. Limiting Available Remedies
In addition to providing sellers with some control over the warranties that will attach to its goods, the UCC also permits a seller to limit the remedies a buyer may have for any breach of warranty. The UCC allows the seller to control the measure of damages by utilizing liquidated damages and by contractual modifications or limitations on recoverable damages.[17] A seller can also provide that a particular remedy is the exclusive remedy available to the buyer. For example, a purchaser’s remedies may be limited to returning the goods and receiving a refund of the purchase price, or having the goods repaired or replaced.[18] In commercial cases, the seller can generally exclude the recovery of all consequential damages.[19]
V. Shortening the Statute of Limitations
The statute of limitations for breach of contract claims under the UCC is four years,[20] though states can modify the length of the statute of limitations in their jurisdiction.[21] That section goes on to provide that “[b]y the original agreement, the parties may reduce the period of limitation to not less than one year[.]”[22] And courts will uphold such a provision, as outlined below.
For example, in Liparoto Construction v. General Shale Brick, Inc., the plaintiff brought an action against a brick seller for claims of breach of the implied warranty of merchantability and breach of the implied warranty for fitness for a particular purpose.[23] But the seller had shortened the statutory four-year statute of limitations to a one-year statute of limitations by way of the sales terms and conditions printed on the sales invoice.[24] As a result, plaintiff’s claims, which were brought about two years after purchasing the brick, were barred.[25] This was true notwithstanding plaintiff’s claims that the provision in the invoice was procedurally unconscionable, suggesting the plaintiff had no other options but to accept. The court rejected this theory, observing that plaintiff could have purchased the brick from another supplier.[26]
As a result, sellers should seriously consider including language that would shorten the limitations period.
VI. Selecting the Governing Law
Because states adopting the UCC can modify specific provisions, the seller should carefully consider which jurisdiction’s laws and interpretations of the UCC are the most friendly to its interests and select the governing law accordingly when preparing a sales contract. The seller should include a choice-of-law clause requiring that any disputes arising under the contract between the seller and buyer shall be governed by the selected jurisdiction’s laws. A forum selection clause mandating that disputes be brought in a particular court or venue should also be considered. While almost every state has adopted the UCC, the interpretations of its provisions vary significantly across jurisdictions. For example, there is little agreement on whether reliance is a necessary element in an express warranty claim.[27] Additionally, courts reach different conclusions on the interplay of an exclusive remedy provision and a provision that excludes consequential damages.[28] Thus, careful consideration must be given to selecting the governing law of a contract and the forum where any disputes will be heard.
Once the governing law is selected, any seller that wishes to limit its exposure must carefully consider what is required under the laws of the chosen jurisdiction and prepare the remainder of its contract document(s) accordingly.
VII. The Pre-Suit Notice Defense
Once a manufacturer/seller is served with a suit alleging commercial damages, it should evaluate the defense of adequate notification. Before a buyer of “goods” can bring a breach of warranty claim, the buyer must, “within a reasonable time after he discovers or should have discovered any breach[,] notify the seller of breach or be barred from any remedy.”[29] In other words, a buyer that has accepted goods and wants to assert a breach of warranty claim must notify the seller of the goods of any alleged breach of warranty within a reasonable time of discovering the breach; if not, the buyer’s claim will be barred.
This requirement is the subject of somewhat incongruent statements found in the official guidance. On one hand, such notice may be satisfied by letting “the seller know that the transaction is still troublesome and must be watched.” Later in the same comment, however, it states that notification must be “such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation.”[30] Not surprisingly, jurisdictions differ on what type of pre-suit notice is sufficient to satisfy the requirement that a seller – in a commercial dispute – first receive notice of an alleged breach of warranty before any lawsuit is filed making that claim. Many courts have taken a strict interpretation approach to the adequacy of pre-suit notice, ruling that generalized complaints about product performance, repair requests, and the like in advance of filing suit do not necessarily satisfy the standard.[31]
At the beginning of a business endeavor or commercial relationship, it can seem defeating to imagine the various ways things may go sour. With that said, if a conflict does occur, sellers will be in a much better position if they have taken the time on the front end to consider how they might leverage the UCC to the protect their interests. This article provides an overview of some of the considerations sellers may consider, though it is not exhaustive.
[1] See UCC § 2-313.
[2] Id.
[3] See Kovalev v. Lidl US, LLC, CV 21-3300, 2022 WL 17858055, at *12–13 (E.D. Pa. Dec. 21, 2022) (advertising that defendants’ bread was “new & improved” offered “no significant measurable value” and were “more fairly characterized as the ‘opinion of the seller or commendation of the goods,’” and thus was puffery and not an express warranty), but see Kraft v. Dr. Leonard’s Healthcare Corp., 646 F. Supp. 2d 882, 890 (E.D. Mich. 2009) (unrebutted allegations that anti-slip carpet would “prevent falls for good” and was a “no slip ice carpet” were sufficient to enter summary judgment on plaintiff’s express warranty claim).
[4] UCC § 2‑316(1).
[5] Dakota Style Foods, Inc. v. SunOpta Grains and Foods, Inc., 329 F. Supp. 3d 794, 802–03 (D.S.D. 2018). See also Rexing Quality Eggs v. Rembrandt Enterprises, Inc., 360 F. Supp. 3d 817, 834-35 (S.D. Ind. 2018), aff’d, 996 F.3d 354 (7th Cir. 2021).
[6] See id.
[7] See id.
[8] UCC § 2-314.
[9] UCC § 2‑315.
[10] UCC § 2-316(2).
[11] UCC § 2-316(2).
[12] UCC § 1-201.
[13] Id.
[14] Id.
[15] UCC § 2-316(3).
[16] UCC § 2-316(2).
[17] UCC § 2-718 (addressing liquidated damages); UCC § 2-719 (addressing modifying and limiting damages, including consequential damages).
[18] UCC § 2-719.
[19] U.C.C. § 2-719(3).
[20] UCC § 2-725.
[21] See, e.g., In re Ricker, 08-83110-TLS, 2014 WL 4722765, at *6 (Bankr. D. Neb. Sept. 22, 2014), aff’d, 8:14CV322, 2015 WL 4475852 (D. Neb. July 21, 2015) (describing difference in adoption of this provision under Colorado and Nebraska law).
[22] Id.
[23] Liparoto Const., Inc. v. Gen. Shale Brick, Inc., 772 N.W.2d 801, 804–05 (Mich. App. 2009).
[24] See id.
[25] Id.
[26] See id.
[27] See Michael v. Wyeth, LLC, CIV.A. 2:04-0435, 2011 WL 2150112, at *8 (S.D.W. Va. May 25, 2011) (describing a “slim majority” of jurisdictions holding that reliance is not required to state an express warranty claim, a “number of courts” that have held it is, and “various jurisdictions” that take a middle ground).
[28] City of Imperial v. Ferguson Enterprises, Inc., D072737, 2019 WL 1593885, at *16 n.30 (Cal. App. 4th Dist. Apr. 15, 2019), as modified on denial of reh’g (May 8, 2019) (discussing split).
[29] UCC §2-607(3).
[30] Comment 4 to UCC § 2-607(3).
[31] See, e.g., Eastern Air Lines v. McDonnell Douglas Corp., 532 F. 2d 957 (5th Cir. 1976); United States ex rel. Conroy v. S. Contracting, 862 F. Supp, 107 (D.S.C. 1994); Kopper Glo Fuel, Inc. v. Island Lake Coal Co., 436 F. Supp. 91 (E.D. Tenn. 1977); Peavey Electronics Corp v. Bann U.S.A., Inc., 10 So. 3d 945 (Miss. Ct. App. 2009).
