Drafting Landmines: Warranties for the Sale of Goods

Posted on 06-18-2019

By: Timothy Murray, Murray Hogue and Lannis

The word warranty isn’t just mired in confusion; it leaps, dives, and wallows in it. It means so many different things that the great Karl Llewellyn, the chief architect of the Uniform Commercial Code (U.C.C.), said that “the sane course is to discard the word from one’s thinking.”1

LLEWELLYN AND COMPANY BOWED TO TRADITION AND included the word in the U.C.C. but wisely kept § 2-313, the express warranty provision, straightforward. An express warranty is the description of, or statement of fact or promise about, the goods that become part of the basis of the bargain, conveyed by words or other means (including models, samples, technical specifications, and blueprints). It’s what “the seller has in essence agreed to sell.”2

When it comes to contracts for the sale of goods, is there any provision more important than the express warranty? Yet when it comes to drafting express warranties for the sale of goods, attorneys typically rely on the client to do the heavy lifting—the client almost always knows the product better than the lawyer, and product descriptions are often very laden with technical language beyond the pay grade of most attorneys.

Little time is typically devoted to drafting warranties because warranty is one of those concepts that a lot of us assume is too simple to worry much about—after all, what can go wrong with a warranty?

The answer is plenty. The law governing warranties is riddled with landmines, and lawyers need to be familiar with them. Even if the client is the primary drafter of the warranty, that doesn’t absolve attorneys of their responsibility to ensure that the warranty is done right.

The Other Warranties

Aside from express warranties, there are also implied warranties—of merchantability (§ 2-314) and fitness for a particular purpose (§ 2-315)—and there is a warranty of title and against infringement (§ 2-312). As a matter of course, sellers try to exclude from the contract the implied warranties of merchantability and fitness for a particular purpose. The latter is a specialty warranty premised on the buyer’s reliance on the seller’s skill or judgment in selecting the product.

Of greater concern to sellers is the implied warranty of merchantability, but that warranty only offers limited protections to buyers. It requires that the goods will be of “fair average quality” and that they are “fit for the ordinary purposes for which such goods are used . . . .” It’s not a useless warranty, but buyers should not rely on the implied warranty of merchantability to provide them the protections they need. Buyers need a clear and precise express warranty describing the product and what it is supposed to do.

A well-drafted express warranty displaces the implied warranty of merchantability. Under the U.C.C., the buyer can’t claim a breach of the implied warranty of merchantability if it is inconsistent with the express warranty.3

Express Warranties: The Not-So-Uniform Uniform Commercial Code

Despite its name, the Uniform Commercial Code is not always applied in a uniform fashion. Proof of this is the absence of consensus over whether reliance is an element of an express warranty claim under § 2-313:

[A] slim majority of courts considering the issue have held that reliance is not an element of an express warranty claim . . . At the other end of the spectrum, a number of courts have required proof of specific reliance on a seller’s statements to recover for breach of express warranty . . . Finally, various jurisdictions have taken a middle ground approach, holding that a seller’s affirmations relating to goods create a rebuttable presumption that the statements were part of the basis of the bargain, which the seller may rebut by “clear affirmative proof” to the contrary.4

Sellers: Do Not Try to Disclaim Express Warranties

Sometimes the seller will insist on a provision that purports to exclude not just implied warranties but express warranties, too. Disclaimers of implied warranties are expressly allowed by the U.C.C. and routinely upheld by the courts, but courts generally don’t look kindly on contracts that try to undo express warranties with general exclusions.

Consider Dakota Style Foods, Inc. v. SunOpta Grains & Foods, Inc.5 SunOpta recalled the sunflower kernel products that it sold to Dakota Style due to the potential presence of listeria monocytogenes. Dakota Style sued SunOpta for breach of express warranty. The product specification stated that “[t]he product shall be manufactured in accordance with Good Manufacturing Practice 21 CFR, Part #110”; “shall conform in every respect with the provisions of the Federal Food, Drug and Cosmetic Act, as amended, and to all applicable State and Local Regulations”; and “shall meet the Kashruth requirements of the Union of Orthodox Jewish Congregations of America.” It provided nutritional data, a flavor profile, and indicated that the sunflower kernels are “[n]utritionally-dense whole food.”

But SunOpta claimed that the product description—the express warranty—had no legal effect because it was disclaimed by the following general statement in the contract: “This information is presented in good faith, and great care was used in its preparation. However, no warranty, guarantee, or freedom from patent infringement is implied or intended. This information is offered solely for your consideration and verification.”

The court rejected SunOpta’s argument. Despite some wobbly language in U.C.C. § 2-316(1) suggesting the possibility that express warranties can be negated,6 the court followed U.C.C. § 2-313 comment 4, which states that a general disclaimer of warranties designed “to reduce the seller’s obligation with respect to [a product] description” simply “cannot be given literal effect . . . .” SunOpta’s disclaimer was ineffective.7

In another case, the brand name of defendant’s One A Day vitamin gummies created a warranty that one pill alone contained the recommended daily vitamin dosage. This warranty could not be undone by “miniscule” print on the back of the bottle announcing that two-a-day are actually needed.8

These cases underscore the near-sacrosanct status of the description of the product in contracts for the sale of goods. Your client cannot both give an express warranty, then negate it with a general or inconspicuous disclaimer.

Puffery, Puffery, Puffery

Sellers sometimes lard their sales contracts with vague assertions of quality or superiority about the products, replete with needless boasts lifted from ads or marketing brochures. To my everlasting horror, I’ve seen more contracts than I care to think about that actually incorporated marketing materials.

General assertions of quality9 or superiority10 usually are not legally binding. “‘The common theme that seems to run through cases considering puffery . . . is that consumer reliance will be induced by specific rather than general assertions. Advertising which merely states in general terms that one product is superior is not actionable. However, misdescriptions of specific or absolute characteristics of a product are actionable.’”11

But suggesting that there are bright-lines in this area is perilous. Too often, marketing-type assertions touting a product’s purported superiority lie in a shadow land between unenforceable puffery and legally binding warranty. There is a staggering amount of litigation over the question of where the one ends and the other begins.

[R]epresentations that a product is as good as or better in all respects than a competitor’s is not always puffery as a matter of law. As observed by leading commentators on the topic, “ . . . anyone who claims always to be able to tell a ‘puff’ from a warranty is (we will not hold back) a fool or a liar.”12

Depending on the context, a vague assertion may be unenforceable puffery in one instance and an enforceable express warranty in another. In one case, buyer bought a car advertised as “Mechanically A-1.” Right after buyer took possession of the vehicle—in fact, while he was driving it home—it stalled and was inoperable up to the time of trial. The court concluded that whatever “A-1” might mean in other contexts, it was not puffery here. The car “should have lasted at least long enough for the [buyer] to get [it] home.”13 But in another case, the buyer, an expert in tractors, was aware of problems with a tractor he purchased, so the contract’s description that the tractor was “in A-1 condition” was not part of the basis of the bargain.14

General characterizations of quality and superiority have no place in a contract’s description of the product. The description should be precise, thorough, and limited to assertions that can be objectively verified.

By the same token, clients ought to assume that whatever they say about the product—including an assertion that might look like puffery—is going to constitute an enforceable warranty. The U.C.C.’s official comments warn that all statements about the product are presumed to be part of the basis of the bargain “unless good reason is shown to the contrary.”15 To the extent an assertion is in the nature of general touting of a product’s superiority, the seller runs the risk that it might be found to bind the seller to all sorts of things that he or she never intended.

In addition, when assertions have the patina of deception, “the possibility is left open that a remedy may be provided by the law relating to fraud or misrepresentation.”16

Pre-Warranty Puffery: Make Sure You Have a Merger Clause

But what about assertions made prior to and separate from contract formation? These, too, can form part of the basis of the bargain. In negotiated contracts between merchants, the seller can often limit the effect of such assertions with a well-drafted merger clause.17 Merger clauses are not everywhere deemed to be conclusive on the question of complete integration.18

Of course, sellers make pre-contract fraudulent statements at their peril. Some jurisdictions hold that “a contractual agreement to ‘forego reliance on any prior false representation and limit . . . reliance to the representations . . . expressly contained in the contract’ has the binding effect of negating an action based on fraud in the inducement.”19 But not all jurisdictions agree that non-reliance clauses can whitewash pre-formation fraudulent statements.20 For consumer transactions, robust federal and state laws protect against deceptive advertising.

Warranties Extending to Future Performance

Generally, warranties warrant that goods will do certain things or be a certain way at the time of delivery. Thus, “[a] breach of warranty occurs when tender of delivery is made.”21 This means that the statute of limitations starts to run from the date of delivery, not from the time a problem with the product manifests itself.

Buyers, of course, would prefer to have the statute of limitations start to run at the time a breach manifests itself as opposed to the time of delivery. Depending on how the warranty is worded, it can extend to future performance and delay the start of the statute of limitations to the time that a breach is or should have been discovered—possibly for many years, even decades. “[F]or a warranty to explicitly extend to future performance, the warranty ‘must expressly provide a guarantee that the product will perform as promised in the future.’”22

The most extreme kinds of warranties of future performance are promises of a “lifetime warranty” and that a product will work satisfactorily “at all times.”23

In one case, a tombstone was purchased and installed in 2003. If the tombstone had had a garden-variety warranty, the statute of limitations would have expired in 2007. But the seller’s literature stated that its tombstones were guaranteed to “last forever” and were “backed by a perpetual warranty.” Unspecified “issues with the stone and the engraving” were later discovered, and suit was not filed until 2013. The court held that because of the language in seller’s literature, the warranty extended to future performance, and the cause of action did not accrue until the problem was or should have been discovered. It was the tombstone seller’s burden to establish at trial that the claim was time-barred under this standard.24

But does anything really last forever? It’s certainly possible that the tombstone seller knew exactly what it was doing by making such a warranty—that it wanted to stand behind its product come hell or high water. But there is a nagging suspicion that a lot of sellers who are not terribly sophisticated do not appreciate that statements such as “last forever” can vastly extend their legal obligations far beyond what the law otherwise requires—in the case of the tombstone, from four years to . . . forever. It’s a boon for buyers, but sellers’ attorneys need to ensure that their clients understand the rights they are giving up.

Warranties Created or Modified After Contract Formation

It’s probably true that after the sales contract is entered into, no one usually looks at it until it’s time to renew, one of the parties wants to terminate, or a problem arises. But it’s a mistake to think that express warranties are set in stone just because the contract is signed. A lot can happen after contract formation to change existing warranties and create new ones. It’s the lawyer’s job to educate clients about the dangers this poses.

The U.C.C. contemplates the possibility of post-formation warranties: “The precise time when words of description or affirmation are made or samples are shown is not material. . . . If language is used after the closing of the deal (as when the buyer when taking delivery asks and receives an additional assurance), the warranty becomes a modification, and need not be supported by consideration if it is otherwise reasonable and in order (Section 2-209).”25

Important warranties can be created or modified in a matter of seconds with just a few words in a simple email or text message—without adequate deliberation and without the guidance of an attorney. Clients need to be counseled about the contractual significance of such actions and about the wisdom of having a more formal memorial of their rights and obligations.

The parties’ post-formation course of performance can also supplement and modify the warranty. Bayer Chems. Corp. v. Albermarle Corp.26 is a cautionary tale. Albermarle agreed to supply 100 percent of Bayer’s requirements of a C16-C18 compound, alkenyl succinic anhydride (ASA). The contract defined the ASA compound in this manner: “C16-C18 alkenyl succinic anhydride (hereinafter referred to as ‘PRODUCT’).” The precise percentages of C16 and C18 were nowhere mentioned in the contract, but from 1997 to 2003, the formulation of the “PRODUCT” that was actually supplied was 65% C16 and 35% C18.

Section 1.7 of the contract stated that if Bayer decided to “reformulate” the “PRODUCT,” the parties would enter into good faith negotiations—but if an agreement was not reached, Bayer had the right to seek the supply of the reformulated “PRODUCT” from a third party. With two years remaining on the contract, Bayer notified Albermarle that it wanted to reformulate the “PRODUCT” by changing the percentages from 65% C16 and 35% C18 to 75% C16 and 25% C18. Albermarle argued that this was not a reformulation—the written contract did not establish any percentages of either component, so Bayer’s proposal was already within the contract’s definition of “PRODUCT.”

The U.S. Court of Appeals for the Third Circuit disagreed and sided with Bayer. Despite the contract’s broad description of “PRODUCT,” the formula supplied since 1997 via the parties’ course of performance—65% C16 and 35% C18—became the contract description that was every bit as binding as if it had been spelled out in the written contract. Bayer’s change in the formulation was thus a reformulation, and Bayer was permitted to invoke the reformulation clause.

The lesson is sobering. Clients need to be forewarned that their post-formation conduct can supplement and modify the warranty—the very basis of the bargain—without ever putting it in writing.

Timothy Murray, a partner in the Pittsburgh, PA law firm Murray, Hogue & Lannis, writes the biannual supplements to Corbin on Contracts, is author of volume 1, Corbin on Contracts (rev. ed. 2018), and is co-author of the Corbin on Contracts Desk Edition (2017).

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1. K. Llewellyn, Cases and Materials on the Law of Sales 210 (1930). Judge Learned Hand provided one of the more coherent definitions: “A warranty is an assurance by one party to a contract of the existence of a fact upon which the other party may rely. It is intended precisely to relieve the promisee of any duty to ascertain the fact . . . ; it amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue . . . .” Metropolitan Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946). 2. U.C.C. § 2-313, cmt. 4. 3. U.C.C. § 2-317. 4. Michael v. Wyeth, LLC, 2011 U.S. Dist. LEXIS 56157, *26-27 (S.D. W.Va. May 25, 2011). 5. 329 F. Supp. 3d 794 (D. S.D. 2018). 6. An early draft of the U.C.C. flatly stated that express warranties cannot be disclaimed. The language added later that became § 2-316 as it exists today—which has been called “obfuscation”—was tacked on to appease people who did not understand the earlier language. John E. Murray, Jr., Amended Article Two: Reversing the Curse? Revised Article 2: Eliminating the “Battle” and Unconscionability, 52 S. Tex. L. Rev. 593, 598 (2011). 7. See Raatz v. Dealer Trade Inc., 261 F. Supp. 3d 997, 1002 (D. Ariz. 2017) (“The disclaimer language relied on Defendant is contained in fine print at the bottom of the [Retail Buyer’s Order]. It clearly was not bargained for and is inconsistent with the express representation, earlier on the same page, that the Vehicle had 35,648 miles.”) “‘Express’ warranties rest on ‘dickered’ aspects of the individual bargain, and go so clearly to the essence of that bargain that words of disclaimer in a form are repugnant to the basic dickered terms.” U.C.C. § 2-313 cmt. 1. 8. Brady v. Bayer Corp., 26 Cal. App. 5th 1156 (2018). But another court disagreed: “The ‘ONE A DAY’ brand does not strike the Court as a warranty; and coupled with the open and obvious two-gummies-a-day serving information, no actionable express warranty was created.” Howard v. Bayer Corp., 2011 U.S. Dist. LEXIS 161583, *5 (E.D. Ark. July 22, 2011). 9. Bunn v. Navistar, Inc., 2019 U.S. Dist. LEXIS 12390, *6 (M.D. Tenn. Jan. 24, 2019). 10. Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv., 911 F.2d 242 (9th Cir. 1990). 11. Viggiano v. Hansen Nat. Corp., 944 F. Supp. 2d 877, 894-95 (C.D. Cal. 2013) (citations omitted). 12. SFEG Corp. v. Blendtec, Inc., 2017 U.S. Dist. LEXIS 12413, *46-47 (M.D. Tenn. Jan. 30, 2017) (quoting 1 White, Summers, & Hillman, Uniform Commercial Code § 10:12 (6th ed.)). 13. Jones v. Kellner, 5 Ohio App. 3d 242, 243 (1982). 14. Beckett v. Bauer, 1976 Ohio App. LEXIS 8356 (Apr. 22, 1976). 15. U.C.C. § 2-313 cmt. 8. 16. Id. 17. See Pure Bioscience v. Ross Sys., 2008 U.S. Dist. LEXIS 28454, *14-15 (S.D. Cal. Apr. 4, 2008); Martino v. MarineMax Northeast, LLC, 2018 U.S. Dist. LEXIS 201582 (E.D.N.Y. Nov. 28, 2018). 18. E.g., Bonfire, LLC v. Zacharia, 251 F. Supp. 3d 47 (D.D.C. 2017). 19. Billington v. Ginn-LA Pine Island, Ltd., LLLP, 192 So. 3d 77, 80 (Fla. App. 2016). 20. Id. 21. U.C.C. § 2-725(2). See, e.g., Repasky v. Jeld-Wen, Inc., 81 Pa. D. & C. 4th 495 (C.P. Adams 2006); Horsmon v. Zimmer Holdings, Inc., 2012 U.S. Dist. LEXIS 15650 (W.D. Pa. Feb. 8, 2012). 22. Leprino Foods Co. v. DCI, Inc., 2017 U.S. Dist. LEXIS 800 (D. Colo. Jan. 3, 2017) (citation omitted). In one case, the instruction manual of a humidifier stated, under the heading “1 YEAR LIMITED WARRANTY,” that the product was warranted “for a period of one year from the date of purchase” to be “free from defects in material and workmanship.” The statement qualified as an express warranty that extended to future performance because it related to the quality of the product and guaranteed that the humidifier would be free from defect for a certain period of time in the future. Singer v. Sunbeam Prods., 2016 U.S. Dist. LEXIS 56455 (N.D. Ill. Apr. 28, 2016). 23. See Tolen v. A.H. Robins Co., 570 F. Supp. 1146 (N.D. Ind. 1983); Rawls v. Associated Materials, LLC, 2011 U.S. Dist. LEXIS 84366, *6 (S.D. W.Va. Aug. 1, 2011). 24. Hoctor v Polchinski Mems., Inc., 23 N.Y.S.3d 796 (App. Term 2015). 25. U.C.C. § 2-313, cmt. 7. “Warranties may be binding on the parties even if the buyer does not receive the details before the transaction is completed.” Rosa v. Am. Water Heater Co., 177 F. Supp. 3d 1025, 1041 (S.D. Tex. 2016). See also Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 171 F.3d 818 (3d Cir. 1999). 26. 171 Fed. App’x 392 (3d Cir. 2006) (the author was one of the attorneys for Bayer).