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Home » Treatises » Special Types of Commercial Contracts
“Commercial contracts” is a broad term. In this chapter it refers to contracts for the sale2 of goods.3 Such contracts typically are governed by Article 2 of the Uniform Commercial Code (UCC). Utah Code Ann.
§ 70A-2-102. This discussion of commercial contracts is not intended to be a definitive treatise on Article 2 of the UCC, but instead highlight some practical issues that arise in contracts that are subject to the UCC.
The Uniform Commercial Code. Scope. “Goods” must be existing and identified before interest in them may pass.4 A “contract for sale” can include both a present sale of goods and a contract to sell “future” goods—those to be manufactured or acquired by a seller after making a contract of sale and transferred at a future time.5
Article 2 does not apply, however, to contracts involving the manufacture of something especially for the buyer that is not readily salable to others in manufacturer’s regular course of business. In these cases, the contract would be considered a contract for work, labor, and materials rather than for goods. When a contract’s subject matter appears to contain both goods and services—in so called “hybrid transactions”— courts will often look to whether the goods or the services predominate, considering the language of the contract, the nature of the business of the supplier, and the intrinsic worth of the materials.6 For example, a contract for a turn-key computer system that included custom designed software has been found to be a contract for goods where the hardware and software elements were combined prior to sale.7
Goods may be sold as a part interest in identified existing goods.8 An undivided share in an identified bulk of fungible goods is sufficiently identified to be sold, even if the quantity of the bulk is not determined.9 Moreover, any agreed proportion of such bulk or any quantity thereof agreed upon by number, weight, or other measure may, to the extent of a seller’s interest in the bulk, be sold to a buyer, who becomes an owner in common with the seller.10 The UCC does not distinguish between new and used goods.
The definition of goods is based on the concept of movability in commerce.11 Thus, the UCC does not apply to the purchase of a new house, because a new house does not fall within the scope of things that are “goods.” Modular homes, however, are “goods” under the UCC until affixed to real property since they are movable at the time of identification to the contract for sale.12 Similarly, a synthetic stucco product to be applied to an exterior wall was a “good” under the UCC.13
Creating the Contract.14 Under the UCC as adopted in Utah, a contract for the sale of goods may take any form that is sufficient to show an agreement between the parties.15 The contract may be written, oral, or established through conduct that indicates the formation of a contract.16
Offer. Article 2 of the UCC follows the general rule that offers are revocable unless the person making the offer (the “offeror”) receives consideration for the offer. But there is an additional twist for certain offers made by “merchants.”17 If a merchant signs a written offer and gives assurances that it will be held open for a stated period of time, such as by stating “offer good for the next 30 days,” then the merchant may not revoke the offer during the stated period of time. If the merchant does not state a time period, then the time period is a “reasonable time.” No consideration from the person receiving the offer (the “offeree”) is necessary. The period of irrevocability is—in all cases—limited to three months.
Acceptance. Offers invite acceptance in any reasonable manner.19 However, an order or offer to buy goods for prompt or current shipment invites acceptance either by a prompt promise to ship the goods or by the prompt or current shipment of goods, even if the goods do not conform to the offer.20 A prospective buyer’s submission of a purchase order to a prospective seller is an offer that may be accepted or rejected by the prospective seller. If an offer encourages acceptance by the offeree’s initiating performance, then the performance may be sufficient to accept
the offer if the offeror is notified of the acceptance within a reasonable time.
If the goods shipped in response to an offer to buy are “nonconforming” goods, the shipper creates a bilateral contract but is in breach of the contract from the outset. However, if the shipper timely notifies the buyer that the nonconforming goods are sent as an accommodation to the buyer, the shipment is a counteroffer and not a true acceptance.
Battle of the Forms. The UCC deviates from the traditional “mirror image” common- law rule—that an acceptance must “mirror” an offer to create a contract. Instead, any acceptance or written acknowledgment under the UCC given within a reasonable time that indicates the offeree’s intent to enter into a contract may be effective as an acceptance.23 This is true even if the acceptance states additional or different terms than those first proposed by the offeror, unless the offeror specifically states that acceptance is expressly made conditional to the acceptance of the offeror’s terms.24 Without such an express stipulation by the offeror, the inclusion of differing terms of the acceptance in the contract depends on whether both of the parties are merchants.
If at least one of the parties is not a merchant, the contract will only include the terms of the original offer and will not include the additional or altered terms of the acceptance.25 Instead, the additional or altered terms are construed as proposals for addition to the contract.26
If both of the parties are merchants, the additional or altered terms of the acceptance will be included in the contract, unless one of the following is true:
The offer expressly limits acceptance to the terms of the offer;
The additional or altered terms materially alter the contract;28 or The offeror has already objected to the additional or altered terms or objects to them within a reasonable time after receiving notice of them.29
Unspecified Terms. Unlike at common-law, unspecified terms do not prevent the formation of a contract if it appears to a court that the parties intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.30 The court may simply supply “reasonable” terms to flesh out a binding agreement. However, the parties’ words and conduct must indicate their intention to be bound in a contract. Even if parties make a contract leaving material terms open for future determination, there can be no contract if their words and conduct demonstrate a lack of an intention to contract.31
Price. Failure to state a price does not prevent the formation of a contract if the parties intended to form a contract without a settled price. If nothing is said as to price, or if the price is left open and the parties fail to agree upon a price, or if a price is to be determined by a third party or external market factor or standard that has not made a determination or been determined, then the price is a “reasonable” price at the time of delivery.32 If one of the parties is to set the price, the price is to be set in good faith.33 If an open price term fails to be fixed through the fault of one party, the other party may either cancel the contract or fix a reasonable price.34 If the parties do not intend to be bound unless the price is fixed or agreed upon, and the price is not fixed or agreed upon, then there is no contract.35 In such circumstances, the buyer must return any goods received or, if unable to do so, pay their reasonable value at the time of delivery, and the seller must return any portion of the price paid on account.
Quantity. Quantity is a necessary term, without which there can be no contract. The quantity must either be stated expressly or be readily determinable. Offers defining the quantity as the buyer’s entire requirements or the seller’s entire output—so called “requirements contracts”—satisfy this requirement, because the buyer’s entire requirements and the seller’s entire output are usually readily determinable. In such requirements or output contracts, the quantity must be set in good faith, and the quantity ultimately required or produced must not be unreasonably disproportionate to any stated estimate. In the absence of a stated estimate, any normal or comparable prior requirements or output may be tendered or demanded.
The Statute of Frauds. Parties seeking to enforce a contract should be aware of certain pitfalls in contract formation. Certain defenses exist for those who try to deny the proper formation of a contract for the sale of goods. The most significant of these is the statute of frauds.
In most cases, commercial contracts for the sale of goods for a total price of $500 or more are not enforceable unless there is a commemorative writing signed by the party to be charged or by that party’s authorized agent or broker.37 Virtually any type of writing will suffice, even those incorrectly stating terms, but the contract is not enforceable beyond the quantity of goods shown in the writing.38 A signature may be any mark or symbol used by a party with the intent to authenticate the writing, and it may appear on any part of the document, even as a party’s letterhead. Whether a contract is for $500 or more after it has been modified depends on its value after modification. If a contract as modified is worth more than $500, the statute of frauds applies. If a contract as modified is
not worth more than $500, the statute of frauds does not apply.
The writing need not conclusively establish the existence of a contract to survive the scrutiny of the statute of frauds. It merely has to provide a basis for believing that the offered oral evidence rests on a real transaction.40 It may be written in lead pencil on a scratch pad.41 Quantity is the only essential term necessary for a written memorandum. The quantity need not be accurately stated, but the contract is not enforceable beyond the quantity stated in writing. Thus, the price, terms of delivery, the quality of the goods, and any warranties may all be omitted.
Confirmatory Memos Between Merchants. In contracts between merchants, if, within a reasonable time after their oral agreement, one merchant sends written confirmation of the parties’ understanding sufficient to bind the sender, the writing will also bind the receiver if the receiver has reason to know the content of the writing and does not object within 10 days after the writing is received.
When No Writing Is Required. In certain situations, a contract that does not satisfy the statute of frauds but is valid in other respects is still enforceable.
Custom-Made Goods. When goods are custom made for a buyer or specifically manufactured so that, upon a buyer’s default, the seller could not sell them to a third party in the seller’s ordinary course of business, the contract for their sale is enforceable without a writing if the seller has, under circumstances that reasonably indicate that the goods are for the buyer, made substantial beginnings in the creation of the goods or made commitments for their acquisition before receiving a notice of repudiation from the buyer.
Admission in Pleadings. If a party admits in pleadings, testimony, or otherwise in court that a contract of sale was formed, then the contract is enforceable, but only for the quantity of goods so admitted.
Performance. If goods have been paid for and accepted or have been received and accepted, the contract is enforceable without a writing for the quantity of goods actually paid for and accepted or received and accepted.
The Parol Evidence Rule. Terms with respect to which the confirmatory memoranda of the parties agree or that are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement.
Explanation or Supplementation of Terms. Although the parol evidence rule prohibits the contradiction of a written contract, the terms of the contract may be explained or supplemented by (i) a course of performance, a course of dealing, or usage of trade, and (ii) by evidence of consistent additional terms, unless the court finds the writing to have been intended as a complete and exclusive statement of the terms of the agreement.48 Note that such extrinsic evidence must be consistent with the express terms of the contract, and not contradict the express terms of a contract. A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties’ agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement.
A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so used as to that part of the performance.
Course of Performance. A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if (i) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party and (ii) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.50 Subject to section 2-209 of the UCC (addressing modification, rescission, and waiver), a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
Course of Dealing. A “course of dealing” is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is to be fairly regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
Usage of Trade. A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.53 The existence and scope of the usage must be proved by facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law. Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise.
Interpretation and Priority. Except as otherwise provided in section 1a-303(6),55 the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other.56 If such a construction is unreasonable, then
(i) express terms prevail over course of performance, course of dealing, and usage of trade; (ii) course of performance prevails over course of dealing and usage of trade; and (iii) course of dealing prevails over usage of trade.
Performance. a. Seller’s Obligation to Deliver.
A seller’s obligations to deliver the goods sold to a buyer vary depending on whether the parties intended to have the goods conveyed from the seller and delivered to the buyer by a common carrier.
Noncarrier Cases. In a noncarrier or “direct delivery” case, where the seller is meant to tender the goods directly to the buyer, the seller must put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable the buyer to take delivery.58 If the buyer is to take delivery directly from the seller, then the buyer must furnish facilities reasonably suited to the receipt of the goods.59 The time, place, and manner of delivery may be determined by the contract, but the tender of the goods must be at a reasonable hour.60 Further, the goods must be kept available for the period reasonably necessary to enable the buyer to take possession of the goods.61 Unless the parties agree otherwise, the place for delivery of the goods is the seller’s place of business, or, if the seller has none, the seller’s residence.62 However, in a contract for the sale of identified goods that the parties know at the time of contracting to be in another location, the other location is the place for their delivery.63
Carrier Cases. In a carrier or “transportation” case, the parties agree to use a third party, usually a common carrier, to deliver the goods.
– Shipment Contracts. In a shipment contract, the seller has not agreed to tender the goods at a particular location. Rather, to satisfy its obligations, the seller need only (i) put the goods in the possession of a carrier and make such contract for their transportation as may be reasonable having regard to the nature of the goods and the circumstances of the case; (ii) obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
promptly notify the buyer of the shipment.64 The seller’s failure to notify the buyer of the shipment or to make a proper contract with the carrier is grounds for a rejection only if a material delay or loss ensues.
– Destination Contracts. In a contract requiring the seller to tender the goods at a particular destination, the seller must put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him or her to take delivery.65 If the buyer is to take delivery directly from the seller, the buyer must furnish facilities reasonably suited to the receipt of the goods.66 The time, place, and manner of delivery may be determined by the contract, but the tender of the goods must be at a reasonable hour.67 Where the goods are in the possession of a bailee and are to be delivered without being moved, then the seller must tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer’s right to the possession of the goods.68 Tender to the buyer of a non-negotiable document of title or a record directing the bailee to deliver the goods to the buyer is sufficient tender unless the buyer seasonably objects.
F.O.B. and F.A.S. Contracts. When a contract specifies that delivery is free on board (F.O.B.) to a particular location, even though used only in connection with the stated price, the seller must, at its own expense and risk, tender the goods in the F.O.B. location.69 The term may also be used with a vessel, car, or other vehicle, in which case the seller must also, at its own expense and risk, load the goods on the vessel, car, or other vehicle.70 When a contract is free alongside (F.A.S.) a particular vessel at a named port, the seller’s obligation to tender the goods is satisfied by tendering the goods alongside the vessel in the usual manner at that port or at a dock designated and provided by the buyer.
Buyer’s Obligation to Pay and Right to Inspect. Unless specified otherwise by the contract, the buyer’s tender of payment is a condition of the seller’s duty to tender and complete delivery.72
Shipment Under Reservation. In a carrier contract, when there is no express payment provision or when the contract specifies cash, the seller may send the goods “under reservation” so that the buyer will be unable to obtain the goods from the carrier until the buyer pays the seller.73
Sufficiency of Payment. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in cash and gives the buyer an extension of time reasonably necessary to procure the cash.
Any payment made by check is conditional on the honoring of the check upon presentment by the seller.75 Accordingly, any payment by check is not a complete tender of payment until the check is paid upon presentment.
Right of Inspection. Unless the contract specifies otherwise, the buyer has a right to inspect the goods before paying for them.76 The buyer must bear the cost of the inspection, but may recover this cost from the seller if the goods do not conform to the goods ordered and are rejected by the buyer.77 The buyer’s inspection may be at any reasonable time and in any reasonable manner.
Buyer’s Rejection, Acceptance, and Revocation of Acceptance.
As a general matter, and unless otherwise agreed by contract, the buyer has certain remedies to address the improper performance by the seller.
Complete or Partial Rejection. If the goods or the tender of delivery fail to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial unit or units and reject the rest.79 For any rejection to be effective, the buyer must reject the goods within a reasonable time after their delivery or tender and must seasonably notify the seller of the rejection.
Identifying the Particular Defect. In certain situations, when making a rejection, the buyer must state a particular defect that is ascertainable by reasonable inspection in order to rely on such defect to justify the rejection or establish a breach. First, if the seller could cure the defect with seasonable notice, then the buyer must state the particular defect to the seller.81 Second, between merchants, after rejection the seller may make a written request for a full and final statement from the buyer of all defects on which the buyer bases its rejection.
Buyer’s Duties upon Rejection. After rejecting certain goods, the buyer may not exercise any ownership with respect to the rejected goods.83 If the buyer has possession of the goods before rejection, the buyer has a duty to hold them with reasonable care for a period of time sufficient to permit the seller to remove them; however, the buyer has no further obligations with respect to properly rejected goods.
Merchant Buyer’s Duties upon Rejection. When the seller has no agent or place of business in the market of the rejection, a merchant buyer has a duty after the rejection of goods in his or her possession or control to follow any reasonable instructions from the seller with respect to the goods.85 Instructions are not reasonable if, on the buyer’s demand, indemnity for expenses is not provided. In the absence of instructions from the seller, the buyer may make reasonable efforts to sell the goods on behalf of the seller if the goods are perishable or likely to decline in value quickly. The buyer may also store rejected perishable goods on the seller’s behalf or reship them to the seller.86 If the buyer sells any of the goods on the seller’s behalf, the buyer is entitled to be reimbursed by the seller or from the sales proceeds for the care and sale of the goods, including sales commissions as are customary in the trade or, if none, to a commission not exceeding 10 percent of the gross proceeds.
Acceptance. The buyer accepts the goods when, after a reasonable opportunity to inspect the goods, the buyer signifies to the seller that either the goods are conforming or that the buyer will take and retain them in spite of their nonconformity.88 The buyer also accepts the goods when, after a reasonable opportunity to inspect the goods, the buyer fails to make an effective rejection of the goods.89 The buyer also accepts the goods if it performs any act inconsistent with the seller’s ownership of the goods.90 However, if such an act is wrongful as against the seller, it is an acceptance only if ratified by the seller.91 The buyer’s acceptance of a part of a commercial unit is an acceptance of that entire commercial unit.
Effect of Buyer’s Acceptance. Once the buyer has accepted the goods, the buyer must pay the contract rate for the goods.93 The buyer’s acceptance precludes the rejection of the accepted goods.94 If the buyer accepts the goods with the knowledge of a nonconformity, then the acceptance cannot be revoked unless the acceptance was on the reasonable assumption that the seller would seasonably cure the nonconformity.95 Once the buyer has accepted the goods, the buyer has the burden of establishing any breach with respect to the accepted goods.
Revocation of Acceptance. Even after the buyer has accepted the goods, the buyer may still revoke its acceptance in whole or in part under certain circumstances. As a general rule, the buyer may not revoke its acceptance based on a defect of which it had knowledge at the time of acceptance. If the buyer accepted goods whose nonconformity substantially impairs the value of the goods to the buyer, and if the buyer accepted the goods on the reasonable assumption that the nonconformity would be cured, and if the nonconformity has not been seasonably cured, then the buyer may revoke its acceptance.97 Also, if the buyer accepted goods whose nonconformity substantially impairs the value of the goods to the buyer, and if the buyer accepted the goods without discovery of such nonconformity, and if the buyer’s acceptance was reasonably induced by either the difficulty of discovering the nonconformity before acceptance or the seller’s assurances, then the buyer may revoke its acceptance.98 The buyer’s revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the basis for the revocation and before a substantial change in the condition of the goods that is not caused by its own defects.99 The buyer’s revocation is not effective until the buyer notifies the seller of it.100 After revocation, a buyer has the same rights and duties with respect to the goods as if the buyer has rejected them.101 Additionally, section 2-711 of the UCC permits a buyer, upon revocation of acceptance, to recover monetary damages, which may include the purchase price.
Impracticability. Certain events may occur and circumstances may arise that make a seller’s bargained-for performance dramatically more difficult, if not impossible. Although at common law, sellers generally assume such risks when they contract, the UCC adds some protections for commercial contracts for the sale of goods. Section 2-615(a) of the UCC provides that any delay in delivery or nondelivery in whole or in part by a seller is not a breach of contract if the seller’s performance has been made impracticable either (i) by the occurrence of a contingency, the nonoccurrence of which was a basic assumption on which the contract was made or (ii) by compliance in good faith with any applicable foreign or domestic governmental regulation or order, whether or not it later proves to be invalid.103
When such causes affect only part of the seller’s capacity to perform, the seller must allocate production and deliveries among its customers but may include regular customers not then under contract and its own requirements for further manufacture.104 The seller may allocate by any manner that is fair and reasonable.105 The seller must also notify the buyer seasonably that there will be delay or nondelivery, and when the seller is making allocations, the seller must notify the buyer of the estimated quota that will be available to the buyer.
This provision does not protect the seller from ordinary increases in cost unless the increase in cost is due to some unforeseen contingency that alters the essential nature of the seller’s performance.107 A severe shortage of raw materials or supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply, or the like, which causes marked increase in cost or altogether prevents a seller from securing supplies necessary for its performance, is within the contemplation of section 2-615 of the UCC.108 Where a particular source of supply is exclusive under the agreement and fails through casualty, section 2-615 applies.
Warranties. The UCC not only provides for several implied warranties that arise in commercial contracts for the sale of goods but also provides certain guidance as to the creation of express warranties. The UCC dictates that the warranties in commercial contracts for the sale of goods extend not just to the buyers of the goods but to any person whom the manufacturer or seller might reasonably expect to use, consume, or be affected by the goods.110
Warranty of Title and Warranty Against Infringement.
In all commercial contracts for the sale of goods, there is a warranty by the seller, unless disclaimed as discussed below, that the seller will deliver good title to the goods, that the transfer of the title to the goods is “rightful,” and that the seller will deliver the goods free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.111 The warranty of title may only be excluded or modified by specific language or by circumstances that give the buyer reason to know that the seller does not claim title in itself or that the seller is purporting to sell only such right or title as it or a third party may have.112
Unless otherwise agreed between the parties, a merchant regularly dealing in goods of the kind warrants that the goods will be delivered free of the rightful claim of any third person by way of infringement or the like.113 However, a buyer who furnishes specifications to a seller must hold the seller harmless against any claim that arises out of compliance with the buyer’s specifications.
Implied Warranty of Merchantability. The implied warranty of merchantability arises by operation of law. Unless properly excluded or modified, a warranty that the goods will be merchantable is implied in any contract for their sale where the seller is a merchant with respect to goods of that kind.115 Selling food and drink for consumption on the premises or elsewhere is subject to the implied warranty of merchantability if the seller is a merchant in food and drink.116 When a contract is for both goods and services, if the contract is dominated by language designating the sale of goods by a merchant of the same goods, then the implied warranty of merchantability applies.117 As noted above, determining whether a contract is for goods or for services depends on whether the goods or the services predominates.
Implied Warranty of Fitness for a Particular Purpose.
The implied warranty of fitness for a particular purpose arises when the seller, at the time of contracting, has reason to know (i) of any particular purpose for which the goods are required and (ii) that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods.118 Then, unless properly excluded or modified, a warranty is implied that the goods are fit for such purpose.
A “particular purpose” differs from the ordinary purpose for which goods are used. It contemplates a use by the buyer that is specific to the nature of the buyer’s business.119 By contrast, the ordinary purposes for which goods are used are those envisaged in the concept of the implied warranty of merchantability and go to uses that are customarily made of the goods in question. Whether this warranty arises in a particular instance is a question of fact to be determined by the specific circumstances.120
To recover for a breach of this warranty, a buyer must prove that
(i) the seller had reason to know the particular purpose for which the buyer required the goods; (ii) the seller had reason to know the buyer was relying on the seller’s skill or judgment to furnish appropriate goods; and (iii) the buyer in fact relied upon the seller’s skill or judgment.121
Both the implied warranty of merchantability and the implied warranty of fitness for a particular purpose were excluded by the sales documents signed by the purchasers, where documents conspicuously and expressly excluded the implied warranties of fitness and merchantability, not hidden in fine print, and the sales agreement stated that the vehicle was being purchased “as is.”
Express Warranties. Express warranties are created by affirmations, promises, descriptions, or samples provided by the seller to the buyer. The seller need not use formal words such as “warrant” or “guarantee” or have a specific intent to create a warranty. Sellers create express warranties in three ways.
Affirmations or Promises. Any affirmation of fact or promise made by the seller to the buyer that relates to the goods and becomes a part of the basis of the bargain creates an express warranty that the goods will conform to the affirmation or promise. Descriptions. Any description of the goods that is made a part of the basis of the bargain creates an express warranty that the goods will conform to the description. Samples or Models. Any sample or model of the goods that is made a part of the basis of the bargain creates an express warranty that the whole of the goods will conform to the sample or model. Opinions are not warranties. An affirmation 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 an express warranty.127 This may be different if the seller has superior knowledge about the goods being sold and does not qualify its statement as being only its opinion. The statement may be treated as a statement of fact and found to be an express warranty with which the goods must comply.
Disclaimer of Warranties. Express Warranties. Express warranties may be negated, at least in part, by words or conduct refuting the words or conduct creating the express warranty. The words or conduct creating an express warranty and the words or conduct negating or limiting the express warranty are construed, wherever reasonable, consistently with each other.
Implied Warranties. The implied warranties of merchantability and fitness for a particular purpose may be disclaimed either by specific disclaimers or by general disclaimers. The UCC provides specific disclaimers for both the implied warranty of merchantability and the implied warranty of fitness for a particular purpose. The UCC states that to exclude or modify the implied warranty of merchantability, the language of the disclaimer must mention merchantability and, in the case of a written disclaimer, must be conspicuous.130 for the implied warranty of fitness for a particular purpose, the UCC states that the language of the disclaimer must be in writing and must be conspicuous.131 Language to exclude the implied warranty of fitness for a particular purpose is sufficient if it states, for example, that “[t]here are no warranties which extend beyond the description on the face hereof.”132
General disclaimers that may serve to disclaim warranties can be created by the language or actions of the parties. The UCC provides for three in particular.
General Disclaimer Language. All implied warranties are excluded by expressions like “as is” or “with all faults” or other language that in common understanding call the buyer’s attention to the exclusion of warranties and make it plain that there is no implied warranty.133 Inspection or Refusal to Inspect. When the buyer, before entering into the contract, has examined the goods or the sample or model as fully as desired or has refused to examine the goods, there is no implied warranty with regard to defects that an examination should, under the circumstances, have revealed.
Course of Dealing. An implied warranty can also be excluded or modified by a course of dealing or course of performance or usage of trade.
The Magnuson-Moss Warranty Act. The Magnuson-Moss Warranty Act of 1975136 provides additional requirements for written warranties made by manufacturers of consumer products. Under regulations promulgated by the Federal Trade Commission, they must be in writing and fully and conspicuously disclose in simple and readily understandable language the terms and conditions of the warranty.137 The minimum federal standards for consumer product warranties provide that the warrantor state it will remedy the consumer product within a reasonable time and without charge in the case of a defect, malfunction, or failure to conform with the written warranty,138 among other things.139 A warrantor warranting a consumer product must clearly and conspicuously designate the warranty as a “full (statement of duration) warranty” if it meets the federal minimum standards for a full warranty or as a “limited warranty” if it does not meet the federal minimum standards for a full warranty.
f) Limitation of Damages for Breach of Warranty. Liquidated Damages. Damages for a breach by either party may be liquidated in the agreement, but only to an amount that is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of the proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.141 Unreasonably large liquidated damages are void as a penalty.
Limited Remedies. The parties may also contractually agree to limit the buyer’s remedies to the return of the goods and repayment of the price or to the repair and replacement of nonconforming goods or parts.
Consequential Damages. Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.144 Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but limitation of damages where the loss is commercial is not.