Thursday, November 1, 2018

Disclaiming Implied Warranties

Overview

Because such items as livestock, feed, seed or pesticides are goods, sales and other transactions involving them result in the creation of warranties.  These warranties can be either express or implied.  Express warranties are stated as part of the sales agreement and become part of the basis of the bargain, but implied warranties are read into the sales agreement by the law, absent specific language or circumstances excluding them. 

Contract warranties create legal rights and liabilities between the parties to the transaction.  That means knowing whether and how they can be disclaimed can be important. 

Disclaiming implied warranties – that’s the topic of today’s post. 

Methods for Disclaiming

The Uniform Commercial Code (UCC) specifically provides three ways in which all implied warranties can be excluded.  First, unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty.  For example, in Rayle Tech, Inc. v. DEKALB Swine Breeders, Inc. 133 F.3d 1405 (11th Cir. 1998), the court held that a swine breeder who purchased diseased pigs could not sue the seller for fraud where the seller clearly disclaimed any liability for disease in the sales contract, despite a salesman’s assurances to the contrary.  However, in Snelten v. Schmidt Implement Co. 269 Ill. App.3d 988, 647 N.E.2d 1071 (1995), the court held that an implement dealer that sold a tractor to a farmer limited the scope of its “as is” disclaimer by making other representations to the buyer.

The second manner in which an implied warranty can be excluded is when the buyer, before entering into the contract, examines the goods or a sample or a model as fully as desired or refuses to examine the goods.  In this instance, there is no implied warranty with regard to defects which an examination should have revealed to the buyer. 

The third way an implied warranty can be excluded is by course of dealing, course of performance or usage of trade.  UCC § 2-316(3)(C). The seller’s relationship with the buyer, industry practice or usage of trade can exclude an implied warranty.  For example, if the parties have previously engaged in contracts for the sale of livestock or feed with all previous contracts containing a disclaimer provision, or the industry practice is to limit liability, implied warranties may be excluded. 

Federal Statutory Law

At the federal level, the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (15 U.S.C. §§ 2301-2312) precludes the disclaimer or modification of any implied warranty created by state law when a consumer product supplier makes any written warranty with respect to a product.  The implied warranties can only be limited to the duration of the express warranties, unless the express warranties are designed as a “Full Warranty,” in which case the implied warranties cannot be limited even in their duration.  Thus, the only way for a consumer product supplier to avoid extending implied warranties is to not provide any express warranties.  Also laws in some states prohibit sellers in consumer transactions from excluding, modifying or limiting implied warranties of merchantability or fitness.  For example, in Kansas, a supplier in a consumer transaction is prohibited from disclaiming or limiting UCC implied warranties of merchantability and fitness for a particular purpose. See, e.g., Kan. Stat. Ann. §§ 50-623 to 50-644.  Any such limitation is usually considered void unless the buyer knew of the defect before purchasing and this knowledge became part of the basis of the sale.  The only exceptions are for sales of livestock for agricultural purposes and sales of seed for planting. 

In seed sale transactions, the Federal Seed Act (FSA) allows the seed sellers to use disclaimers, limited warranties, or non-warranty clauses in invoices, advertising or labeling.  However, the FSA does not permit such limitation on warranties to be used as a defense in any criminal prosecution or other civil proceeding based on the FSA. 7 U.S.C. § 1574 (1995). As a result, seed purchasers may be faced with label disclaimers limiting liability to the price of the seed.  Courts are split on the validity of such disclaimers with most courts invalidating them only if liability results from the seller’s own negligence or intentional violation of the law. 

Special Rules

In order to disclaim or modify an implied warranty of merchantability, the seller’s “language must mention merchantability and in case of a writing must be conspicuous....”  UCC § 2-316(2). For example, in Day v. Tri-State Delta Chemicals, Inc., 165 F. Supp. 2d 830 (E.D. Ark. 2001), the court determined that there had been no breach of an implied warranty in a transaction involving cotton seed purchased on credit where the credit agreement carried a limitation of warranty denying any representation as to the seed’s fitness.

Oral disclaimers of implied warranties of merchantability must use the word “merchantability,” and in written disclaimers, the disclaiming language must be conspicuous within the written document.  See, e.g., R.J. Meyers Company v. Reinke Manufacturing Co., 885 N.W.2d 429 (Iowa Ct. App. 2016).   A disclaimer of an implied warranty of fitness for a particular purpose must be in writing.  

Conclusion

Transactions involving the sales of goods often occur without any issue.  However, it is helpful to know what the rules concerning the disclaimer of implied warranties are in case an issue concerning the purchased goods arises and the goods don’t live up to the buyer’s expectations.

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