I am a frequent buyer of goods on the internet. I like the convenience of being able to make purchases from my computer without having to leave my house. Because of the internet, I am not limited to vendors in my hometown of Houston—I can purchase from stores located in Los Angeles, Chicago, or New York. The Uniform Commercial Code (“UCC”) was drafted to provide a single set of rules to make interstate sales transactions run smoothly and be more profitable. The UCC has been adopted in every state except Louisiana. Article 2 of the UCC covers the sale of goods and not services, and provides for certain warranties that are included as part of every sale. As a vendor of goods, it is important to understand what these UCC warranties entail, as well as how to effectively disclaim these warranties.
Express and Implied Warranties
There are two types of warranties under the UCC, express or implied. An express warranty is an affirmative promise about the quality and features of the goods being sold. For example, a statement by a seller that a watch is “waterproof up to 300 feet,” or that a car “gets 36 miles per gallon of gasoline on the freeway” is an express warranty. Additionally, an express warranty can be made by providing a description of the goods being sold or by showing a sample to the buyer. For example, if a buyer of a dishwasher is shown a floor sample of the kind of dishwasher the he or she wants to purchase, the floor sample constitutes an express warranty that the dishwasher that is actually sold to the buyer is the same type and quality as the floor sample.
In addition to express warranties, the UCC recognizes implied warranties. Implied warranties arise by “operation of law” and apply as part of the sales contract regardless of whether the parties know that it is there. Prior to the UCC, the old rule of caveat emptor (“Let the buyer beware”) applied. The goal of the UCC’s implied warranties was to put an end to caveat emptor. Implied warranties that the UCC creates are (1) the warranty of “merchantability” and the warranty of “fitness for a particular purpose.”
The implied warranty of “merchantability.”
Under the warranty of “merchantability,” the goods must be at least of average quality, properly packaged and labeled, and fit for the ordinary purposes that they are intended to serve. For example, a seller of a pair of running shoes impliedly warrants (1) that the shoes are at least of average quality as compared to other running shoes in the same price range; (2) that the running shoes are the same brand and model as stated on the box; and (3) that the running shoes are proper for use in running. The implied warranty of merchantability is limited to a seller of “goods of that kind,” meaning the kind of goods the seller normally sells in the marketplace. For example, if the running shoes are being sold by a sporting goods store that normally sells running shoes as part of its inventory, the implied warranty of merchantability applies. On the other hand, if the sporting goods store sells to the store next door an extra shoe display rack that it no longer needs, the shoe rack is not subject to the implied warranty of merchantability because the sporting goods store does not normally sell shoe racks.
The implied warranty of “fitness for a particular purpose.”
The implied warranty of fitness for a particular purpose (“warranty of fitness”) applies if the seller knows or has reason to know that the buyer will be using the goods for a certain purpose. For example, a car salesman that sells you a car impliedly warrants that the car is proper for everyday driving under the warranty of merchantability. However, if the car salesman knows that the buyer wants to use the car as a race car, the salesman impliedly warrants that the car is suitable to use for racing. The rationale behind the implied warranty of fitness is that the buyer is relying on the seller’s skill and expertise to help the buyer find the specific goods that meet the buyer’s specific needs. It is unfair for a seller to sell something that the seller knows will not do the job and later tell the buyer that it not the seller’s fault that the product sold did not work.
Disclaimer of express and implied warranties.
The UCC specifically allows a seller of goods to disclaim both express and implied warranties under certain conditions. A seller that disclaims an express warranty must do so specifically. With respect to the implied warranty of merchantability, the disclaimer in writing must specifically mention “merchantability” and be in “conspicuous” language. To determine whether a disclaimer is sufficiently “conspicuous,” Texas courts will look at whether the disclaimer language is written, displayed or presented in such a way that a reasonable person should have noticed it. To ensure that a disclaimer is enforceable, it should be in ALL CAPS and in an equal or greater font size that the surrounding text, and/or in bold or underlined text so that the disclaimer language stands out from the remaining text in the contract. A written disclaimer contained in text that is not conspicuous is unenforceable unless the buyer has actual knowledge of the disclaimer. Accordingly, if the disclaimer bears a written acknowledgment by the buyer, such as the buyer’s initials, a defense based on the lack of conspicuousness may be difficult to establish regardless of the manner in which the disclaimer is set forth.
Language to exclude all implied warranties (both the merchantability and fitness) is also sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof” or “There is no warranty that the goods will be fit for a particular purpose.” The warranty may also be disclaimed by an “as is” clause.
If you are a seller of goods, a clear understanding of the UCC warranties and their disclaimers is essential. An experienced commercial lawyer can assist sellers with the preparation of your sales contract.
About Our Show Advisor: Alicia Matsushima is the Senior Associate attorney at the law firm of Orlando & Braun, LLP. Alicia’s areas of practice include commercial and business matters and litigation, including creditors’ rights and collection, debtors’ rights and bankruptcy, contract matters, consumer law, employment and labor law and insurance law. Alicia received her Bachelor’s degree in psychology from Baylor University in 1994 and her Juris Doctor from Notre Dame Law School in 1997. She has been licensed to practice in Texas since 1997. Alicia is also a UK Solicitor admitted to practice in the Senior Courts of England and Wales. Alicia’s goal on LBM is to provide practical commentary from a legal standpoint to benefit individuals and owners of small to mid-size businesses. Originally from Los Angeles, Alicia lives in Houston with her dog Jeep. For more information about Alicia’s practice, visit her website at www.BusinessLegalMatters.com. She can also be reached at 713-521-0800.
Disclaimer: The topics and discussions by Alicia Matsushima on LBM constitutes general commentary only and is not to be construed as legal advice or creating an attorney-client relationship.