Rarely do I have occasion to offer thoughts on drafting under article 2 of the Uniform Commercial Code, which applies to sales of goods.
Here are two warranty disclaimers from some equipment purchase agreements I’ve been reviewing:
NO OTHER WARRANTY TO CUSTOMER FROM SELLER IS EXPRESS OR IMPLIED. SELLER SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULARPURPOSE.
THE FOREGOING WARRANTIES … ARE GIVEN IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, IN FACT OR BY LAW, OR ARISING BY REASON OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Both extracts disclaim all warranties other than those stated, then make a point of mentioning the warranty of merchantability and the warranty of fitness for a particular purpose.
Mentioning the warrant of merchantability makes sense, as section 2-316 of the UCC says that “to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability.” By contrast, section 2-316 says that you don’t have to refer by name to the warranty of fitness—it’s enough to say, for example, that “There are no warranties which extend beyond the description on the face hereof.”
But being more specific than strictly necessary isn’t much of a problem. Here’s what is a problem: these extracts make no mention of the warranty of title.
Section 2-312 of the UCC says “there is in a contract for sale a warranty by the seller that (a) the title conveyed shall be good, and its transfer rightful; and (b) the goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.” It goes on to say that the warranty of title “will be excluded or modified only by specific language or by circumstances which give the buyer reason to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.”
So if disclaimer language proposes to exclude all warranties other than those stated in the contract but doesn’t mention the warranty of title, that disclaimer language is incorrect—it’s insufficient to exclude the warranty of title. And in the contracts that I’ve looked at recently that contain warranty disclaimer language, most don’t mention the warranty of title.
Failure to take into account the warranty of title would seem unlikely to result in, for example, a seller’s being unpleasantly surprised to find that it had in fact given a warranty of title. That’s because, in the words of Drafting Effective Contracts: A Practitioner’s Guide, by Robert A. Feldman and Raymond T. Nimmer, the warranty of title doesn’t “give rise to as much legal excitement and debate as express warranties dealing with the quality and nature of goods or other subject matter.”
Updated 9 December 2018
[I’ve revised the ending of my original post because I’ve decided it’s too speculative to assume that an “entire agreement” provision makes it redundant to include “no other warranties” language. You’ll see that discusssed in the comments.]
So I propose you use the following language, but if the warranty of title isn’t of concern you could omit the language in brackets.
In connection with the Buyer’s purchase of units of any Product under this agreement, the Vendor is making no warranty other than [the warranty of title and] the warranties stated in this agreement. This agreement excludes any warranty of merchantability.
For reasons explained in this 2011 post, I don’t use the word disclaim in my proposed language.
By the way, a reminder: exclusions of warranties don’t have to be in all capitals to be “conspicuous,” as required under the UCC. It’s not clear that they even have to be emphasized somehow. See this February 2008 blog post. But if you want to emphasize them, I suggest bold italics.
Ending of Original Post
Nevertheless, I’m not crazy about saying in a contract something that’s incorrect as a matter of law. So here’s some disclaimer language I’ve come up with:
The Vendor is not making in this agreement any warranty of merchantability or fitness for a particular purpose in connection with the Buyer’s purchase of units of any Product under this agreement.
All this language needs to do is exclude implied warranties. It doesn’t need to say that there are no other express warranties, as that would be covered by an “entire agreement” provision. Getting rid of the blanket exclusion of other express warranties eliminates any suggestion that the buyer is waiving the warranty of title.
By the way, a reminder: exclusions of warranties don’t have to be in all capitals to be “conspicuous,” as required under the UCC. See this February 2008 blog post. That’s why I used bold italics.
Ken:
While I like your disclaimer of the warranties of merchantability and fitness, I still prefer to have a disclaimer of all warranties not stated in the agreement. The reason is that the UCC (so, presumably, some common law, too) allows the creation of express warranties in ways other than a statement in the agreement. See UCC section 2-313. Its three subsections allow three methods of creating an express warranty: affirmation of fact, description of goods, or sample of goods. In each case, it must be “made part of the basis of the bargain.” I’ve always assumed that “basis of the bargain” is broader than the record that memorializes the agreement. My nightmare is that a salesman’s ignorant affirmation of untrue face becomes a warranty that is the basis of the bargain.
One could, of course, say that a well-drafted integration clause will avoid this problem. (See Tina L. Stark’s Negotiating and Drafting Contract Boilerplate at 573.) The problem is that most of those — even Professor Stark’s — says something like “neither party has relied on any statement, representation, warranty, or agreement of the other party except for those expressly contained in this agreement.” That, to me, is ambiguous. The integration clause says that the warranty must be expressly contained in the agreement. But the UCC says that that an affirmation outside of the document is an express warranty that is part of the agreement. So, the concepts of “express” and “in the agreement” seem problematic to me.
I see enough there to worry me. And I really, really don’t want to have an argument with a customer about whether some salesman’s statement is part of the contract after the customer has something it claims is breach. I’d rather just have a well-drafted disclaimer of all warranties not stated in the document. That usually gets the customer to get express promises about the things that matter to the customer. If the disclaimer partly overlaps with a well-drafted integration clause, that’s a bonus.
So, I routinely disclaim all warranties not stated in the document. I don’t read that as negating the warranty of title without mentioning the word title. (Of course, I also routinely disclaim that, because we sell data, which is not capable of being owned under the copyright act. But that’s an unusual case.)
Chris
Chris: I don’t see how using an “entire agreement” provision doesn’t cover you. It says essentially the same thing as a blanket warranty disclaimer.
Alternatively, one could supplement my proposed language as follows:
By referring to the warranty of title, you avoid the awkwardness of an assertion that is categorical but inaccurate. And the blanket statement means that you don’t have to refer specifically to the warranty of fitness.
Ken
Wouldn’t relying on an “entire agreement” provision in lieu of a complete warranty disclaimer leave you vulnerable to a court’s characterization of the UCC 2-313 conduct Chris identified? A court could hold such conduct (or anything else) supplements a written agreement under UCC 2-202’s parol evidence exceptions. UCC 2 expressly creates certain warranties by a party’s conduct. Relying on an “entire agreement” provision that doesn’t disclaim such warranties seems to place too much reliance on a court’s strict application of the contract language. Integration clauses are not an absolute.
My issue is that trying to narrow disclaimer of warranties inevitably leads to mistakes, as well as ambiguity.
As something close to my heart, what about Section 2-312(3) of the Uniform Commercial Code that gives a warranty of non-infringement unless disclaimed by a “merchant regularly dealing in goods of the kinds.” Especially nowadays, few companies really want to be defending intellectual property infringement claims for all aspects of their goods.
There are similar provisions in UCITA (for those states that enacted it) for goods that have a software mix.
Looking at your “other than the warranty of title” example also makes me wonder whether infringement would be in or out.
Without wishing to intrude upon private grief…
Many of these implied warranties seem to share a common origin with the (English) Sale of Goods Act 1979 (previous versions of which date back to at least 1893).
S. 12(1) implies a condition of title
S. 12(2) implies (a) warranty of freedom from encumbrances, and (b) quiet possession.
S. 14(2) implied a condition of merchantability until it was amended in 1994 to refer to a warranty of “satisfactory quality”. This is essentially a more modern form of words.
S. 14(3) implies a condition of fitness for purpose.
The distinction in the above between conditions and warranties is intentional. The distinction is explained elsewhere in the Act.
By section 6 of the Unfair Contract Terms Act 1977, the implied term of title cannot be excluded by any contract term. The implied terms of satisfactory quality or fitness for purpose cannot be excluded in contracts with consumers. Other sections of this Act prevent certain exclusions or limitations of liability from being effective unless they are considered “reasonable”.
There is no statutory requirement for prominent text in disclaimers, but Lord Denning (a radical English judge) famously commented in Spurling v Bradshaw that:
“…the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.”
This is sometimes known as the big red hand test. It is not taken literally, but may require onerous conditions to be highlighted in some way. If it is part of English law at all, it probably applies more to standard contract terms than to individually negotiated contracts.
In other words, similar underlying law, but in some ways very different. Therefore, standard terms excluding implied terms look very different in agreements made under English law from those under US laws.
Ken, this issue often comes up in contracts for the sale of aircraft. There is often a lengthy disclaimer of warranty, whether the aircraft is new or used and whether or not the seller is a merchant. In most of the aircraft deals I’ve done, the buyer negotiates for limiting the disclaimer so as to preserve the warranties of title set forth in the bill of sale. The contracts typically call for delivery of two bills of sale — one an FAA-prescribed form with a rudimentary warranty of title, and a lengthier manuscript bill of sale with warranties of title and against encumbrance, with a covenant to defend.
Let’s add something from Dutch law perspective: a disclaimer of fitness for its (general) purpose cannot be excluded and the sold must have the particular properties and characterists as the purchaser may (reasonably) expect from those goods.
Also, a seller cannot disclaim the validity or effectiveness of the core obligations (being that it transfers ownership (as understand the term ‘title’ to equal this – the Dutch term “titel” would have a clearly different meaning and is not something in itself transferable but reflecting the transfer as a legal act). Such disclaimer would mean that a seller could be entitled to sell something (against payment) which it cannot sell because it is not entitled to such good; and if that turns out to be the case (and hence no ownership being transferred), nevertheless keeping a claim to be paid the purchase price.
I have always understood the concept of ‘merchantability’ to be the possibility of a buyer to use and dispose of those rights or goods it has actually acquired (except where a contract stipulates that the use or the transferability is limited). This is in Roman (latin) words called the ‘Nemo plus rule’ (referring to the principle “Nemo plus iuris in alium transferre potest quam ipse habet”) – one cannot sell more than one has. A case in which more would be (suggested to be) sold results under Dutch law in a breach by the seller (and the buyer would nevertheless be protected if certain conditions are satisfied). (A thief cannot sell the bike he/she has just stolen, but an ignorant, good faith buyer paying a normal price and who has no reason to believe the bike was stolen, would become the owner.)
Isn’t it great that legal Latin expressions differ from country to country? Nemo dat quod non habet is the English equivalent to the Nemo plus rule, but it would certainly not be the case that a bona fide purchaser without notice (known in other contexts as equity’s darling) would acquire good title to goods. There was an exception where such a purchaser would acquire good title, if the goods were bought in a “market overt”, but this medieval anomoly was abolished several years ago. Some say it was abolished after a painting, probably of some judge, was stolen from Lincoln’s Inn and was sold in (I think) Bermondsey Market, which was a market overt.
Mark: the nemo plus rule (under Dutch law) means that you cannot sell more than you have. An ‘exception’ to this rule is that a bona fide purchaser (who paid) may be protected and lawfully say that he/she became ownwer. The ‘exception’ was enacted with the recodification of the Dutch Civil Code in 1992 and certainly not without discussion. I said this in the context of a warranty of merchantability (something unnecessary to warrant, because if the seller is neither owner nor protected under the exception, he/she is nevertheless bound to fulfill its sale and transfer obligations. And obviously I enjoyed adding a bit to Ken’s confusion about different legal systems.
In my state (Oregon) there is case law that integration clauses in UCC cases may be ineffective to disclaim express warranties unless conspicuous. Some lawyers infer from this (presumably “in an abundance of caution”) that integration clauses in all Oregon contracts must be conspicuous (sadly interpreted by practitioners as a requirement for ALL CAPS)
Hi Ken, I have a question regarding the validity of vehicle disclaimers thus, wondering if you could help?
Sorry, but that’s something I know nothing about.