Warranty Disclaimers and Limitations

Question 1

Disclaiming Express Warranties

Answer 1

If the contract embraces both (1) words or conduct creating an express warranty and (2) words or conduct negating or limiting warranties, the former trumps the latter

Express warranty survives

Question 2

However,

Answer 2

To protect the seller from false allegations of purely oral warranties, this rule is subject to the parole-evidence rule.

Accordingly, the parole evidence rule may exclude words or conduct that would otherwise tend to create an express warranty, in which case the negation or limitation would prevail

Question 3

Disclaiming Implied Warranties

Answer 3

§2-316 allows an implied warranty to be modified by course of performance or usage of trade

Question 4

Excluding or Modifying the Implied Warranty of Merchantability

Answer 4

1. Language, whether written or oral, mentions merchantability and
2. If in writing, must be conspicuous
   —-Written in a way that attention can reasonably be expected to be called to it
   a. NOT required if the buyer has actual knowledge of the waiver
   b. A warranty disclaimer is not inconspicuous simply because it is located inside the packaging of a product
   c. Objective standard – could a reasonable person see the disclaimer

Question 5

Excluding or Modifying the Implied Warranty of Fitness for a Particular Purpose

Answer 5

1. Must be in writing and conspicuous
   —-Written in a way that attention can reasonably be expected to be called to it
   a. NOT required if the buyer has actual knowledge of the waiver
   b. A warranty disclaimer is not inconspicuous simply because it is located inside the packaging of a product
   c. Objective standard – could a reasonable person see the disclaimer

Question 6

Timing of Disclaimer

Answer 6

A disclaimer of implied warranties is ineffective if presented to the purchaser after the sale
—-The disclaimer must have been conspicuous to the purchaser before the sale.

A disclaimer that appears for the first time after the sale cannot form a part of the basis of the parties’ bargain and is therefore not binding on the buyer.

A buyer accepts goods (and warranties sent with the product) when, after an opportunity to inspect, the buyer fails to make an effective rejection, and that such buyers had an opportunity to reject the additional terms.

Question 7

Limitations on Warranties - Majority Approach

Answer 7

Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable

Apply §2-719(3) to enforce a bar on consequential damages unless it is unconscionable

Question 8

Limitations on Warranties - Minority Approach

Answer 8

§2-719(2) should apply to restore a buyer’s right to seek all remedies including consequential damages

Question 9

Limitations on Warranties - Unconscionability

Answer 9

Courts look to whether the parties could competently agree on the allocation of risk at the time of contracting

Question 10

Unconscionability is more likely to be found if:

Answer 10

one party is a consumer;
there is a disparity in bargaining power; and
the bar on consequential damages is included in the pre-printed form

Courts also look at whether the type of damages came within buyer’s real of expectable losses, limited warranty’s failure, why a limited remedy failed in its essential purposes, did the seller act unreasonable or in bad faith

Question 11

How is Unconscionability Determined?

Answer 11

Question of law that depends on the circumstances that existed at the time the contract was executed

An exclusionary clause may be unconscionable if the clause is unreasonable harsh to one party or is in place only due to a lack of meaningful choice on the part of one party

When parties have equal bargaining power it will be less likely to deem a contract clause unconscionable

Question 12

Time Limitations UCC § 2-207(3)

Answer 12

A buyer has a reasonable time to notify the seller of a breach after the buyer discovers or should have discovered the defect