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Manufacturer’s Corner: The Unenumerated Implied Warranties

[Programming Note: Pat and I are preparing for a trial beginning at the end of the month, so we may be on a lighter publication schedule than usual.  The Manufacturer’s Corner will be taking a break until the trial concludes.]

This post continues our series on implied warranties under the Uniform Commercial Code (“UCC”).  In our last installment, we discussed the most-litigated implied warranty, the warranty of merchantability.  Here, we go to the other extreme and discuss the least-litigated – and often forgotten – implied warranties: those that aren’t actually enumerated in the UCC.[1]

In Section 2-314(3) of the UCC, the drafters make clear that, unless excluded or modified, “other implied warranties may arise from course of dealing or usage of trade.”  In other words, your industry, or your prior relationship with certain customers, can create additional implied warranties that don’t actually appear in the UCC.  So even an invoice that carefully disclaims each warranty enumerated in the UCC may not actually catch all of the implied warranties that may apply to certain purchases.[2]

When Section 2-314(3) has been applied, its breadth has been stunning.  For instance, in Christenson v. Milde, 402 N.W.2d 610 (Minn. App. 1987), the plaintiff sued defendant for supplying a defective waterproofing agent.  The thrust of his claim was that the waterproofing agent was not merchantable.  But, the Court of Appeals also found that substantial evidence  of ordinary industry practices supported the conclusion that the defendant not only breached the implied warranty of merchantability by providing a defective waterproofing agent, but also by failing to inspect the waterproofing agent upon delivery and by failing to replace it.

Observe that “usage of trade” warranty found in Christenson did not arise from the adequacy of the goods themselves, but rather from the seller’s own failures independent of the adequacy of the goods.  Not only was the seller required to provide merchantable goods, but it was also required to take additional steps to inspect the goods and replace them if they were non-conforming.

This had an important effect on the calculation of damages.  Typically, the measure of a buyer’s damages for breach of warranty is the difference between the value of the goods as warranted and the value of the goods as delivered.[3]  But, in this case, the Court affirmed a damages award that included the full cost of repairing the damage caused by the failure to inspect and replace.

So, it is essential that you remember that your industry and your history with your customers may create implied warranties that are not set out in the UCC, and that those warranties may impose obligations on you that far exceed those actually enumerated in the UCC.  Unless you want a court to decide for you whether your industry supplies certain unwritten contract terms, be sure you disclaim those warranties.

[1] In addition to those we discuss here, implied warranties may also arise through operation of common law, such as the implied warranty of fitness for consumption.

[2] We haven’t yet gotten to disclaiming implied warranties in this series.  Suffice it to say for now, however, that a general statement disclaiming all implied warranties should suffice to disclaim those arising from course of dealing or usage of trade.  But, the better course would be to include an integration clause in the invoice that specifies that the written contract includes the parties’ entire agreement, and that neither usage of trade nor course of dealings supply or modify any of the contract terms.

[3] Although the UCC allows for recovery of consequential and incidental damages, such remedies are usually limited by contract.  That’s another important issue, and we’ll deal with it in another post.