Posted in Commercial Litigation by

By Joseph G. Ballstaedt
801-365-1021
[email protected]

When selling goods, a seller can exclude all warranties if it includes the correct language in the sale documents. If the buyer agrees to this language by signing the sale contract, under Utah law, the seller is usually prevented from later claiming that the goods were defective or that they somehow do not meet the buyer’s needs. In other words, the buyer takes the goods “as is.” This blog post explains when a contract for goods exists, and how certain waivers of warranties for these goods must be written so that they are legally binding.

Goods Subject to UCC Article 2

The Uniform Commercial Code, known as the “UCC,” is a set of laws that every state, including Utah, has adopted in whole or part. Many companies do business in many states, not just Utah, and the purpose of the Uniform Commercial Code, like other uniform laws, is to unify the laws of the county. Whether a Utah company is engaging in commercial transactions in Washington, Kansas, New York, or Florida, the hope behind the UCC is that the law will generally be the same in each state.

Utah’s adoption of the UCC includes the adoption of Article 2, which specifically pertains to business transactions dealing with “goods.” The definition of “goods” includes any tangible items that are movable at the time of sale—items like cars, lumber, nails, computers, paint, etc. that are not connected to real property. Article 2 has various laws and guidance for entering, executing, and resolving disputes related to the sale of goods, among other things.

Warranties on Goods

On a surface level, we all understand that a warranty is essentially a guarantee from a seller that the goods the buyer receives will work as promised; and if not, the seller will repair or replace these goods. Going a little deeper, there are two types of warranties addressed under Article 2 of the UCC: an express warranty and an implied warranty.

An express warranty usually only exists when the seller explicitly promises that goods will perform in a certain way, will be of certain qualities, will function for set time period, or will meet the buyer’s needs in some other promised way. Often, a seller places an express warranty in the sale contract document, or the seller simply states the warranty out loud to the customer. For example, a vendor of a refrigerator might state that the refrigerator will work without defects for at least one year. Sometimes a seller creates an express warranty by showing a sample of the sold goods, which warrants to the buyer that the entire lot of goods will be of similar quality. For example, if a flooring store shows a sample of a piece of tile that a buyer inspects, this could serve as a warranty that all tiles will be similar. However, generally speaking, an express warranty is not likely to exist in Utah unless a seller explicitly provides it.

An implied warranty, on the other hand, is different. Under Article 2 of Utah’s UCC, these warranties may exist even though they are not necessarily explicitly promised. Article 2 specifically addresses implied warranties of merchantability and implied warranties of fitness. An implied warranty of merchantability exists if the vendor regularly sells the goods at issue (i.e. is a “merchant”). This warranty guarantees that the sold goods will be fit for their intended, ordinary purposes. An implied warranty of fitness exists when the seller knows the purposes for which the buyer needs the goods. This warranty ensures that the goods will measure up to their designed purpose.

Conspicuously Excluding or Limiting Implied Warranties

In Utah, and in all states that have adopted Article 2 of the UCC, both expressed and implied warranties can be excluded or limited. Generally, this is done through disclaimers that appear in the text of the sale document between the seller and the buyer. Article 2 explains how to exclude or limit an implied warranty. To limit an implied warranty of merchantability, the waiver must mention merchantability, and to exclude an implied warranty of fitness, the waiver must be in writing, and both types of waivers must be “conspicuous.” For example, language—if conspicuous—will effectively exclude an implied warranty of fitness if it states: “There are no warranties which extend beyond the description on the face hereof.”

The requirement that a waiver be “conspicuous” is not overly demanding. For instance, Utah courts have held that “[a] disclaimer found on the reverse side of a sales agreement is effective so long as it is not hidden in fine print.” The idea is that the waiver must stand apart from the language of an agreement, but this language doesn’t necessarily have to be front and center. Conspicuousness can be accomplished through larger or contrasting font, such as capital letters, red font, highlighted text, or—even more effective—a combination of these methods of calling attention to the language.

A buyer should be aware that it does not matter if he or she never reads or understands a conspicuous warranty waiver provision in a contract. The waiver is almost certainly still enforceable. Under general contract rules in Utah, a person who signs a contract without reading and understanding the contract terms is still on the hook for whatever those terms might be. The reality is that few people read every line of a contract, but the requirement that the waiver language be conspicuous raises the chances that a buyer sees, reads, and understand the waiver language.

Help with Warranty Issues

If you are concerned about a warranty issue, such as whether warranties have been waived or how to waive warranties in your business, I am happy to discuss with you this and other contract issues. I offer free consultations. My direct dial is 801-365-1021, and you can e-mail me at [email protected].

joseph-g-ballstaedt

Joseph G. Ballstaedt
801.365.1021
[email protected]

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