Header Image

metropolitan tier 2

Corporate Law

THE BEST LAW FIRMS IN AMERICA

-U.S.News/World Report (2020)

news

Purchase Order Terms and Conditions: Express and Implied Warranties

September 28, 2020

Frank P. Nagorney, Brent M. Buckley and Theodore M. Dunn Jr.

This second in our four-part series covering purchase order terms and conditions focuses on express and implied warranties.  A seller may provide a warranty limited by "EXPRESS" language, such as "the product conforms to seller's standard specifications", or by an "IMPLIED" warranty meaning the goods are "merchantable" and "fit for a particular purpose." These words have special meaning under the Uniform Commercial Code.

UCC Section 2-314 provides an "implied warranty of merchantability" that the goods sold pass without objection, are fit for the ordinary purposes for which such goods are used, are packaged and labeled as agreed by the parties, and conform to the labeling. Section 2-315 goes further and establishes an "implied warranty of fitness for a particular purpose". This warranty is implied when the seller has reason to know of any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods.

How Can a Seller Limit the Implied Warranty?

Section 2-313 allows a seller to "express" a warranty that the goods conform to seller's description, and to limit the warranty with language such as "all goods shall conform to seller's standard specifications" or "all goods shall be free from defects in all material and workmanship". Section 2-316 adds that the implied warranties can be entirely excluded with conspicuous language such as "there are no warranties which extend beyond the description on the face hereof" or "this warranty is in lieu of all other warranties, express or implied, including those of merchantability or fitness for any purpose not expressly set forth herein". In this way a seller is not expressing any warranty beyond that the goods conform and are free from defects. This includes samples of models of the goods.

What are the Remedies for Breach of Warranty?

Section 2-719 provides the broad damage claims under the UCC can be modified or limited by the contract between buyer and seller. If there are no terms and conditions, then damages are not limited to just a refund claim, but can include all costs incurred by the buyer, including consequential damages such as lost profits.

If you are the seller, you will want to limit remedies to either the repair or replacement of the defective goods, or to a refund of the purchase price, and specifically exclude incidental and consequential damages. Your contract should state that these are the exclusive remedies available to the buyer. You should also set up a procedure imposing time limits for making a claim and returning defective goods.

If you are the buyer, you want to ensure that defective goods can be repaired or replaced, or your costs refunded. You will also want seller to "cover" the costs of a breach when you must purchase substitute goods from a third party, including possible higher prices and shipping. You may also insist upon the right to claim additional incidental and consequential damages.

What You Can Do Today.

You should have standard terms and conditions for buying and selling goods and services that are suitable for your business. These "Ts & Cs" should be incorporated into all your contracts. On the other hand, should you find differences in a customer's or supplier's Ts & Cs, you should have them reviewed and reconciled.

Buckley King can help you identify the necessary contract terms to protect your business, and assist in reviewing your customer and supplier contracts.