Warranty disclaimers: seven things a court checks first

Every piece of equipment sold on a written contract carries a warranty disclaimer somewhere in the paperwork. Most sellers wrote it once, years ago, and have not read it since. Most buyers never read it at all.

Then the machine fails, the line stops, and both sides pull out the same document. What the seller intended that clause to do matters less than what the text says and where it sits on the page.

Oklahoma and Texas have each enacted Article 2 of the Uniform Commercial Code, the body of law that governs sales of goods, each with its own section numbering. Oklahoma's version is in its Uniform Commercial Code title. What follows tracks the uniform text; the enacted text in your state controls, so check it for local variation before you rely on any sentence here.

Here are seven things a court applying these sections checks, in roughly the order it checks them.

1. What warranties existed before the disclaimer tried to remove them

A disclaimer only matters if there was something to disclaim. Article 2 supplies implied warranties and express warranties, and the disclaimer analysis differs for each.

The implied warranty of merchantability arises automatically when the seller is a merchant with respect to goods of that kind. Under the uniform text, merchantable goods must at least pass without objection in the trade under the contract description, be fit for the ordinary purposes for which such goods are used, run of even kind and quality within each unit, and be adequately contained, packaged, and labeled as the agreement may require. They must also conform to any promises or affirmations of fact made on the container or label.

Fitness for a particular purpose is a narrower implied warranty. It arises where the seller, at the time of contracting, has reason to know the particular purpose for which the buyer needs the goods and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods. A dealer who hears "we need this to run eighteen hours a day in a dusty building" and then recommends a model has probably given that warranty.

Express warranties come from what the seller affirmatively said or showed. Any affirmation of fact or promise relating to the goods that becomes part of the basis of the bargain creates an express warranty that the goods will conform to it. So does a description of the goods, and so does a sample or model. No formal words such as "warrant" are needed, and the seller need not intend to make a warranty. A statement that merely expresses the seller's opinion or commends the goods does not create one.

In practice, the sales rep's email saying the unit "will handle 400 cycles an hour" is an express warranty if it became part of the bargain. The brochure's "built for the toughest jobs" is puffing. A court sorts these before it ever reads the disclaimer.

2. Whether the disclaimer says "merchantability"

The uniform text is specific here. To exclude or modify the implied warranty of merchantability, the language must mention merchantability. If the exclusion is in writing, it must also be conspicuous.

This trips up more sellers than any other rule in the section. A clause that reads "Seller makes no warranties, express or implied" does not use the word. Whether a court treats a general exclusion as reaching merchantability without it is a question that turns on the enacted text and the facts, and we would not want an owner betting a plant shutdown on the answer.

The fix costs nothing. Say the word.

3. Whether the fitness exclusion is in writing and conspicuous

Fitness for a particular purpose has a different test. To exclude or modify it, the exclusion must be by a writing and must be conspicuous. The statute offers a sample that is sufficient: "There are no warranties which extend beyond the description on the face hereof."

Notice what that sentence does not require. It does not have to name the fitness warranty. General language works, so long as it is written and the reader could not reasonably have missed it. An oral assurance at the sales counter that "we don't warrant fitness for anything" does nothing.

4. Whether the warranty disclaimer was conspicuous

"Conspicuous" is a defined term, and the definition is where the disclaimer in 8-point gray text goes to die. Under the uniform general definitions, a term is conspicuous when it is so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it. Whether a term is conspicuous is a decision for the court.

The definition gives examples. A heading in capitals equal to or greater in size than the surrounding text, or in contrasting type, font, or color to the surrounding text, is conspicuous. So is language in the body of a record in larger type than the surrounding text, or in contrasting type, font, or color to surrounding text of the same size, or set off from it by symbols or other marks that call attention to the language.

Here is the practitioner's edge on this one. The test is objective. It asks whether the reader ought to have noticed, not whether the seller tried. A disclaimer in all capitals sitting as paragraph 14 of 22 identical all-capital paragraphs may fail, because nothing about it stands out from its surroundings. A disclaimer in plain type under a bold heading that reads DISCLAIMER OF WARRANTIES may pass. Contrast with the surrounding text is what the definition rewards.

Sellers who print terms on the back of an invoice in the same gray type as the shipping instructions have, in our experience, usually not thought about this. Buyers who signed a two-page quote with a bold-capped disclaimer on page one usually have a harder argument than they expect.

5. Whether "as is" or an examination did the work instead

The uniform text provides shortcuts that do not depend on the word merchantability or on a conspicuous writing. Unless the circumstances indicate otherwise, expressions like "as is" or "with all faults," or other language that in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty, exclude all implied warranties.

That phrase "unless the circumstances indicate otherwise" is the buyer's opening. "As is" written on a used-equipment bill of sale between two dealers reads one way. The same words slipped into a new-equipment purchase after the seller spent a month promising performance read another, and courts applying this section generally look at the whole transaction.

Examination is a second shortcut. When the buyer, before entering the contract, has examined the goods or the sample or model as fully as desired, or has refused to examine them, there is no implied warranty with regard to defects that an examination ought in the circumstances to have revealed. A buyer who declined the walk-around inspection of a used press and then complains about a cracked frame is going to meet this provision early.

Note the limit. The examination rule reaches defects the examination ought to have revealed. A hidden bearing failure that no visual inspection would catch is not covered by the fact that the buyer looked.

Course of dealing, course of performance, or usage of trade can also exclude or modify an implied warranty. Two companies that have traded on "as is" terms for ten years may find that history binding even on the one invoice that forgot to say so.

6. Whether the express warranty and the disclaimer can coexist

This is the quote-and-invoice problem, and in our practice it decides more of these disputes than anything else on this list.

The uniform text says that words or conduct creating an express warranty and words or conduct tending to negate or limit it are construed as consistent with each other wherever reasonable. Where that construction is unreasonable, the negation is inoperative, subject to the parol evidence rule.

Picture the sequence. The seller's quote describes the unit's throughput and attaches a spec sheet from the demonstration the buyer watched. The buyer signs. The seller's invoice, or its standard terms attached to the acknowledgment, says "no warranties, express or implied." A court is told to read those consistently if it reasonably can. Very often it cannot, because a seller cannot describe the goods in detail and then disclaim the description. The description survives; the disclaimer gives way to the extent of the conflict.

Which document controls depends in part on how the contract was formed and when each side's terms arrived. That is the battle of the forms, and a disclaimer that only appears in a post-contract acknowledgment is on much thinner ice than one in the signed quote.

The parol evidence angle cuts the other way. Where the parties have a final written agreement, prior agreements and contemporaneous oral agreements cannot contradict its terms. A buyer who relies on what the sales rep said at lunch, when the signed agreement has a conspicuous disclaimer, may find that conversation inadmissible to contradict the writing. Course of dealing and usage of trade can still explain or supplement the writing, and consistent additional terms can come in unless the court finds the writing was intended as a complete and exclusive statement of the deal.

7. What remedy survives even if the warranty does

Suppose the buyer wins points one through six. The warranty exists and the disclaimer failed. The fight now moves to the remedy clause, and this is where it gets decided whether the dispute is about a repair bill or about lost profits from a shutdown.

Article 2 lets the parties limit remedies for breach of warranty. The agreement may provide remedies in addition to or in substitution for the Article's defaults and may limit or alter the measure of damages, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts. Resort to a contractual remedy is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy.

Two doors remain open to the buyer. First, where circumstances cause an exclusive or limited remedy to fail of its essential purpose, the Article's ordinary remedies come back. The common version is a repair-or-replace clause where the seller cannot or will not repair. If the buyer has sent the unit back three times and it still does not run, a court may conclude the exclusive remedy has failed and open the door to the full measure of damages.

Second, consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. The uniform text draws a line: limiting consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable, but limiting damages where the loss is commercial is not. For two businesses trading equipment, a clearly drafted consequential damages exclusion will often hold, and the buyer who wanted its lost production covered needed to negotiate that before signing.

A drafting note that matters: a repair-or-replace exclusive remedy and a consequential damages exclusion are two separate clauses doing two separate jobs. If the first fails of its essential purpose, whether the second survives on its own is a separate question, and both the enacted text and the drafting matter. We draft them as independent provisions for exactly that reason.

Liquidated damages are a related tool. The uniform text permits them only at an amount that is reasonable in light of the anticipated or actual harm and the difficulty of proving loss, and a term fixing unreasonably large liquidated damages is void as a penalty.

Where this leaves each side

A buyer who signed "as is" is not without arguments. The circumstances may indicate otherwise, or the seller may have made express promises the "as is" language cannot reasonably be read to negate. But that buyer should expect to carry those arguments uphill, and a court that finds a clean, conspicuous, merchantability-naming disclaimer in a signed document has every reason under the text to enforce it.

The seller whose disclaimer sat in small gray print on the back of the invoice has the opposite problem. The implied warranties likely survive. The question becomes what the goods were worth as delivered against what they would have been worth as warranted, plus whatever consequential loss the remedy clause did not cleanly exclude.

Distributors sit in the middle. The manufacturer's terms upstream disclaim everything and cap the remedy at repair; the distributor's own invoice downstream, written in a hurry, says nothing. That distributor is a merchant giving the implied warranty of merchantability to its customer with no corresponding protection from its supplier. We see this gap often, and it is a contracts problem that becomes a balance-sheet problem the first time a large unit fails.

Consumer sales bring additional federal and state rules the UCC does not displace, and nothing above should be read as covering a sale to an individual for personal use. For promises made in a deal document rather than a sale of goods, the representations and warranties in an acquisition agreement work on a different footing from the warranties discussed here.

If a piece of equipment has failed and the paperwork is now on your desk, or if your standard terms have not been read by anyone since they were drafted, that is the point where we would want to look at the documents with you. Reach our Oklahoma City office or use the contact page to start that conversation; sorting out a disclaimer before the dispute is almost always less expensive than sorting it out after.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.