Every sale of goods involves the negotiation of a variety of terms and conditions. In some circumstances, terms and conditions may be imposed by the Uniform Commercial Code (“Code”). The Code contains specific provisions dealing with warranties, and the limitation or exclusion thereof. Application of these provisions was illustrated in the 2007 Illinois case of Accurate Transmissions, Inc. v. Sonnax Industries, Inc.
Accurate purchased various parts from Sonnax that Accurate used in rebuilding torque converters. One of these parts was a stator cap labeled by Sonnax as GM-WP12-OE (“WP12”). According to Accurate, the WP12s Sonnax sold to Accurate were defective and caused the failure of some torque converters.
Sonnax raised several defenses to Accurate’s claims, including a defense that warranties contained in Sonnax’s catalogs effectively disclaimed any implied or express warranties that would otherwise apply. The warranty stated in pertinent part that Sonnax would repair or replace, at Sonnax’s option, each part manufactured or supplied by Sonnax, when that part is found to have been defective in material or in factory workmanship, under normal use and service. This language was followed by a statement that read: THIS WARRANTY IS THE ONLY WARRANTY APPLICABLE TO NEW PARTS MANUFACTURED BY SONNAX, AND IS EXPRESSLY IN LIEU OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE DESCRIPTION ON THE FACE HEREOF.
Accurate argued that the warranty disclaimer was not conspicuous and therefore ineffective. It also argued that the catalogs did not form the basis of the parties’ bargain, and that any warranty disclaimer contained in the catalogs was also ineffective.
The court noted that when parties contract for the sale of goods, Illinois law implies a warranty of merchantability, i.e., the goods “must be at least such as (a) pass without objection in the trade under the contract description; and . . . (c) are fit for the ordinary purposes for which such goods are used . . . .” It further noted that a seller may “exclude or modify the implied warranty of merchantability or any part of it” by using language that “must mention merchantability and in case of a writing must be conspicuous.”
Under Illinois law, a term or clause is “conspicuous” when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (such as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is “conspicuous” if it is in larger or in a contrasting type or color. Whether a term or clause is “conspicuous” must be decided by the court. The test is whether a reasonable business person is expected to notice the disclaimer.
Sonnax cited several cases where courts enforced disclaimers contained in catalogs and booklets, including one where a disclaimer on page 19 of a 107-page manual was considered conspicuous. In these cases, the disclaimers appeared in bold lettering, heavy black line framing or in other ways that set-off the text. The court noted that although none of these cases was binding authority, they were useful in demonstrating that warranty disclaimers in catalogs – even large catalogs – can effectively disclaim a warranty.
Here, in both the 2000 and 2003 catalogs, Sonnax’s disclaimer came directly after and on the same page as its warranty policy. The disclaimers themselves were in capital letters, unlike the text of the warranty. This was considered consistent with the Code provisions stating that language in the body of a form is “conspicuous” if it is in larger or other contrasting type or color.
The court held the disclaimers were conspicuous, particularly because the catalogs could only be read with a page and its facing page both open, causing a person searching for the warranty policy to only glance slightly to the facing page to notice the disclaimers. The court noted that a limited warranty contained in a manufacturer’s catalog may be considered part of the basis of the parties’ bargain, so long as the purchaser received the catalog and had an opportunity to read the warranty prior to or at the time of sale. In fact, a buyer need not have actual knowledge of the disclaimer, so long as the disclaimer is in the buyer’s possession at or before the time of the sale. As a result of the foregoing, the court ruled Accurate could not recover incidental and consequential damages, and Accurate’s remedies were limited to repair or replacement of the defective products.
If you are a manufacturer with a question about the effectiveness of a warranty, or a consumer with a doubt about the enforceability of a warranty, please give us a call.