Material Suppliers Can Limit a Buyer's Remedies

THE LAW ALLOWS MATERIAL SUPPLIERS TO LIMIT A BUYER'S REMEDIES, BUT CAREFUL CONTRACT DRAFTING IS REQUIRED

By: Robert S. Tanner, Esq.

Your Construction Law FirmTM

Both sellers and buyers of construction materials should have a keen interest in being aware of the common legal issues involved in the "sales of goods." Knowledge is power, and in this arena it can also translate into dollars. Much of the law applicable to the sales of goods is codified in statutes often referred to as the Uniform Commercial Code ("UCC").

The case Parsons v. Motor Homes of America, Inc., 465 So. 2d 1285 (Fla. 1st DCA) involved the sales of goods. While the product at issue in that case was a motor home, the statutory rules that were applied are equally applicable to sales of construction materials.

In Parsons, the buyers ("Buyers") bought a motor home from a distributor ("Seller"). The motor home was manufactured by Winnebago Industries, Inc. ("Manufacturer"). Over a nine month period, Buyers experience repeated problems with the motor home, each time taking it back to the dealer for repair. Finally, because they were not satisfied with the condition of motor home, Buyers filed suit.

For one of its defenses, Seller asserted that the sales contract contained a provision that limited Buyers' remedies. The provision stated:

Warranty Notice: Any and all warranties on the products sold hereby are those made by the manufacturer. The seller, hereby, expressly disclaims all warranties, either express or implied, including but not limited to, any implied warranty of merchantability or fitness for a particular purpose, and neither assumes, nor authorizes any other person to assume for it, any liability in connection with the sale of said products.

Seller argued that this provision restricted Buyers' remedies to seeking warranty coverage from Manufacturer. Manufacturer's warranty was limited to the repair or replacement of defective parts. Because the repair or replacement remedy had been tried over nine months, Buyers were not satisfied with that and sought to enforce a remedy provided under the UCC known as "revocation". The remedy of revocation essentially allows a buyer who accepted the goods and has possessed them for some time to return the goods to the seller. Thus, Buyer sought the revocation remedy against Seller, not Manufacturer.

It is important for buyers and sellers to recognize that provisions of the UCC are "read into", or are a part of, the sales contract without the contract making any reference to the UCC. The UCC provisions providing for a buyer's right of revocation are an example.

Another provision of the UCC allows the contracting parties to agree to limitations of remedies. It was Seller's argument that these provisions applied so that the Warranty Notice provision which stated that "Any and all warranties on the products sold hereby are those made by the manufacturer" barred Buyer's UCC remedy of revocation.

The trial court ruled in favor of Seller, finding that the Warranty Notice was a proper limitation of Buyer's remedies. Buyers appealed.

Under the UCC, for an agreed-upon limitation of remedies to actually work as a limitation, the contract must expressly state that the limitation is the sole or exclusive remedy. Thus, if the parties intend a sole remedy, the intention must be clearly expressed. Otherwise, what the parties may have believed created a sole or exclusive remedy will be interpreted as creating a remedy optional to those provided in the UCC.

With respect to the particular Warranty Notice at issue in Parsons, the appellate court observed that, "It is clear that this warranty notice was intended to limit the buyer's remedies to those provided by the manufacturer, although the magic words 'exclusive' or 'sole' remedy are not employed here in the seller's disclaimer." Thus, the appellate court found that the Warranty Notice this did not meet the exacting requirements of the UCC to create an exclusive remedy. As a result, the trial court's ruling was overturned and Buyers were permitted to pursue Seller for all remedies permitted under the UCC, including revocation.

The strict requirement of the UCC section governing limitations of remedies compels material suppliers who prefer to limit their liability to be knowledgeable and careful in drafting their sales agreements. As the Parsons case demonstrates, even though an agreement is "clear", it might not meet the standard required by law to create the intended limitation.