A Merchant Must Exercise Care When Excluding Implied Warranties

Kegler Brown Litigation Newsletter

A decision last year by the Cuyahoga County Court of Appeals highlights the care merchant sellers must exercise when they are attempting to disclaim warranties. A "merchant" is defined by the Uniform Commercial Code as someone who deals in the goods being sold. Ohio Rev. Code §1302.01(A)(5). In Thomas v. Micro Center, Inc., 172 Ohio App. 3d 381, the Court addressed several issues including whether Micro Center, the seller of Toshiba laptop computers, had properly disclaimed the implied warranties of merchantability and fitness for a particular purpose. The Court reversed the trial court and concluded that Micro Center had failed to exclude these warranties.

The implied warranty of merchantability is imposed upon any selling merchant by statute:

(A) Unless excluded or modified as provided in section 1302.29 of the Revised Code, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.

(B) Goods to be merchantable must be at least such as:

(1) pass without objection in the trade under the contract description; and

(2) in the case of fungible goods are of fair average quality within the description; and

(3) are fit for the ordinary purposes for which such goods are used; and

(4) run, within the variations permitted by the agreement, of even kind, quality and quantity, within each unit and among all units involved; and

(5) are adequately contained, packaged, and labeled as the agreement may require; and

(6) conform to the promises or affirmations of fact made on the container or label if any.

(C) Unless excluded or modified as provided in section 1302.29 of the Revised Code, other implied warranties may arise from course of dealing or usage of trade.

Ohio Rev. Code §1302.27 [UCC §2-314].

As the language of the Code makes clear, the warranty is implied unless specifically disclaimed.

The warranty of fitness for a particular purpose is also imposed by operation of law unless specifically disclaimed:

Where the seller at the time of contracting has reason to know 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, there is unless excluded or modified under section 1302.29 of the Revised Code an implied warranty that the goods shall be fit for such purpose.

Ohio Rev. Code §1302.28 [UCC §2-315].

The Uniform Commercial Code provides the methods by which an implied warranty may be excluded:

(B) Subject to division (C) of this section, to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states for example, that "There are no warranties which extend beyond the description on the face hereof."

(C) Notwithstanding division (B) of this section:

(1) unless the circumstances indicate otherwise all implied warranties are excluded by expressions like "as is," "with all faults," or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and

(2) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and

(3) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade; and

(4) with respect to the sale of livestock between merchants, except sales of livestock for immediate slaughter, both of the following apply:

(a) there is no implied warranty that the animal is free from disease.[;]

(b) there is an implied warranty that the seller has no knowledge or reason to know that the animal is not free from disease at the time of sale and that he has complied with all state and federal health rules applicable to the animal.

Ohio Rev. Code §1302.29 [UCC §2-316].

In the Thomas case, Mr. Thomas purchased a Toshiba laptop from Micro Center. The receipt he was given contained a notation that laptop computers may be exchanged or returned within seven days of purchase. Toshiba provided a one year warranty. Mr. Thomas also purchased an extended warranty from Butler Financial Solutions (not Micro Center). The extended warranty provided that, during any time period that the computer was covered by the manufacturer's warranty, any parts and labor covered by that warranty were the sole responsibility of the manufacturer.

Mr. Thomas' computer began to malfunction shortly after purchase. There were repeated attempts to repair it by Toshiba and a repair contractor to whom Toshiba had directed Mr. Thomas. After seven months of unsuccessful repair attempts, Mr. Thomas demanded a replacement. Toshiba responded that it did not replace computers and instructed Mr.. Thomas to contact Micro Center. Micro Center responded that, because the computer was still covered by the Toshiba warranty, it was not obligated to replace it. Mr. Thomas sued Toshiba and Micro Center.

Micro Center moved for summary judgment and the trial court granted the motion without an opinion; Mr. Thomas then appealed. Although the Court of Appeals agreed with the trial court on several issues, the Court of Appeals reversed the trial court on the question of whether Micro Center had properly excluded the implied warranties.

The Court of Appeals held that the statement on Micro Center's receipt (i.e., "may be returned or exchanged within seven days") did not exclude the implied warranties. Moreover, citing another Ohio appellate court, the Court of Appeals held that Micro Center could not rely on Toshiba's exclusion of the implied warranties. The manufacturer's disclaimer does not run to subsequent sellers, and each seller must make their own proper exclusion of the warranties to be effective.

The lessons highlighted by the Thomas case are:

  • A merchant seller needs to be aware of the implied warranties.
  • A merchant seller needs to be aware that implied warranties can be excluded only according to the specific provisions of the Uniform Commercial Code.
  • The merchant seller cannot rely on warranty exclusions of the manufacturer or any prior seller (wholesaler).

Implied warranties are not difficult to exclude, but care must be taken that the exclusion is done in a manner that complies with the Uniform Commercial Code.