In West 63 Empire Associates v. Walker & Zanger, Inc the Appellate Division of the Supreme Court of NY, first department looked at two legal issues that are commonly found in breach of contract cases.
Plaintiff West 63 Empire Associates (West 63) does business as The Empire Hotel. The plaintiff’s interior designer entered into a contract with the defendant, Walker & Zanger, Inc (W&Z) to buy natural travertine tile, a type of stone floor tile. According to one of the plaintiff’s witnesses, the tiles, once installed in the hotel, cracked and deteriorated under ordinary wear and tear. In the eyes of the lower court, this was enough to demonstrate that the tiles were not fit for their intended purpose. The issue boils down to who, under the contract, is actually responsible for this problem.
The Contract and the UCC
The contract in this case is a special kind of contract – here the defendants are merchants in the business of selling floor tiles. Because of their status as ‘merchants’, the contract is governed by Article II of the Uniform Commercial Code, a body of laws adopted by New York and all other states to facilitate the purchase and sale of goods. In essence, the UCC adds some special rules to ordinary contract law that address commonly seen situations.
One of the things a seller must do under the UCC is ‘impliedly warrant the merchantability [of the goods sold].’ What does this mean? It means that the goods are fit for the ordinary purpose for which such goods are used, they are uniform as to quality and quantity to the tolerances specified within the contract, and a few other provisions similar to these. Here, the plaintiff claimed that the defendant breached this warranty, since the tiles were in fact unfit for their purpose for use as floor tiles.
However, the UCC in §§ 2-314(1), 2-316(2) allows the seller to ‘disclaim’ the implied warranty of merchantability, provided that the disclaimer is conspicuous AND mentions the word ‘merchantability.’ It should be noted that not all states allow the seller to make this kind of disclaimer, but that New York does allow for this form of disclaimer.
The defendant attempts to argue the disclaimer was not conspicuous enough, but the court disagrees and says the disclaimer was written in bold, all caps, and larger type than the rest of the contract. Thus the waiver takes effect and bars the plaintiff’s claim for breach of warranty.
Interestingly, the same disclaimer bars the plaintiff’s claim for breach of contract. In effect, the implied warranties under the UCC are part of the contract, even though they may not be physically in writing. Thus, to breach one of these warranties is to breach the contract. Since the plaintiff’s claim for breach is predicated on the implied warranty, the same (valid) disclaimer operates to bar both claims.
Parol Evidence Rule (PER)
Another rule that applies in this case is the PER. Defendant argues that despite the disclaimer, the plaintiff orally said that the tiles were fit for the purpose. The PER operates to bar this form of evidence because the written contract contains all of the ‘material’ (aka relevant) terms of the deal. Because of the danger of every dispute turning into a “but he/she said” type argument, the PER was enacted to provide strong incentives for contracting parties to put everything in writing.
If you are purchasing or selling goods, it is important to have experienced counsel that is familiar with the Uniform Commercial Code as enacted by New York. Please do not hesitate to contact our office for a consultation.