Small And Medium Sized Businesses: Limit Potential Exposure In Breach of Warranty Lawsuits

Lawsuits alleging the sale of defective goods between businesses often include claims for breach of warranty.  In New Jersey and New York, these claims are governed by the Uniform Commercial Code (“UCC”), as adopted and codified by each State.  While the UCC contains default terms and conditions that courts may use to “fill the gaps” of poorly drafted sales contracts, or where there is no contract at all, the UCC allows businesses fairly broad latitude in defining the scope of permissible claims and damages in breach of warranty actions.

The two types of warranties that are typically at issue in these matters are express and implied warranties.  Express warranties are warranties that are written and expressly contained in a contract or other written instrument between the parties.  Implied warranties, on the other hand, are warranties that are typically implied in a transaction for the sale of goods or products.  In this regard, the most prevalent implied warranties are the implied warranties of merchantability and fitness for a particular purpose.

Under the UCC, businesses can modify and sometimes even exclude these warranties.  Additionally, the UCC allows businesses to limit the scope of permissible damages in the event of a breach of warranty.  For example, under certain circumstances businesses can limit the scope of damages for breach of warranty to repair or replacement of the product or goods sold.  Thus, by including well-crafted written terms and conditions in a sales contract, purchase order, invoice, or other written sales document, businesses can effectively limit their potential exposure in lawsuits alleging breach of warranty.