MEMORANDUM

To: Adele Kaufman, Esq.

From: Larissa Sampaio de Carvalho, Esq.

Date: Friday, October 28, 2016

Re: Best Manufacturing, LLC Review of the Sales Agreement

Question Presented

Whether under New York Law, Best Manufacturing, LLCs disclaimer of the

warranties of merchantability and fitness is enforceable, when it is placed on the back of

the first page, under the additional terms and condition section, written with all-caps,

with the same font and a smaller size letter than the rest of the agreement.

Short Answer

Probably not. New York Law requires three elements to exclude or modify the

disclaimer of warranties of merchantability and fitness:

(1) The disclaimer of the warranties of merchantability and fitness must be in writing.

(2) The word merchantability must be used.

(3) The disclaimer of the warranties of merchantability and fitness must be written in

a conspicuous manner. N.Y. U.C.C. Law 2-316 (McKinney 2016).

Here, the court is likely to find the disclaimer of warranties of merchantability and

fitness is not enforceable because it does not meet all three elements. Although the

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disclaimer is in writing and the word merchantability is used, it is not written in a

conspicuous way.

Statement of Facts

Our client, Best Manufacturing, LLC (Best), a manufacturer and seller of

industrial metalworking equipment, asked us to review its sales agreement form that is used

in its major transactions. The form also contains a disclaimer of warranties of

merchantability and fitness. The disclaimer of the warranties can be found on the back of

the first page, under the additional terms and conditions section, written with all-caps

and with the same type but a smaller size font from the rest of the agreement.

Discussion

The court will probably rule that the disclaimer of warranties of merchantability

and fitness is not enforceable.

Under New York Law, 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.

N.Y. U.C.C. Law 2-314 (McKinney 2016). To exclude or modify the implied warranty

of merchantability, the disclaimer must mention merchantability and, if in writing, be

conspicuous. N.Y. U.C.C. Law 2-316 (McKinney 2016).

The warranty of fitness is implied [w]here 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 sellers skill or judgment to select or furnish suitable goods. N.Y. U.C.C.

Law 2-315 (McKinney 2016). To exclude or modify an implied warranty of fitness, the

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exclusion must be in writing and in a conspicuous manner. N.Y. U.C.C. Law 2-316

(McKinney 2016).

Although the disclaimer is in writing and contains the word merchantability, it is

not conspicuous.

I. The Disclaimer is not written in a conspicuous manner

The court will probably find that Bests disclaimer is not conspicuous.

A disclaimer of warranty is conspicuous when a reasonable person would notice it,

because it stands out from the remaining text. N.Y. U.C.C. Law 1-201(b)(10) (McKinney

2016). It stands out from the text when the disclaimer is juxtaposed against the rest of the

agreement. Commercial Credit Corp. v. CYC Realty, Inc., 477 N.Y.S.2d 842 (App. Div.

1984). It can be juxtaposed when it is printed: (1) in large font, (2) with capital letters, (3)

in contrasting type or color, (4) within a black border, or (5) close to the signatures.

Courts looks to things like the appearance of the disclaimer letters. Such as whether

it is in all-caps when the rest of the document is lower case and whether is in larger font or

printed in a contrasting type or color. For example, in Victor v. Mammana, where the

disclaimer was written in lower case print and it had no border, the court held that the

warranty was not conspicuous because it was not written with [c]apital letters, large print,

contrasting type or color and black border. Victor v. Mammana, 422 N.Y.S.2d 350, 351

(Sup. Ct. 1979).

Additionally, the courts look for the position of the disclaimer on the sales

agreement. For example, in ConTel Credit Corp. v. Mr. Jay Appliances & TV, Inc., even

though the disclaimer was in the Term and Conditions, it was in boldface, and directly

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above the signatures of the parties. ConTel Credit Corp. v. Mr. Jay Appliances & TV, Inc.

513 N.Y.S.2d 166 (App. Div. 1987).

Similarly, in Commercial Credit Corp. v. CYC Realty, Inc, the court found that by

using boldface on the first page, which contained only four paragraphs, under a broad

heading and just before the authorizing signatures, was conspicuous. Commercial Credit

Corp. v. CYC Realty, Inc., 477 N.Y.S.2d 842 (App. Div. 1984).

Although is not necessary to use all the factors, having a lot of them can be helpful.

For example, in Travelers Ins. Cos. v. Howard E. Conrad, Inc, the court held that the

warranty was conspicuous because it was in all-caps and larger font that the other terms on

the back, with provisions on the front of the agreement as well as above the signature.

Travelers Ins. Cos. v. Howard E. Conrad, Inc., 649 N.Y.S.2d 586 (App. Div. 1996).

In contrast, in Mill Printing & Lithographing Corp. v. Solid Waste Management

Systems, Inc, the court found that the disclaimer was not conspicuous because it was not

being printed in different, larger or contrasting type or color. Mill Printing & Lithographing

Corp. v. Solid Waste Management Systems, Inc., 409 N.Y.S.2d 257 (App. Div. 1978).

Bests disclaimer is unlikely to be considered conspicuous. Like the one in

Travelers Ins. Cos, Bests disclaimer is written on the back of the first page. Travelers Ins.

Cos. v. Howard E. Conrad, Inc., 649 N.Y.S.2d 586 (App. Div. 1996). On the other hand,

Bests did not write the disclaimer in a way that would draw attention to it. Unlike

Travelers Ins. Cos, Bests disclaimer is written with the same size font, far from any

signatures, in the same color as the rest of the document, and in the middle of the

boilerplates paragraphs. Id.

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 Like the disclaimer in ConTel Credit Corp., Bests disclaimer is also under the

additional terms and conditions. Nevertheless, Bests disclaimer differs from this case

because it did not put it in boldface and close to the signatures. ConTel Credit Corp. v. Mr.

Jay Appliances & TV, Inc. 513 N.Y.S.2d 166 (App. Div. 1987).

Bests case is thus likely to be decided as Mill Printing & Lithographing Corp. v.

Solid Waste Management Systems, Inc, where the court found the disclaimer not

conspicuous because it is not printed in different, larger or contrasting type or color. Mill

Printing & Lithographing Corp. v. Solid Waste Management Systems, Inc., 409 N.Y.S.2d

257 (App. Div. 1978).

Furthermore, one may argue that putting the disclaimer in all-caps is enough to

draw attention to it. Although the court is very unlikely to reach that conclusion. All the

cases that the court considered the disclaimer conspicuous had at least two of the factors

cited.

Conclusion

Bests disclaimer of warranties of merchantability and fitness is in writing, uses the

word merchantability, but will not be considered conspicuous by the court because is

written in a way that doesnt stand out from the rest of the text. Therefore, the court will

find the disclaimer agreement not enforceable under New York Law.

To make the disclaimer conspicuous, Best Manufacturing, LLC, should, besides

writing with all-caps, also write the disclaimer utilizing at least one more of the factors

cited by the courts, such as: (1) different size, (2) color, (3) font, (4) or putting it close to

the signatures.