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Consumer Warranty Law: 9.3 Has the Consumer Agreed to the Remedy Limitation?

A limitation of remedies clause is only effective if the consumer has agreed to that provision. The UCC seeks to give effect to the parties’ actual agreement, whether or not it is reflected accurately in the written contract.18 Unless the parties have actually agreed that the limited remedy in the written contract is exclusive, that remedy is presumed to be merely optional for the buyer.

Consumer Warranty Law: 18.3.6.1 Breach Should Be Liberally Interpreted

The warranties of habitability and of good and workmanlike construction should be interpreted expansively. A broad warranty protects buyers from defects they cannot reasonably ascertain before the purchase, places the risk of loss on the party most able to prevent the loss or spread it across many transactions, and keeps defective homes out of the nation’s housing stock.

Consumer Warranty Law: 18.3.6.3 Breach of Warranty of Good and Workmanlike Construction

The standard for breach of the warranty of good and workmanlike construction is one of customary skill and care, in accordance with accepted standards.106 The warranty is breached when the work was not done in a “manner in which an ordinarily prudent person engaged in similar work would have performed under similar circumstances.”107 The test is not perfection, but reasonableness.108 Failing to comply with the construction contract may also breach

Consumer Warranty Law: 18.3.6.4 Common Defects That Breach the Warranties

Some of the most common defects that are likely to violate the warranties of habitability and workmanlike construction arise from the instability of the land on which the house is built, whether due to soil conditions or some other characteristic that either rendered the site unsuitable for any building, or unsuitable without adjustments or proper site preparation. These sorts of defects can cause cracks throughout an entire dwelling, allow the elements to invade the structure, and throw every wall and door off square.

Consumer Warranty Law: 18.3.7 Disclaimers of the Implied Warranties

A builder’s attempt to disclaim express or implied warranties will be viewed skeptically and with a presumption that it is ineffective. This presumption is consistent with the public policy of home buyer protection that led judges to create the implied warranties of habitability and good workmanship. If the policies behind the warranties compelled such judicial and legislative action, it makes little sense to allow a builder to erase that consumer protection with a single line of print.

Consumer Warranty Law: 18.3.8 Express Warranty, Merger Clause, or Transfer of Deed Do Not Nullify Implied Warranty

Builders commonly argue that an express warranty set out in the contract displaces any implied warranties, but courts roundly reject this contention.155 Express warranties supplement, not substitute for, the implied warranties.156 Merger and integration clauses similarly do not disclaim implied warranties, because implied warranties are not considered contract rights, but duties arising by operation of law.157

Consumer Warranty Law: 9.4.2 Express Warranty Claims Not Covered by the Limitation of Remedies

The buyer may avoid a remedy limitation by relying on other express warranties that have not been or cannot be properly limited by contract. Typically, the limited remedy only applies to the express written warranty: “the obligation of the company under this warranty is limited to repairing or replacing defective parts.” The words “this warranty” limit the repair or replace remedy to that particular written warranty.

Consumer Warranty Law: 9.4.4 Non-UCC Remedies

By its terms, section 2-719 permits only the replacement of remedies that are “provided in this Article” or the alteration of the measure of damages “recoverable under this Article.” A Second Circuit decision points out that this language does not provide any authority for the seller to exclude non-Article 2 remedies.34 Accordingly, the court held that a remedy limitation clause did not make it apparent, to a legal certainty, that the consumer was barred from the non-UCC remedy of rescission.

Consumer Warranty Law: 9.4.5 Personal Injury Claims in Consumer Cases

The UCC specifically provides that it is unconscionable to limit damages for personal injury in the case of consumer goods.35 In cases involving non-consumer goods, there is no such blanket rule, so the buyer will have to make an affirmative showing of unconscionability or some other basis for avoiding such a limitation.36

Consumer Warranty Law: 9.4.6 Tort and Consumer Protection Claims

Section 2-719 permits the parties to limit the remedies for breach of contract. It does not allow limitation of remedies for tort or statutory violations. Few contractual limitation of remedy clauses even purport to apply to claims other than breach of warranty, and such a disclaimer would not be effective against a tort claim such as fraud, misrepresentation, negligence, or strict liability.37

Consumer Warranty Law: 9.5.1 General

Section 2-719(2) provides: “Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act.” Comment 1 to section 2-719 explains the policy behind this section:

Consumer Warranty Law: 9.5.2 Application to Repair or Replace Remedies

The most common consumer application of section 2-719(2) is to limited repair or replace remedies in car or manufactured home transactions. In Riley v. Ford Motor Co.,51 a new car was accompanied by a standard manufacturer’s express warranty, which limited liability to repair or replacement of defective parts. During the first weeks of ownership, the buyer discovered numerous major and minor defects in the car that the dealer and the manufacturer’s representative were unable to repair properly.

Consumer Warranty Law: 9.5.3 Effect of Failure of Repair or Replace Remedy on Seller’s Limitation of Incidental or Consequential Damages

When the contract provides both a limited repair and replace remedy and an exclusion of incidental and consequential damages, and the former fails of its essential purpose because the product is not or cannot be repaired within a reasonable time, courts disagree as to whether or not the seller can still rely on the damage exclusion to avoid liability for incidental and consequential damages. The issue is whether the two clauses are independent or interdependent.

Consumer Warranty Law: 9.5.4 Limitations on Incidental or Consequential Damages When Goods Were Purchased to Guard Against the Very Damage Being Limited

Limitations on consequential damages are particularly suspect if the buyer purchased the goods to guard against the very damage suffered when the goods failed. Fire or burglar alarms are a good example.83 If they fail during a fire or burglary, the remedy of repair, replacement, or return of purchase price is little solace. Similarly, if a tire blows out causing a crash, or a rustproofing job fails, the buyer’s concern is with the damages suffered rather than with repair or return of the purchase price of the product.

Consumer Warranty Law: 18.4.2 Parties Liable

Some statutes provide that the warranties arise only with respect to homes sold by a vendor in the business of constructing homes.189 More inclusive statutes cover all those who construct new homes for sale, regardless of vocation.190

Consumer Warranty Law: 18.4.3 Property Covered

In some states the statutory warranty does not apply when a landowner contracts with a builder to construct a new home on real estate already owned by the landowner.195 The statute may not cover additions, but only the original dwelling,196 or may not apply when a builder rehabilitates an existing home.197 Furthermore, several statutes specifically exclude detached garages, patios, walkways, driveways and similar appurtenant areas from the coverage

Consumer Warranty Law: 18.4.4 Nature of the Statutory Warranty

Statutory warranties typically promise that homes are free from “structural” defects.202 “Structural defects” may be more limited than the defects that would breach the common law implied warranty of habitability. Although nearly all structural defects will impair a home’s habitability, some defects that render a home uninhabitable under common law warranty tests203 will not be structural, and thus will not be covered by the warranty statute.