Tennessee Law’s Requirement of ‘Conspicuous’ Disclaimer of Implied Warranty Rights Revives Small Business’ Breach Case

A small business in Northwest Tennessee that purchased a piece of equipment, only to lose that equipment in a fire, got good news from a recent Tennessee Court of Appeals ruling in Smith v. Timberpro Inc., when that court gave the buyer a renewed chance to pursue legal action against the seller. The key to the ruling was Tennessee’s requirement that to create a valid disclaimer of the implied warranty of merchantability and fitness the disclaimer must be conspicuous, which the disclaimer in this case was not because it was not actually included in the sales contract but in a separate document.

The owner and operator of a Tennessee Ridge logging business inked a deal with a Michigan harvester dealer for the purchase of a $481,000 harvester with a harvesting head. The contract included a reference to the limited warranty for the harvester.

Three years later, the harvester was destroyed in a fire. The buyer sued the Michigan seller, as well as a Huntingdon, Tennessee entity that had helped familiarize the buyer with the harvester (and had referred the buyer to the Michigan seller). The complaint included multiple claims for breach of warranty as well as breach of contract, claiming that defective wiring had caused the fire.

The seller argued that the limited warranty — a warranty to which the buyer allegedly agreed when he signed the purchase contract –- had a duration of only one year. That one-year period expired before the fire, so the buyer had no case, the defendant seller contended, in asking the court to throw out the matter on summary judgment. The buyer claimed that he didn’t receive a copy of the warranty, so he wasn’t bound by its one-year time limit.

The trial judge sided with the defense, and the buyer appealed. The appeals court revived the buyer’s case against the seller from Michigan, reversing the grant of summary judgment. The seller argued unsuccessfully that the disclosure of the existence of the warranty on the sales order was sufficient notice to the buyer. Tennessee law, however, requires that the disclosure of the disclaimer of implied warranties – as the limited warranty purported to do in this case – must be conspicuous, and that conspicuousness requirement demands something more than “a contract’s mere reference to the disclaimer in another document, regardless of whether the disclaimer is conspicuously printed in the document in which it appears.” Without clear proof of satisfaction of the conspicuousness requirement, there was no proof that the buyer disclaimed the implied warranties of merchantability and fitness that exist in Tennessee.

As a small business, the contractual dispute cases involving your company may not be worth millions or hundreds of millions of dollars, but they are vitally important to your business. Here, the dispute was over a $481,000 machine, an amount that might be insignificant to a huge corporation but devastating to a small company. The dedicated Tennessee business litigation attorneys at the Law Office of David S. Hagy, PSC understand that. We have been helping small businesses with their breach of contract, breach of warranty, and other litigation needs for many years and are ready to help you with yours. We specialize in taking cases on a modified hourly or contingent fee basis so that the legal costs of pursuing litigation do not overwhelm the resources of your business.

Reach us online or call (615) 975-7882.

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