Cricket Alley Corp. v. Data Terminal Systems, Inc.
3 U.C.C. Rep. Serv. 2d (West) 943, 240 Kan. 661, 732 P.2d 719 (1987)
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Rule of Law:
A manufacturer creates an express warranty through its advertising, product demonstrations, and official manuals, and can be held liable for consequential damages for breach if it had reason to know of the buyer's general business requirements at the time of contracting.
Facts:
- Cricket Alley Corporation, a growing retail clothing business, sought to purchase computerized cash registers that could communicate with its central Wang computer to modernize its inventory and sales tracking.
- In 1980, Robert Harvey, Cricket Alley's president, saw a trade magazine advertisement featuring Data Terminal Systems, Inc. (DTS) cash registers working together with Wang computers.
- In January 1981, at a National Retail Merchants Association convention, Harvey visited a DTS display that featured a DTS cash register and a Wang computer functioning together.
- A DTS representative at the display verbally affirmed to Harvey that DTS equipment could communicate with Wang computers and would work with 'all Wangs.'
- Relying on these representations, Cricket Alley purchased ten DTS cash registers and an 'ANS-R-TRAN' component, which was necessary for computer communication.
- A reference guide prepared by DTS for the ANS-R-TRAN component also stated that the equipment was capable of communicating with a computer to perform the functions Cricket Alley required.
- After installation, the DTS equipment consistently and unreliably failed to communicate with Cricket Alley's Wang computer, preventing the automated system from functioning as intended.
- Cricket Alley subsequently replaced the DTS equipment with IBM-manufactured equipment, which then successfully communicated with the same Wang computer.
Procedural Posture:
- Cricket Alley Corporation sued Data Terminal Systems, Inc. (DTS), Wang, and Kansas City Cash Register in a Kansas district court (trial court).
- Cricket Alley settled its claims with Wang and Kansas City Cash Register prior to trial.
- The breach of warranty claim against DTS proceeded to a jury trial.
- The jury found in favor of Cricket Alley and awarded damages of $78,781.79; the trial court entered judgment on this verdict.
- DTS's post-trial motions for summary judgment, directed verdict, judgment notwithstanding the verdict, and a new trial were all denied by the trial court.
- DTS, as appellant, appealed the judgment to the Supreme Court of Kansas.
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Issue:
Does a manufacturer create an enforceable express warranty through its advertising, trade show demonstrations, and product manuals, making it liable for consequential damages like increased labor costs when its product fails to perform as represented?
Opinions:
Majority - McFarland, J.
Yes. A manufacturer's representations in advertisements, live demonstrations, and official manuals can create an express warranty, and a breach makes the manufacturer liable for consequential damages if it had reason to know of the buyer's general needs. The evidence was sufficient for a jury to find that DTS created an express warranty through its magazine ads, its trade show display showing DTS and Wang equipment working together, the verbal assurances of its representative, and its product manual. The warranty that the equipment could 'communicate' implies reliable and consistent communication, which was breached by the equipment's undependable performance. Furthermore, DTS was liable for consequential damages in the form of increased labor costs because it marketed sophisticated registers to retail merchants and therefore had reason to know of their general need to automate data entry. These foreseeable damages do not require that the buyer explicitly state its general needs to the manufacturer.
Analysis:
This decision reinforces that manufacturers can be held directly liable to end-users for express warranties created through marketing and direct representations, expanding liability beyond the direct seller under the UCC. It clarifies the 'reason to know' standard for consequential damages under UCC § 2-715, establishing that manufacturers are presumed to know the 'general needs' of the industries they target. This precedent strengthens consumer and business protections by holding manufacturers accountable for foreseeable business losses, such as increased labor costs, that result from a product's failure to meet advertised capabilities, without requiring the buyer to prove a specific technical defect.
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