Fairchild Industries v. Maritime Air Service, Ltd.
16 U.C.C. Rep. Serv. (West) 663, 274 Md. 181, 333 A.2d 313 (1975)
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Rule of Law:
Under Maryland Code, Art. 95B, § 2-316, expressions like 'as is' or 'with all faults' which purport to exclude all implied warranties pursuant to subsection (3)(a) must, when in writing, also satisfy the conspicuousness requirement found in subsection (2) to be effective, consistent with the legislative purpose of protecting buyers from unexpected disclaimers.
Facts:
- On May 9, 1969, Fairchild Industries (Fairchild) entered into a lease agreement with Maritime Air Service, Ltd. (Maritime) to lease a helicopter for an initial term of one year, with options to extend the lease or purchase the aircraft.
- Maritime later exercised its option to purchase the helicopter from Fairchild.
- On March 19, 1970, Fairchild and Maritime executed a purchase agreement for the helicopter.
- The purchase agreement, a printed form provided by Fairchild, included a typewritten provision stating: 'It is specifically understood and agreed by the parties that the Aircraft is sold in an 'As is' condition. Seller makes no representation or warranties express or implied whatsoever except Warranty of Title. Buyer acknowledges that before entering into this Agreement he has examined the Aircraft as fully as he desires.'
Procedural Posture:
- Maritime Air Service, Ltd. (Maritime) filed a suit against Fairchild Industries (Fairchild) in the Superior Court of Baltimore City, claiming damages for alleged breaches of express warranty and implied warranties of merchantability and fitness.
- The suit was removed from the Superior Court of Baltimore City to the United States District Court for the District of Maryland.
- Fairchild, as the defendant, filed a motion to dismiss under the Federal Rules of Civil Procedure, asserting the 'as is' disclaimer as a defense to Maritime's allegations of breached implied warranties.
- The United States District Court for the District of Maryland certified two questions of law to the Court of Appeals of Maryland, pursuant to the Uniform Certification of Questions of Law Act.
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Issue:
Does the requirement found in Article 95B, § 2-316(2) that 'to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous' apply to the provisions for exclusion of warranties set forth in Article 95B, § 2-316(3)(a)?
Opinions:
Majority - Levine, J.
Yes, the requirement of conspicuousness found in Article 95B, § 2-316(2) applies to the provisions for exclusion of warranties set forth in § 2-316(3)(a). The Court determined that the language of the statute regarding the relationship between subsection (2) and (3) was of doubtful meaning despite Fairchild's argument for mutual exclusivity based on the prefatory phrases "Subject to subsection (3)" and "Notwithstanding subsection (2)." To ascertain legislative intent, the Court considered the objectives and purposes of the enactment, which are to protect a buyer from unexpected and unbargained language of disclaimer by denying effect to such language when inconsistent with express warranties and by permitting the exclusion of implied warranties only by conspicuous language or other circumstances protecting the buyer from surprise. The Court reasoned that to allow "as is" disclaimers to be effective even if buried in fine print would create an anomalous result, undermining the buyer protection intended by the UCC, especially given that explicit disclaimers of merchantability or fitness require conspicuousness. The Court concluded that "as is" expressions, while sufficient to put the buyer on notice of the disclaimer, do so only when brought to the buyer's attention, meaning they must be conspicuous if in writing. The Court found persuasive support in other jurisdictions and scholarly work, which held that reading a conspicuousness requirement into subsection (3) avoids surprise and fulfills a fundamental purpose of the Code, harmonizing the sections to protect purchasers.
Dissenting - Singley, J.
No, the requirement of conspicuousness found in Article 95B, § 2-316(2) does not apply to the provisions for exclusion of warranties set forth in § 2-316(3)(a). Justice Singley adhered to the principle of statutory construction that if the legislative intent is not ambiguous or obscure in the language, the plain meaning should control. He emphasized the phrase "Notwithstanding subsection (2)" at the beginning of subsection (3), interpreting it to mean that all implied warranties are excluded by terms like "as is" or "with all faults" regardless of the conspicuousness required by subsection (2). The dissent found nothing ambiguous or obscure in this language and argued that if the drafters intended "as is" phrases to be conspicuous, they could have easily stated so explicitly within subsection (3)(a). Justices Smith and O’Donnell joined in this dissenting view.
Analysis:
This case is highly significant for contract law and commercial transactions governed by the Uniform Commercial Code (UCC), particularly Article 2 on sales. It reinforces the UCC's consumer protection philosophy by extending the conspicuousness requirement to general disclaimers like 'as is,' preventing sellers from hiding such critical terms in fine print. The ruling ensures that buyers are genuinely aware of the waiver of implied warranties, promoting fairness and transparency in sales contracts. Future cases will continue to emphasize clarity and prominence in contractual disclaimers to ensure their enforceability, impacting how businesses draft and present their sales agreements.
