Massey-Ferguson, Inc. v. Utley

Majority - Cullen, Commissioner

1. No, the language purporting to exclude implied warranties did not meet the "conspicuous" requirement of UCC 2-316(2) because it was in ordinary type on the back of a contract under a heading that suggested the making of warranties rather than a disclaimer. The Court affirmed the trial court's ruling, holding that the attempted exclusion of implied warranties was not valid or effective. Under KRS 355.2-316(2), an exclusion of implied warranties must be "conspicuous." KRS 355.1-201(10) defines "conspicuous" as a term "so written that a reasonable person against whom it is to operate ought to have noticed it," specifying that language in the body of a form is conspicuous if it is in "larger or other contrasting type or color," or a printed heading in capitals. Here, the exclusionary language was not in larger or contrasting type, and while the heading was bold-face, its words ("WARRANTY AND AGREEMENT") misleadingly suggested the making of warranties. Furthermore, its placement on the back of the instrument, without a clear direction on the front, also rendered it inconspicuous, as supported by cases like Hunt v. Perkins Machinery Co. Therefore, the dealer was considered to have made implied warranties of fitness for ordinary and specific purposes. 2. No, Massey-Ferguson cannot enforce a contract provision preventing Utley from asserting defenses against it because its conduct put it in the status of a "seller" rather than a mere "assignee." Covenants not to assert claims against an assignee are enforceable under KRS 355.9-206(1) only by an assignee who takes for value, in good faith, and without notice of a claim or defense (the holder-in-due-course rule). The court noted that manufacturers to whom dealers assign commercial paper are often not considered holders in due course, particularly when the manufacturer acts as the "real vendor." Key circumstances for this include a manufacturer's representative assisting in the sale and the manufacturer routinely supplying blank sales contracts for immediate assignment. In this case, a Massey-Ferguson factory representative participated in the sale to Utley, and Massey-Ferguson routinely provided blank forms and received immediate assignments. The court concluded that Massey-Ferguson's conduct put it in the status of a "seller," and its status as a "seller" outweighed its status as an "assignee" under KRS 355.9-206. The policy of insulating lenders was intended primarily for financial institutions, not manufacturers who finance their own sales. The court distinguished Root v. John Deere Company as not involving such extensive seller-like conduct by the manufacturer-assignee. Thus, the defense of breach of implied warranty could be asserted against Massey-Ferguson.