Sierra Diesel Injection Service, Inc. v. Burroughs Corp.
874 F.2d 653 (1989)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the UCC, whether a written contract constitutes a final, integrated agreement depends on the parties' intent, considering factors like party sophistication and the nature of the transaction, not just the presence of a merger clause. Additionally, a warranty disclaimer's conspicuousness is determined by the totality of the circumstances, including contract formatting and the buyer's sophistication, to assess if a reasonable person ought to have noticed it.
Facts:
- Sierra Diesel Injection Service, Inc. (Sierra Diesel), a family-owned business, sought to purchase an accounting machine from Burroughs Corporation.
- Burroughs salespeople persuaded Sierra Diesel's owner, James Cathey, who had a high school education and was not knowledgeable about computers, to purchase a B-80 computer system instead.
- Before the purchase, Burroughs sent a letter to Cathey stating the B-80 computer "can put your inventory, receivables, and invoicing under complete control."
- Cathey signed several pre-printed form contracts from Burroughs for the hardware, software, and maintenance, primarily reviewing them for price and product description.
- The B-80 computer failed to perform the promised invoicing and accounting functions and suffered from basic equipment breakdowns.
- Burroughs then sold Sierra Diesel a B-91 computer to remedy the problems, but it also failed to perform the necessary functions.
- An independent consultant hired by Sierra Diesel concluded that the Burroughs computers would never be able to perform the functions for which they had been purchased.
Procedural Posture:
- Sierra Diesel sued Burroughs in the U.S. District Court for the District of Nevada.
- Burroughs moved for summary judgment. A Magistrate recommended granting the motion on statute of limitations grounds.
- The district court judge rejected the Magistrate's recommendation and later denied Burroughs' motion for reconsideration.
- After a trial on the integration and warranty issues, the district court held that the contract was not fully integrated and the warranty disclaimers were not conspicuous.
- The parties settled on the issue of damages, stipulating that Burroughs had breached its contracts but reserving Burroughs' right to appeal the court's integration and conspicuousness rulings.
- Burroughs (appellant) appealed the district court's judgment to the United States Court of Appeals for the Ninth Circuit, with Sierra Diesel as the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Under the Uniform Commercial Code, is a seller's pre-printed form contract containing a merger clause the final, integrated agreement between the parties, and are its warranty disclaimers conspicuous, when the buyer is unsophisticated in contracts and relied on the seller's prior written representations?
Opinions:
Majority - Stephens, Senior District Judge
No. The pre-printed form contract was not the final integrated agreement, and its warranty disclaimers were not conspicuous. A court must look to the parties' intent to determine if a writing is a final expression of their agreement, and a merger clause is not conclusive, especially with an unsophisticated buyer and a pre-printed form contract. Here, James Cathey's lack of sophistication, the complexity of the multiple documents, and Burroughs's post-sale repair efforts indicate that the parties intended the representations in the pre-sale letter to be part of the contract. Furthermore, those representations created an express warranty which cannot be negated by a general disclaimer. Regarding the implied warranty disclaimers, their conspicuousness depends on whether a reasonable person in the buyer's position ought to have noticed them. Given Cathey's lack of sophistication and the placement of the clauses on the reverse side of the forms without prominent headings, they were not conspicuous, even though they were in capital letters.
Concurring-in-part-and-dissenting-in-part - Canby, Circuit Judge
Yes and No. The contract was not integrated, but the disclaimers of implied warranties were conspicuous. The district court's finding that the parties did not intend the writings to be a complete and final agreement was not clear error, so the claim for express warranty is valid. However, the conspicuousness of a disclaimer is reviewed de novo, and these disclaimers were effective. The software agreement had a large, bold, capitalized reference on the front page directing the buyer to the warranty terms on the reverse. The hardware agreement disclaimer was also in a separate paragraph in all capital letters, making it one of the most prominent features on the page. A reasonable buyer's attention would have been called to these clauses, making them legally conspicuous and effective.
Analysis:
This case significantly clarifies the application of the UCC's parol evidence rule and conspicuousness requirement in the context of sales between sophisticated sellers and unsophisticated buyers. It establishes that courts will look beyond the 'four corners' of a standard form contract to determine the parties' true intent, diminishing the absolute power of boilerplate merger clauses. The ruling on conspicuousness emphasizes a holistic, context-sensitive analysis over a mechanistic check of font size or capitalization, providing greater protection for buyers who may be surprised by disclaimers buried in fine print. This precedent encourages sellers to be more transparent and makes it harder for them to use form contracts to disclaim representations made during the sales process.
Unlock the full brief for Sierra Diesel Injection Service, Inc. v. Burroughs Corp.