Wilson Trading Corp. v. David Ferguson, Ltd.
244 N.E.2d 685, 23 N.Y.2d 398, 297 N.Y.S.2d 108 (1968)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Uniform Commercial Code, a contractual time limitation on claims is unenforceable with respect to latent defects that are not reasonably discoverable within the specified time period because such a limitation causes the limited remedy to fail of its essential purpose.
Facts:
- Wilson Trading Corporation (Wilson) sold a quantity of yarn to David Ferguson, Ltd. (Ferguson) under a written contract.
- The contract required that any claims regarding the yarn's quality or shade be made within 10 days of receipt and before the yarn was knitted or processed.
- The contract also contained an express warranty stating the seller would deliver 'good merchantable yarn of the description stated herein'.
- Ferguson received the yarn and proceeded to cut and knit it into sweaters.
- After the sweaters were finished, they were washed, at which point Ferguson discovered a latent 'shading' defect where the yarn's color varied significantly.
- Ferguson alleged this shading defect rendered the completed sweaters unmarketable.
Procedural Posture:
- Wilson Trading Corporation sued David Ferguson, Ltd. in the trial court (Special Term) for the contract price of yarn.
- Ferguson asserted a defense and counterclaim for damages, alleging breach of warranty.
- The Special Term granted summary judgment in favor of the plaintiff, Wilson.
- Ferguson, as the appellant, appealed to the intermediate appellate court (the Appellate Division).
- The Appellate Division affirmed the trial court's decision.
- Ferguson, as the appellant, then appealed to the Court of Appeals of New York, the state's highest court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a contractual clause limiting the time for a buyer to make a claim for defects bar a claim for a latent defect that could not reasonably be discovered until after the time limit had expired?
Opinions:
Majority - Jasen, J.
No. Where circumstances cause a limited remedy to fail of its essential purpose, the general remedy provisions of the Uniform Commercial Code apply. Here, a time limitation that bars claims for latent defects not discoverable until after the time period has expired deprives the buyer of the substantial value of the bargain and fails of its essential purpose. The court reasoned that the UCC requires at least a 'fair quantum of remedy' for breach. A clause eliminating all remedies for a latent defect not discoverable before processing operates to deprive the buyer of any remedy. Therefore, under UCC § 2-719(2), the contractual time limit must give way to the general UCC rule (§ 2-607) that a buyer has a reasonable time to notify the seller of a breach after the defect is or should have been discovered. Furthermore, the contract's express warranty of merchantability conflicts with a time limit that effectively disclaims liability for latent defects; under UCC § 2-316(1), the language creating the warranty prevails over the conflicting disclaimer.
Concurring - Fuld, C.J.
No. The reversal is proper on the sole ground that a question of fact exists as to whether the time-limiting clause is 'manifestly unreasonable' under UCC § 1-204 as applied to a latent defect. It is unnecessary to address other UCC provisions concerning unconscionability or the failure of a remedy's essential purpose. The core issue is simply the reasonableness of the time limit itself in the context of a hidden defect, and that question should be decided at trial.
Analysis:
This case is significant for its application of the 'failure of essential purpose' doctrine under UCC § 2-719(2) to invalidate a facially valid time limitation clause in a commercial contract. The decision establishes that freedom of contract has limits, particularly when a contractual remedy proves illusory for latent defects. It prioritizes the UCC's underlying policy of providing a 'fair quantum of remedy' over a strict enforcement of a clause that would leave a buyer without recourse for a non-discoverable defect. This precedent impacts contract drafting and litigation by showing that courts will look past the text of a limitation clause to its practical effect, preventing sellers from using short inspection periods to shield themselves from liability for hidden flaws in their goods.
Unlock the full brief for Wilson Trading Corp. v. David Ferguson, Ltd.