Thursday, August 09, 2007

consumer - warranties - exclusion/modification - conflict between express and implied warranties

N.J. Transit Corp. v. Harsco Corp. - 3rd Circuit - August 2, 2007

The court held that a sophisticated commercial buyer who had drafted the contract could not rely on UCC implied warranties of merchantability and fitness for a particular purpose under the N.J. equivalent of 13 Pa. C.S. sec. 2314 and 2315 when there was a one-year express contractual warranty that had expired at the time of the alleged loss.

The court took special note of the fact that this was "hardly the typical case" involving exclusion or modification of a warranty under sec. 2316. Here, the buyer drafted the contract, both parties were sophisticated business entities, and the parties had equal bargaining power. "It was the buyer who dictated all the contract's terms [and] whose bargaining power was superior." The buyer "specified precisely what it required" and the express warranty was "extremely broad," so "there was no implied warranty of fitness for a particular purpose."

Under sec. 2317(c), "express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose." Here the court interpreted the express warranty and implied warranty of merchantability as "consistent and cumulative... for the one year term of the express warranty. Beyond that period, the implied warranty of merchantability conflicts with the contract's specifications, and is therefore displaced by the express" one-year warranty, pursuant to sec. 2317 (c).

The court specifically stated and emphasized that it was not interpreting sec. 2316 (exclusion or modification of warranties) to allow all express warranties of limited duration to impliedly exclude or modify limited warranties. Instead, it based its holding on the fact that here the buyer-drafted global warranty was incorporated into the contract specifications, noting that the commentary to sec. 2316 recognized such a situation as "not the ordinary circumstance that the section is designed to address." The court said that its holding was in line with the general purpose of sec. 2316 "which, according to the commentary, is to ensure that there are no surprises concerning which warranties accompany the goods sold." The element of surprise is not present where the buyer drafts the contract. A different holding would turn "a buyer's shield against surprise into a buyer's sword of surprise."

bankruptcy - ch. 13 - post-foreclosure sale cure

In re Connors - 3rd Circuit - August 3, 2007

Ending a dispute among N.J. district courts, the 3rd Circuit held that a Chapter 13 debtor does not have the right, under 11 USC 1322 (c) (1), to cure a default on a mortgage secured by the debtor's residence after the residence is sold at a foreclosure sale but before the deed is delivered.

The "unambiguous language of sec. 1322 (c) (1) supports the 'gavel rule.'" It says the a "default with respect to, or that gave rise to, a lien on the debtor's residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law…." The court said that numerous courts have held that a residence is "sold" at the foreclosure auction. The sale is final then, not when the deed is later delivered.

There is a provision, 11 USC 108(b), which allows a bankruptcy to be filed and a) objections to the sale to be filed or b) the property redeemed -- if the bankruptcy is filed before the expiration of a grace period established by a nonbankruptcy state law.

In this case, the debtor had the right to but did not exercise his statutory right to object to the foreclosure sale or redeem the property within 60 days of the filing of his chapter 13 petition, as permitted by N.J. state law and 11 USC 108(b).