AUGUST 30, 2007
Third Circuit resolves tension between express and implied
warranties under UCC
The U.S. Court of Appeals for the Third Circuit ruled in N.J. Transit Corp. v. Harsco Corp (August 7,
20 07) that the one-year term for an express warranty controlled the seller’s obligation, not the longer
term that would otherwise apply under an implied warranty of merchantability. The interplay of the
express and implied warranties presented a matter of first impression under the Uniform Commercial
Code (UCC) as adopted by New Jersey. Indeed, the Third Circuit found no UCC case in any
jurisdiction directly on point, and rooted its decision in the commentary to the NJ UCC (Comment 9
to N.J. Stat. Ann. 12A-2-316), which directs the court to read the implied and express warranties as
“consistent” and “cumulative.” The Third Circuit concluded that, on the record presented, “it would
be unreasonable to read the two as consistent beyond the one-year term.”
The record in N.J. Transit was unusual in that the buyer (N.J. Transit) was highly sophisticated and
had issued its own detailed specifications for a piece of track inspection equipment, pursuant to a
publicly bid contract. In its contract documents, N.J. Transit required the successful bidder to
provide a comprehensive, express, one-year “bumper to bumper” warranty. The track inspection
equipment was destroyed in a fire after the one-year express warranty term had expired. N.J. Transit
nonetheless sued Harsco (and two component part suppliers), claiming the fire loss was covered by
the implied warranty of fitness for a particular purpose and implied warranty of merchantability.
The district court granted summary judgment, dismissing the claims against all defendants. The Third
Circuit affirmed. The Third Circuit held that the implied warranty of fitness for a particular purpose
did not arise due to N.J. Transit’s sophistication and detailed bid specifications. The court further
held that the implied warranty of merchantability was limited to the same one-year term as the
comprehensive express warranty, making the warranties “consistent” and “cumulative.” The Third
Circuit observed that a prospective bidder would reasonably conclude that it was required to
warranty the track inspection equipment for only one year, and “would structure its bid accordingly.”
In contrast, “[a]n implied warranty which lasts beyond one year would require an entirely different set
of calculations, and would conflict with the expressed intent of the contract that the bidder only be
responsible to warranty the [equipment] for a single year.”
The decision recognizes that different policy considerations apply when the buyer is sophisticated
and dictates the warranty terms, essentially obviating the need for implied warranties.
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