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ITT Aerospace/Communications v. GEC Plessey Semiconductors, Inc.

98-270 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)

CONTRACTS; INTERPRETATION—Where two warranty provisions in a contract, one on its face and the other incorporated by reference, appear to conflict, a court will attempt to reconcile them by giving effect to both and, if needed, by favoring the one with specific language over the one with general language.

A buyer sought to purchase computer chips from a manufacturer. Initially, the parties signed a Memorandum of Agreement/Option to Purchase detailing prices and other purchase conditions. Ultimately, the buyer decided to purchase the chips and sent a letter subcontract. This subcontract was subject to changes which had been previously proposed. The buyer then sent a second letter subcontract which incorporated some of the proposed changes. That subcontract, signed by both parties, stated that it “supercede[d] all previous agreements, both verbal and written []” between buyer and seller. It also provided that “a formal Affirmed Fixed Price Subcontract” would be issued. That Purchase Order was issued and was followed by a second Purchase Order for an additional quantity of chips. For purposes of the motion before the Court, the buyer alleged that the chips it received “contained a design problem” and that the manufacturer was aware of this design problem well before the parties first met. The manufacturer argued that the original letter subcontract which established the terms for the subsequent Purchase Orders incorporated the buyer’s “General Conditions for Fixed Price Subcontracts.” Those General Conditions expressly stated that: “[a]ll implied warranties of merchantability and ‘fitness for a particular purpose’ are hereby excluded from any obligation contained in this subcontract.” This waiver, if effective, is allowed by New Jersey law. The buyer argued that while the General Conditions were incorporated in the letter subcontract, that subcontract was only a prelude to the final contracts between the parties which are the Purchase Orders. Because the Memorandum of Agreement and an initial Request for Quotation provided that all subsequent Purchase Orders would be subject to the conditions of Purchase, the buyer argued that the final contracts between the parties, namely the Purchase Orders, did not waive the implied warranty claims. Further, the buyer pointed out that the Conditions of Purchase provided, in part, that “[s]eller warrants that all of the items furnished hereunder shall conform fully with all requirements of this Order and shall conform to approved sample or samples, if any, shall be fit for the use intended by Buyer and free from defects in material, workmanship, design, and fabrication.” In addition, the Conditions of Purchase further stated that “the aforesaid warranties ... shall not be deemed to be the exclusive rights of Buyer but shall be in addition to other rights of Buyer under law and the terms of this Order.” Consequently, the buyer argued that the Purchase Orders, as the final contracts between the parties, did not contain a waiver of implied warranty claims but instead were subject to the parties’ prior agreement that the Conditions of Purchase applied to all purchases. The question for the Court thus became which documents were incorporated into the Purchase Orders. Initially, the Court concluded that regardless of what provisions were contained in the Memorandum of Agreement or the Request for Quotation or what documents were superceded by the letter subcontract, the “Conditions of Purchase” were incorporated into the Purchase Orders. This is because the Purchase Orders stated on their face, in no uncertain terms, that the order was subject to the Conditions of Purchase. However, for the purposes of the summary judgment motion before the Court, the General Conditions also applied to the Purchase Orders. Thus, the Court ruled that the buyer’s implied warranty claims were precluded. Having found that the General Conditions were incorporated into the final contract between the parties, i.e., the Purchase Orders, the Court found that the buyer’s implied warranty claims had been waived by the terms of the General Conditions. “The fact that the Conditions of Purchase may also apply to the Contract does not alter this conclusion.” The Court found that the relevant Conditions of Purchase simply stated that express warranties shall not be exclusive of other rights of the buyer under the law or the terms of the Order. Therefore, “[w]hen read together as part of the contracts as a whole, as they must be, the two provisions do not conflict, nor is there even an ambiguity, as [the buyer] suggested. Express warranty claims are preserved, as are other rights [the buyer] has under the law or the terms of the contracts, but implied warranty claims are waived.” Further, even if the provisions could be said to conflict, the Court held that the specific waiver provision must control over the general provision allowing for all remedies under the law or the contract. The manufacturer also argued that the buyer’s negligent misrepresentation claims must be dismissed for failure to state a claim. Its argument was that New Jersey’s economic loss rule bars a negligent misrepresentation claim premised upon a sale of goods between two commercial parties where the buyer suffers only economic losses resulting from the purchase of an allegedly defective product. Under New Jersey Law, a commercial buyer of goods “seeking damages for economic loss resulting from the purchase of defective goods may recover from an immediate seller ... for breach of warranty under the UCC, but not in strict liability or negligence.” The “economic expectations that are protected by the U.C.C. are not entitled to supplemental protection by negligence principles.” The language in UCC Section 103 stating that the Act does not displace the law respecting misrepresentation has been interpreted to mean that intentional misrepresentation claims are not barred by the economic loss rule. However, no case was presented allowing a negligent misrepresentation claim to be brought where the loss suffered was solely economic.


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