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88.

Warranties

A. Express Warranties

Government contracts frequently contain express warranty clauses. The warranty clause, by its terms, provides the exclusive remedies for nonlatent defects or those not involving fraud or such gross mistakes as amount to fraud, by requiring the contractor to repair or replace the defective article or part, or, if the article or part was retained, by requiring the contractor to pay an amount which is equitable under the circumstances. See United States v. Franklin Steel Products, Inc., 482 F.2d 400, 404 (9th Cir. 1973), cert. denied, 415 U.S. 918 (1974). A frequent defense asserted by contractors in such cases is that the government's right of inspection before acceptance, under another clause included in such contracts, see 48 C.F.R. § 52.246-2 et seq., relieved the contractors of liability, since the government should have inspected, or it negligently inspected, the product or part. However, the inspection clause was added to give the government further protection, not less. United States v. Aerodex, Inc., 469 F.2d 1003 (5th Cir. 1972); United States v. Franklin Steel Products, supra. Assuming, arguendo, that the government had a duty to inspect, the warranty clause specifically provides that inspection and subsequent acceptance are not conclusive as to "latent defects, fraud, or such gross mistakes as to amount to fraud." Thus, latent defects, not discoverable by visual inspection or the tests specified in the contract, would be the basis for relief in any event. See United States v. Franklin Steel Products, supra at 403.

B. Implied Warranties

1. Affirmative Actions Based on Implied Warranties.
Unless specifically forbidden from doing so by regulation or by the contract in question, the government may claim the benefits of implied warranties found in the Uniform Commercial Code (UCC). Although federal law applies to determine the rights and liabilities of parties to a government contract, the Uniform Commercial Code may serve as a guide for federal law in this area, at least to the extent that the question is not governed by the contract or by federal regulations. See United States v. Hext, supra; Everett Plywood & Door Corp. v. United States, 419 F.2d 425 (Ct. Cl. 1969); United States v. Wegematic Corp., 360 F.2d 674 (2d Cir. 1966). The implied warranty of merchantability is found at section 2-314 of the UCC. The implied warranty of fitness for a particular purpose is found at section 2-315. In a proper case, the government may also recover incidental and consequential damages, pursuant to section 2-715 of the UCC. It should be noted that the implied warranties found in sections 2-314 and 2-315 will not apply if, prior to entering into the contract, there was an examination of inspection of the goods by the buyer, unless the defects could not have been reasonably discovered at the time of the examination. U.C.C. § 2-316.

2. Defenses to Allegations of Implied Warranties
A contractor may not defend or recover on an implied warranty theory where the government expressly disclaims such warranties. Webco Lumber, Inc. v. United States, 677 F.2d 860 (Ct. Cl. 1982). This issue arises most often in contracts which contain an estimate of quantities. Where such estimates are clearly defined as estimates only and any implied warranty is expressly disclaimed, the disclaimer will be given effect. Id.; Caffall Brothers Forest Products, Inc. v. United States, 678 F.2d 1071 (Ct. Cl.), cert. denied, 459 U.S. 908 (1982). In order to prevail on a claim of breach of warranty, the plaintiff must establish that:

1. The government assured the plaintiff of the existence of a fact;
2. The government intended that the plaintiff be relieved of the duty to ascertain the existence of the fact for itself; and
3. The government's assurance of that fact proved untrue. See Kolar, Inc. v. United States, 650 F.2d 256 (Ct. Cl. 1981). All implied warranty claims should be viewed in light of the accepted proposition that the government does not normally guarantee the success of a contractor's operation. Id. For a warranty to exist, there must be either an affirmation of fact or a promise which relates to performance under the contract. American Ship Building Co. v. United States, 654 F.2d 75 (Ct. Cl. 1981). A requirement in a government contract that performance be completed within a specified time is not a guarantee that performance can, in fact, be completed within that time. Id.

[cited in USAM 4-4.530]