At the back of most contracts are provisions that lawyers and parties often refer to as "boilerplate". The Free Dictionary defines it as "inconsequential, formulaic or stereotypical language." A recent decision of the Wisconsin Supreme Court supports the interpretation I’ve given my colleagues for years: there is no such thing as inconsequential language in a contract. Yesterday’s boilerplate is today’s most critical wording.
The case involved the standard guaranty required by federal law. At the end of the guaranty form, the supplier had added, "This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature nor shall it extend to the benefit of persons or corporations other than" buyer. The goods that were shipped under this guaranty were found contaminated with E. coli and the buyer sued for, among other things, its consequential damages. The Wisconsin Supreme Court affirmed the intermediate appellate court’s decision that this language was ineffective to disclaim consequential damages. After the jump, we’ll discuss why.
The supplier’s problem is that this was the only disclaimer in any of its documents. As an Article 2 merchant (see my previous entry), the supplier was subject to another warranty, the implied warranty of merchantability. That warranty is given unless disclaimed, Here, it was not disclaimed, and thus was given. Damages for breach of warranty may also be limited or excluded if not unconscionable. So the question became whether the exclusion of consequential damages in the Guaranty applied to damages for breach of the implied warranty of merchantability.
The court answered that question in the negative, and it relied on the express words used in the disclaimer in the Guaranty. "The words, ‘This Guaranty,’ focus the limitation of damages on those damages that may flow from a breach of the express warranties set out in ‘This Guaranty’ . . . . They say nothing about damages that may arise from the breach of an implied warranty . . . ."
Exactly. The standard "boilerplate" provision reads more like this: "Under no circumstances may either party be liable to the other for any special, incidental, consequential or punitive damges in any action arising out of this contract, whether considered in contract, in tort of otherwise." The words attached to the Guaranty were far more limited, and the words were given meaning by the Wisconsin Supreme Court.
There are many factors to consider in deciding whether to disclaim implied warranties and whether to limit damages. In contracts related to food, implied warranties are disclaimed far less frequently than in other sales of goods. Parties often exclude incidental damages without understanding what they are giving up. But the lesson from the Wisconsin Supreme Court is always good: the words you choose matter. There is no "inconsequential" boiilerplate.