Opinion ID: 732437
Heading Depth: 2
Heading Rank: 2

Heading: Warranty Disclaimers

Text: 30 A disclaimer of extrinsic warranties complements and reinforces the integration clause by making clear what is implicit in the notion of a fully integrated contract: that no representation not documented in the written agreement itself is part of the parties' bargain. Two brief points about the warranty disclaimer in this case deserve emphasis. 31 First, as we pointed out in Betaco I, the purchase agreement, in language highlighted by capitalized lettering, specifically disclaimed all warranties not expressly made part of the agreement and admonished that no one was authorized to make other warranties on Cessna's behalf. Pl.Ex. 4 at 1; see 32 F.3d at 1133. That alone calls into question the viability of a breach of warranty claim based on an extrinsic writing like Hubbard's cover letter to Mikelsons. 32 Second, this is not a case in which the purchase agreement purports to disclaim any and all warranties. Rather, as acknowledged in the disclaimer clause itself, the representations as to performance of the new jet set out in the preliminary specifications were made part of the contract. Those specifications, in turn, did address the range of the aircraft, indicating that it would have a full fuel range of 1,500 nautical miles under specified conditions. Taken at face value, therefore, the disclaimer clause confined Cessna's obligations as to the expected performance of the CitationJet to a limited and very specific set of preliminary specifications and expressly disavowed the type of casual representation made in Hubbard's letter. 33 Again, the testimony below gives us every reason to believe that Mikelsons appreciated the significance of the contract's language. Mikelsons affirmed that he had read and understood the warranty disclaimer provisions. Tr. 90. He also acknowledged that he was quite familiar with such provisions: 34 Q. Now, do you know what warranty disclaimers are? 35 A. Yes. 36 Q. Have you seen many in your lifetime? 37 A. Yes. 38 Q. Have you had warranty disclaimers in many of the contracts that your business has prepared? 39 A. Yes. 40 Q. So you're well acquainted and well experienced with warranty disclaimers? 41 A. Yes. 42 Tr. 85. Thus, we have contract language that is clear as to which warranties were made part of the agreement and which were not, signed by an individual who knew from his own experience what such disclaimers meant. 43 C. Whether the Alleged Extrinsic Warranty Was One That the Parties Certainly Would Have Included within the Purchase Agreement. 44 The purchase agreement itself was not silent as to the anticipated range of the CitationJet. The preliminary specifications incorporated into that agreement contained a section on estimated performance which listed some seven factors, among them the full fuel range of the aircraft; we reproduced that section in full in Betaco I. 32 F.3d at 1135. As we pointed out, [t]his summary of the aircraft's performance is, in stark contrast to [Hubbard's] letter, quite precise and quite explicit about the assumptions underlying each of the estimates. Id. at 1136. Thus, Cessna clearly was willing to make certain performance estimates part of the contract, but when it did so it gave concrete estimates (a full fuel range of 1,500 nautical miles, for example) and made explicit the conditions under which those estimates would apply. 45 The fact that the purchase agreement addressed the range and did so with specificity indicates to us that had Cessna and Betaco intended for any additional representations as to the range of the CitationJet to be included in their contract, they would have been made an explicit part of the purchase agreement. It is not as if the relative range of the CitationJet vis-a-vis the Citation I was different from the other types of factors addressed in the preliminary specifications, or one that could not be reduced to the level of detail otherwise reflected in the specifications. In fact, the only sense in which Hubbard's more range representation stands apart in kind from the terms expressly included in the contract is its extraordinary ambiguity. Given that the contract otherwise described the expected performance of the aircraft with a high degree of specificity, making all of the assumptions underlying each expectation explicit, it is utterly implausible to think that the parties would have understood the types of casual representations found in Hubbard's letter to be part of the same contract. Indeed, it is hard to believe that a manufacturer of aircraft that had attempted to limit its obligations to a carefully delineated set of performance estimates would substantially increase its exposure with an indefinite term like more range. Equally implausible is the suggestion that Mikelsons, an experienced and sophisticated purchaser of aircraft with a professed concern about range, and with a staff available to crunch the numbers, would be content to spend nearly two-and-a-half million dollars on a plane on the mere assurance that it had more range than an earlier model. The district court thought that the parties treated this transaction more like the purchase of a family car than the purchase of a multi-million dollar jet. Memorandum at 5 n. 5. It may be that Mikelsons treated the purchase that casually. But we find no evidence in the record that Cessna did, or in particular that Cessna shared Mikelsons' professed expectation that an indefinite, extrinsic term like more range would become a term of the contract. D. Sophistication of the Parties 46 Mikelsons brought with him to the purchase of the CitationJet a wealth of experience and sophistication. As the district court recognized, [Mikelsons'] experience in the business of aviation cannot be denied. Memorandum at 2. He had logged over 18,000 hours in a variety of aircraft. He had established one of the nation's major airlines. Betaco, of which he was president, was in the business of purchasing and leasing aircraft. Betaco previously had purchased second-hand from Cessna a Citation I as well as a Citation II. Mikelsons himself had flown the Citation I extensively. Thus, as the district court found, Betaco and Cessna were in relatively equal bargaining positions in this transaction. Entry of Findings at 2 p 6. 47 Mikelsons is not, as the district court emphasized, a lawyer (see Memorandum at 6-7); and yet, his familiarity with the types of contract terms at issue here rendered him fully able to appreciate the import of those terms. As we have pointed out, Mikelsons read and understood the language in the purchase agreement disclaiming extrinsic warranties; he likewise read and understood the integration clause. 48 We normally attribute to the signatories to a written agreement knowledge and understanding of the terms contained in that agreement. 32 F.3d at 1136 (quoting Rosenbaum v. Texas Energies, Inc., 241 Kan. 295, 736 P.2d 888, 891-92 (1987)). Mikelsons' degree of sophistication certainly gives us no reason to depart from that rule here. 49 E. Nature and Scope of Prior Negotiations and the Purported Extrinsic Term 50 Despite the integration clause and the disclaimer of extrinsic warranties in the purchase agreement, Mikelsons' affidavit raised the possibility that the parties had engaged in substantial pre-contract negotiations as to the anticipated range of the CitationJet relative to the Citation I, a subject not addressed in the purchase agreement itself but that Betaco insists was central to its decision to purchase the new aircraft. Exploration of this possibility was the purpose of the remand we ordered. 32 F.3d at 1137-38. 51 We did not mean to suggest, of course, that the door is open to proof of an extrinsic term whenever a party can establish that the subject of that term was discussed before the contract was signed. That would render contractual provisions disavowing any and all terms not contained within the four corners of the contract, not to mention statutory provisions like section 2-202, virtually meaningless. Rather, only in limited circumstances can a party overcome the bar of integration clauses and warranty disclaimers. Transamerica Oil Corp. v. Lynes, 723 F.2d 758 (10th Cir.1983) (applying Kansas law), which we cited in Betaco I, offers an illustration. There, a company that drilled oil and gas wells purchased a product based on representations made in the manufacturer's advertising and in discussions with the manufacturer's representatives. When the product failed to perform as expected, the purchaser sued for breach of warranty. The manufacturer sought to rely on warranty disclaimers contained in the invoices that the purchaser signed on receipt of the product. The Tenth Circuit concluded that proof of extrinsic warranties was permissible nonetheless. There was no negotiated document signed by both parties evidencing the sale of one or all of these [products], the court pointed out (id. at 763), there was only the purchaser's signature on the invoice below the words I certify that the above materials or services have been received (id.). These words indicate that the document is a delivery receipt and possibly a billing statement, but not a fully integrated contract. Id. Thus, despite additional language acknowledging the terms on the reverse side of the invoice, which included the warranty disclaimer, the court was satisfied that the invoice did not reflect the final agreement of the parties. Id. Transamerica Oil indicates, then, that the parties may resort to extrinsic terms in the face of contractual provisions disclaiming any and all such terms when, as was the case there, the terms of the disclaimer were unexpected and unbargained for. See Kan. Stat. Ann. § 84-2-316(1), official U.C.C. comment, Purposes p 1; see also 723 F.2d at 762. Having reviewed the evidence adduced on remand, we are satisfied that the circumstances of this case do not fit within that narrow category. 52 This is not a case in which the purchaser of a product, whose expectations have been entirely shaped by precontract representations, is asked upon delivery to execute an invoice in which he unwittingly surrenders any and all claims based on those extrinsic representations. Cf. Transamerica Oil, 723 F.2d at 763; Hemmert Agric. Aviation v. Mid-Continent Aircraft Corp., 663 F.Supp. 1546, 1553 (D.Kan.1987). Mikelsons was presented with a written purchase agreement in advance of his order, and he obviously controlled the timing of the order. He had, as we noted in Betaco I, every opportunity to review the agreement himself, to have his staff review it, and to seek the advice of legal counsel. 32 F.3d at 1134, 1136. The agreement incorporated detailed specifications as to the performance of the aircraft, and explicitly disclaimed any warranties not contained in those specifications. The limits of the contract were therefore plain, and neither time, disparity of resources, nor any other circumstance prevented Mikelsons and Betaco from appreciating those limits. 53 It is also clear that the terms of the purchase agreement did not amount to a take it or leave it proposition, depriving Betaco of the opportunity to negotiate further terms of importance to it. Before signing and returning the agreement to Cessna, Mikelsons added two terms to the agreement: one invoking the right to opt for an earlier delivery and aircraft serial number, in the event one became available, and the other invoking the right to exercise such an option at a price appropriate to the earlier serial number. Pl.Ex. 4 at 1. Jarvis, in turn, on Cessna's behalf, accepted one of these additional terms (that concerning an earlier delivery and serial number) and rejected the other. Pl.Ex. 10 at 1; see also Pl.Ex. 10 at 2 (final purchase agreement as modified). 54 In sum, we have a purchase agreement which in straightforward language declares itself to be the only agreement between the parties. Its principal provisions occupied a single sheet of paper. It incorporated written specifications as to the expected performance of the new aircraft, including its range. It expressly disclaimed any other warranties beyond these. It was presented to a sophisticated purchaser well grounded in aeronautics, who had purchased aircraft before, who was in the business of buying and leasing aircraft (not to mention running an airline). He read and understood the integration clause, he read and understood the warranty disclaimer clause--he had read such clauses before. He signed the contract at a moment of his own choosing, after making modifications. 55 All of this weighs heavily in favor of honoring the integration and warranty disclaimer clauses and precluding Betaco's effort to read into the parties' agreement an extrinsic term as to the relative range of the CitationJet. Mikelsons could not have been taken by surprise by the contents of the purchase agreement in any sense of the word. 56 As we noted earlier, the district court found that at some time before Hubbard sent the purchase agreement and other materials to Mikelsons, Mr. Mikelsons had one or more conversations with a Cessna representative in which Mr. Mikelsons expressed a desire to purchase an airplane comparable to the Citation I but with more range and in which the Cessna representative informed Mr. Mikelsons that the CitationJet had more range than the Citation I. Entry of Findings at 3 p 8. We do not know which Citation representative made this assertion (it may have been Hubbard, but Mikelsons could not recall, see, e.g., Tr. 58, 95), we do not know how many conversations there might have been, and we do not know in what detail the relative range of the two planes was discussed. But under Betaco's theory of the case, these discussions were the genesis of the more range representation in Hubbard's letter, a representation that Betaco insists, and the district court found, was central to Betaco's decision to purchase the plane. Entry of Findings at 3. 57 The indefinite character of the more range representation in Hubbard's letter remains as troublesome now as it was in the first appeal. As we noted in Betaco I, Hubbard's letter is long on adjectives and short on details (32 F.3d at 1135) and in that respect appeared much more like a standard promotional letter than the confirmation of a key contract term. It is now undisputed that Hubbard's letter was, in fact, a canned letter sent to many prospective purchasers of the CitationJet. Tr. 11415. So nothing in the content of the letter grew out of the one or more discussions Mikelsons previously had with the Cessna representative. More importantly, it is not at all clear what more range means. 58 The district court's findings on this key point are inconsistent. Recall that the district court first observed: 59 The term more range means, as used in the aviation industry, greater range when compared at identical (standard) atmospheric conditions with each plane at its maximum gross takeoff weight with a full load of fuel. 60 Entry of Findings at 3, p 9. Yet, as the district court itself noted, the evidence is uncontradicted that the CitationJet did have greater range at that configuration. Memorandum at 4 n. 3 (emphasis in original). Thus, attributing the industry's understanding of more range to Hubbard gets Betaco nowhere; only if more range is construed to mean more range at all payloads does Betaco have a basis to claim a breach of this purported warranty. Here the district court equivocated. Despite the limited understanding in the industry of the phrase more range, the court found that Mikelsons understood it to mean more range at all payloads. Id.; Entry of Findings at 4 p 12. In the court's view, it was reasonable for Mikelsons to make this leap. Although it may be true that range comparisons are done at maximum gross takeoff weight with full fuel, the court conceded, it is not unreasonable to assume that, unless otherwise indicated, the range ratio of one airplane to another is relatively consistent throughout the spectrum of payloads. Memorandum at 4 n. 3. The principal support that the court cited for the notion that this was an assumption and understanding of more range that Cessna shared was a performance update that Cessna sent to Mikelsons on April 3, 1990, more than two months after Hubbard sent his letter to Mikelsons and Mikelsons signed the contract. Pl.Ex. 9 at 4; see Memorandum at 4 n. 3. That update contained a graph indicating that the CitationJet would have a greater range at all payloads than the Citation I. See id. But whatever this post-contract update may reveal about Cessna's expectations of the plane's performance, it tells us nothing about what Cessna's understanding of the contract was at the time Cessna and Betaco entered into it; and there certainly is no evidence establishing that Cessna agreed to make this update a contractual obligation on par with the preliminary specifications that had been incorporated into the contract expressly. 4 61 In essence, the court found that the parties made part of their agreement a vague, extrinsic term that purportedly has a particular meaning in the industry, but then it accorded that term a significantly broader meaning based on speculative assumptions in order to support Betaco's theory of recovery. This is a house of cards, and if the tenuous character of its tenets does not bring it down, the nature of Hubbard's letter does. To accept the notion that Hubbard's more range representation was a term as to which the parties shared a particular understanding that they wished to make part of their bargain, one must assume that it either was subject to negotiation or at least the culmination of negotiation. But, as we have noted, the evidence is undisputed that Hubbard's letter was a canned letter produced from Cessna's stock promotional correspondence. Thus, even if that letter and the accompanying materials were sent to Mikelsons in response to his inquiries, 5 there is no evidence that any term in the letter was written to address Mikelsons' professed requirement that the CitationJet have a range in excess of the Citation I's range at all payload configurations. There is, in short, no basis for attributing to Hubbard's more range representation the kind of particularized meaning that the district court found it to have. 62 We are left, then, with Mikelsons' unilateral expectation, based on the pre-contract conversations with Cessna representatives that the district court found to have occurred, that the new jet would have more range than the Citation I at all payloads. Given the circumstances of this case, this is not enough to overcome the plain terms of the purchase agreement eschewing any and all such extrinsic terms.