When the Goods Are Wrong: Supplier, Distributor, and Buyer Disputes Under Florida's UCC

By Steven M. Katzman

A Doral distributor orders 400 commercial refrigeration compressors from a manufacturer for resale to restaurant and grocery contractors across South Florida. The distributor’s purchase order says the goods must meet its specifications and reserves every remedy available at law. The manufacturer’s order acknowledgment, sent back the same day, says the goods are sold with a one-year repair-or-replace warranty, disclaims every implied warranty, and excludes consequential damages. Neither side reads the other’s form. The compressors ship, the distributor pays, and over the next five months its customers report failures in the summer heat. The manufacturer sends replacement parts that fail too. The distributor has refunded customers, lost two contractor accounts, and is holding 150 units in a warehouse.

Which terms govern? Is the distributor limited to repair or replacement? Can it still send the compressors back after five months? Did it give the manufacturer notice in time? Can it recover the lost accounts? None of those questions is answered by general contract law. They are answered by Chapter 672 of the Florida Statutes, Florida’s version of Article 2 of the Uniform Commercial Code, which governs most sales of goods in this state and contains rules that routinely decide these cases before anyone reaches the merits.

This article covers how those rules work for Florida suppliers, manufacturers, distributors, and commercial buyers, and how to use them when a deal for goods goes wrong.

When the UCC applies, and when it does not

Article 2 applies to transactions in goods: things that are movable at the time they are identified to the contract, as Fla. Stat. § 672.105 defines the term. Equipment, inventory, raw materials, components, vehicles, and manufactured products are goods. Real estate, services, intellectual property licenses, and most software-as-a-service arrangements are not.

Many commercial contracts are mixed: a purchase of equipment with installation, a build-out with fixtures, a system sold with training and maintenance. Florida courts, and federal courts applying Florida law, generally use the predominant factor test: if the contract’s predominant purpose is the sale of goods, with services incidental, Article 2 governs the whole contract; if the services predominate, it does not. BMC Industries, Inc. v. Barth Industries, Inc., 160 F.3d 1322 (11th Cir. 1998), applied that test under Florida law to a contract to design and build custom production equipment. Which side of the line a contract falls on can decide which statute of limitations applies, which warranties exist, and whether the buyer’s remedies are governed by the Code’s detailed rules or by common law.

Many Article 2 rules apply differently to merchants, meaning parties that deal in goods of the kind or hold themselves out as having knowledge or skill about them. Most of the disputes discussed here are between merchants, and the merchant rules are often the ones that decide them.

The contract: formation, writings, and the battle of the forms

The statute of frauds and the merchant confirmation rule

Under Fla. Stat. § 672.201, a contract for the sale of goods for $500 or more is generally not enforceable unless there is a writing sufficient to show that a contract was made, signed by the party against whom enforcement is sought. The writing can be informal, and it is not enforceable beyond the quantity it states.

Between merchants, the statute has a trap that catches businesses regularly. If one merchant sends a written confirmation of the deal within a reasonable time, and it is sufficient against the sender, it also satisfies the statute against the recipient unless the recipient sends written notice of objection within 10 days of receiving it. A buyer that receives a confirmation of an order it never agreed to, and ignores it, may have lost its statute of frauds defense.

The statute also does not apply to specially manufactured goods not suitable for sale to others once the seller has substantially begun manufacturing them, to contracts a party admits in its pleadings or testimony, or to goods that have been paid for and accepted or received and accepted.

The battle of the forms

The opening example is the most common contract formation problem in commercial sales: a purchase order and an acknowledgment, each on the sender’s form, each with boilerplate the other side never reads, and each contradicting the other.

Common law’s “mirror image” rule would treat the acknowledgment as a counteroffer. Fla. Stat. § 672.207 rejects that approach. A definite and seasonable expression of acceptance operates as an acceptance even though it states additional or different terms, unless acceptance is expressly made conditional on assent to those terms. Between merchants, additional terms become part of the contract unless the offer expressly limits acceptance to its own terms, the new terms materially alter the contract, or the offeror objects to them. Warranty disclaimers and consequential damages exclusions are the classic examples of terms that courts frequently treat as material alterations, which means a seller often cannot slip them into a deal through an acknowledgment form.

Where the forms do not create a contract but the parties behave as though they have one by shipping and paying, § 672.207(3) provides that the contract consists of the terms on which the writings agree, together with the Code’s own gap-filling provisions. Those gap fillers include the implied warranties and the full range of damages remedies. A seller that relied on its acknowledgment to disclaim warranties and exclude consequential damages may find that neither term made it into the contract.

The practical lesson runs in both directions. Buyers should use purchase orders that expressly limit acceptance to their terms. Sellers who need their limitations should obtain the buyer’s signature on them, through a master supply agreement or a signed quote, rather than relying on an acknowledgment form.

Parol evidence and course of dealing

Under Fla. Stat. § 672.202, a writing intended as the final expression of the parties’ agreement cannot be contradicted by evidence of a prior or contemporaneous oral agreement, but it can be explained or supplemented by course of dealing, usage of trade, and course of performance, and, unless it was intended as a complete and exclusive statement, by consistent additional terms. In practice, how the parties actually performed over months or years of orders is often the best evidence of what their contract means.

Warranties and how they are disclaimed

Most sale-of-goods disputes are warranty disputes. Article 2 recognizes three main kinds.

Express warranties. Under Fla. Stat. § 672.313, any affirmation of fact or promise about the goods, any description of the goods, and any sample or model that becomes part of the basis of the bargain creates an express warranty that the goods will conform. Formal words like “warrant” or “guarantee” are not required. Specification sheets, product descriptions in the purchase order, and samples shown during the sale are express warranties. A seller’s statement of opinion or general commendation, sometimes called puffery, is not.

The implied warranty of merchantability. Under § 672.314, unless excluded or modified, a contract for the sale of goods by a merchant who deals in goods of that kind includes a warranty that the goods are merchantable: among other things, that they pass without objection in the trade under the contract description and are fit for the ordinary purposes for which such goods are used.

The implied warranty of fitness for a particular purpose. Under § 672.315, where the seller has reason to know of a particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select suitable goods, there is an implied warranty that the goods are fit for that purpose. A buyer that tells the seller what it needs the goods to do, and relies on the seller to choose them, may have this warranty even where the goods are perfectly merchantable for ordinary use.

Disclaimers. Under § 672.316, a disclaimer of the implied warranty of merchantability must mention merchantability and, if in writing, must be conspicuous. A disclaimer of the fitness warranty must be in writing and conspicuous. Language like “as is” or “with all faults” generally excludes implied warranties. Express warranties are much harder to disclaim, because a seller cannot describe goods one way and then disclaim the description.

Privity. Florida courts have generally required privity of contract for implied warranty claims, a rule usually traced to Kramer v. Piper Aircraft Corp., 520 So. 2d 37 (Fla. 1988). A distributor that bought from a manufacturer has privity; its customer, who bought from the distributor, generally does not have an implied warranty claim against the manufacturer. Express warranties that a manufacturer directs to downstream buyers are treated differently. Privity is often decisive in multi-tier supply chain disputes, and the warranty and indemnity terms between each tier deserve close attention.

Limitation of remedy clauses, and when they fail

Most commercial sellers limit the buyer’s remedy to repair or replacement of defective goods, or a refund of the price, and exclude consequential damages such as lost profits and lost customers. Fla. Stat. § 672.719 permits both, with two important qualifications.

First, under § 672.719(2), where circumstances cause an exclusive or limited remedy to fail of its essential purpose, the buyer may pursue the remedies the Code otherwise provides. A repair-or-replace remedy fails of its essential purpose when the seller cannot or will not make the goods work within a reasonable time, which is exactly the situation in the opening example, where the replacement parts failed too.

Second, under § 672.719(3), consequential damages may be limited or excluded unless the limitation is unconscionable. Between commercial parties, courts usually enforce these exclusions. Whether a consequential damages exclusion survives the failure of a repair remedy is a separate question that courts have answered differently depending on the contract’s language and structure. A clause that treats the two provisions as independent is more likely to be enforced on its own.

These clauses are where much of the money in a commercial goods case is decided, because the buyer’s largest losses (lost profits, lost customers, and the cost of dealing with its own customers’ claims) are almost always consequential.

Delivery, inspection, rejection, and revocation

Article 2’s rules on what a buyer may do with nonconforming goods, and when, are where the most claims are lost.

Perfect tender, and the seller’s right to cure. Under Fla. Stat. § 672.601, if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, accept the whole, or accept some commercial units and reject the rest. The rule is softened by the seller’s right to cure under § 672.508, and in installment contracts under § 672.612, where a buyer may reject an installment only if the nonconformity substantially impairs its value and cannot be cured.

Rejection must be timely and specific. Under § 672.602, rejection must occur within a reasonable time after delivery and is ineffective unless the buyer seasonably notifies the seller. Under § 672.605, a buyer that fails to state a particular defect that was ascertainable by reasonable inspection may lose the right to rely on it, if the seller could have cured it or, between merchants, if the seller asked in writing for a full statement of defects. A rejecting buyer must also hold the goods with reasonable care for the seller’s disposition, and a merchant buyer has additional duties to follow the seller’s reasonable instructions.

Acceptance happens quickly, and often by accident. Under § 672.606, a buyer accepts goods if, after a reasonable opportunity to inspect, it signifies that they conform or that it will keep them despite nonconformity, if it fails to make an effective rejection, or if it does any act inconsistent with the seller’s ownership, such as reselling, installing, or continuing to use the goods. Once goods are accepted, the buyer must pay for them at the contract rate, subject to its damages claim, and bears the burden of proving the breach.

Revocation of acceptance. Under § 672.608, a buyer may revoke acceptance of goods whose nonconformity substantially impairs their value to the buyer, if it accepted them on the reasonable assumption that the defect would be cured and it was not, or without discovering the defect because it was difficult to discover or because of the seller’s assurances. Revocation must occur within a reasonable time after the buyer discovers or should have discovered the ground for it, and before any substantial change in the goods’ condition not caused by their own defects. The distributor in the opening example, holding 150 units after a failed repair effort, may be able to revoke acceptance as to those units.

The notice rule that bars buyers who wait. Under § 672.607(3)(a), where goods have been accepted, the buyer must, within a reasonable time after it discovers or should have discovered any breach, notify the seller of breach or be barred from any remedy. The notice does not need to be formal, but it should be in writing, it should identify the goods and the problem, and it should make clear that the buyer is treating the problem as a breach rather than simply asking for help. A buyer that spends months working informally with the seller’s service department, without ever putting the seller on notice of a claim, is handing the seller its best defense.

Insecurity, adequate assurance, and repudiation

Long-term supply relationships often break down gradually: late shipments, partial deliveries, slow payment, rumors of financial trouble. Article 2 gives both sides a tool for that situation.

Under Fla. Stat. § 672.609, when reasonable grounds for insecurity arise with respect to the other party’s performance, a party may demand adequate assurance of due performance in writing and, if commercially reasonable, suspend its own performance for which it has not already received the agreed return until it receives that assurance. Between merchants, reasonableness is judged by commercial standards. A party that fails to provide assurance adequate under the circumstances within a reasonable time, not exceeding 30 days, after receiving a justified demand has repudiated the contract.

A properly framed demand converts an ambiguous situation into a clear one. A poorly framed one, or a suspension of performance without a demand, risks making the party that suspended the one in breach. Under § 672.610, when a party repudiates, the other may await performance for a commercially reasonable time or resort to its remedies and suspend its own performance.

The Code also addresses supply disruptions. Under § 672.615, a seller’s delay or failure to deliver is excused when performance has been made impracticable by a contingency whose nonoccurrence was a basic assumption of the contract, but the seller must notify the buyer seasonably and, where its capacity is only partly affected, allocate production among customers in a fair and reasonable manner. Commercial impracticability is a narrow doctrine. Increased cost alone does not excuse performance, and most supply contracts address the issue through a force majeure clause that controls.

Remedies: what each side can recover

Buyers

A buyer whose seller fails to deliver, repudiates, or delivers goods that are rightfully rejected or whose acceptance is justifiably revoked may:

• Cover by purchasing substitute goods in good faith and without unreasonable delay, and recover the difference between the cost of cover and the contract price, under § 672.712; or
• Recover the difference between the market price when the buyer learned of the breach and the contract price, under § 672.713.

A buyer that has accepted goods and given proper notice may recover, under § 672.714, the loss resulting in the ordinary course from the seller’s breach and, for breach of warranty, the difference between the value of the goods accepted and the value they would have had if they had been as warranted, measured at the time and place of acceptance.

In each case, the buyer may also recover incidental damages, such as inspection, transportation, and storage costs, and consequential damages under § 672.715, including losses resulting from the buyer’s requirements of which the seller had reason to know at the time of contracting and which could not reasonably have been prevented by cover. Consequential damages are available only if the contract does not effectively exclude them, which, as discussed above, is often the central fight. Our guide to proving business damages in Florida covers how lost profits are proven when they are recoverable.

Sellers

A seller whose buyer wrongfully rejects, revokes, repudiates, or fails to pay may, under § 672.703:

• Resell the goods in a commercially reasonable manner and recover the difference between the resale price and the contract price, under § 672.706;
• Recover the difference between the market price and the unpaid contract price, or, where that measure is inadequate to put the seller in as good a position as performance would have, its lost profit, under § 672.708; or
• Recover the price itself under § 672.709, where the buyer has accepted the goods, where conforming goods were lost or damaged after the risk of loss passed to the buyer, or where the goods cannot reasonably be resold, as is often true of goods made to the buyer’s specifications.

Sellers also recover incidental damages under § 672.710. The lost-profit measure in § 672.708(2) is especially important to a lost-volume seller, one with enough capacity that reselling the goods to someone else did not replace the lost sale.

Attorney’s fees and interest

Article 2 does not itself shift attorney’s fees. Fees are recoverable only under a contractual fee clause or another statute, and Florida’s reciprocity statute, Fla. Stat. § 57.105(7), makes a one-sided fee clause in a seller’s terms run in the buyer’s favor too. A fee clause buried in an acknowledgment form raises the same battle-of-the-forms questions as any other term. Our guide to attorney’s fees in Florida business litigation covers fee clauses and proposals for settlement in detail.

Tort and statutory claims alongside the contract

The economic loss rule. In Tiara Condominium Ass’n v. Marsh & McLennan Cos., 110 So. 3d 399 (Fla. 2013), the Florida Supreme Court confined the economic loss rule to its original setting, products liability. That is precisely where commercial goods disputes sit. Under Casa Clara Condominium Ass’n v. Charley Toppino & Sons, Inc., 620 So. 2d 1244 (Fla. 1993), where a defective product damages only itself and causes purely economic loss, the buyer’s remedy is in contract and warranty, not in negligence or strict liability. Where a defective product causes personal injury or damages other property, tort claims remain available, as our guide to product liability in Florida explains.

Fraud. Fraud in the inducement, such as a misrepresentation about the product’s capabilities or testing that induced the contract, can survive alongside a warranty claim when it is independent of the contract’s performance, subject to the effect of any non-reliance and integration clauses. Our guide to business torts in Florida covers those claims.

FDUTPA. Deceptive conduct in the sale of goods can also support a claim under the Florida Deceptive and Unfair Trade Practices Act, which reaches business purchasers as well as consumers but limits recovery to actual damages and carries two-way fee exposure, as our guide to FDUTPA claims explains.

International sales: the CISG

Florida is a gateway for trade with Latin America, the Caribbean, and Europe, and many Florida businesses buy from or sell to companies abroad. For those deals, there is an important threshold question: the United Nations Convention on Contracts for the International Sale of Goods (CISG), a treaty to which the United States is a party, generally applies automatically to contracts for the sale of goods between parties whose places of business are in different contracting states, unless the parties expressly exclude it.

Choosing “Florida law” in the contract is generally not enough to exclude the CISG, because the treaty is part of the law of every U.S. state. Parties who want the UCC must say so expressly, for example by stating that the CISG does not apply.

The CISG differs from Article 2 in ways that matter. It generally does not require a writing to form a contract. Its approach to the battle of the forms is closer to the mirror-image rule. And in MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D’Agostino, S.p.A., 144 F.3d 1384 (11th Cir. 1998), a dispute between a Florida tile buyer and an Italian manufacturer, the Eleventh Circuit held that the CISG does not incorporate the parol evidence rule, so evidence of the parties’ subjective intent and prior negotiations could be considered even though the terms printed on the back of a signed form said otherwise. A Florida business that signs international contracts on the assumption that the UCC applies may be wrong about which rules govern, how the contract is interpreted, and what notice it had to give.

The deadline

Under Fla. Stat. § 672.725, an action for breach of a contract for the sale of goods must be commenced within four years after the cause of action accrues. The parties may reduce that period by agreement to not less than one year, and many sellers’ terms do, but may not extend it.

The cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge. For warranty claims, the breach occurs on tender of delivery, unless the warranty explicitly extends to future performance and discovery of the breach must await that performance. A buyer that discovers a latent defect three and a half years after delivery may have only months left, or, under a seller’s one-year contractual limitation, may already be out of time. The four-year period is shorter than the five years that applies to most written contracts under Fla. Stat. § 95.11, which is one more reason the threshold question of whether the UCC applies matters.

If your business is the buyer

• Inspect on arrival and document what you find. Reject nonconforming goods promptly, in writing, identifying every defect you know of.
• Give written notice of breach as soon as a problem appears, even while you work with the seller on a fix. Make clear you are reserving your rights.
• Do not resell, install, or keep using goods you intend to reject or revoke acceptance of, beyond what is necessary to mitigate, without understanding the consequences.
• Cover reasonably and document the replacement purchase, and track every incidental cost.
• Pull the paper. Gather every purchase order, acknowledgment, invoice, master agreement, and terms page linked from an invoice or website, and figure out which terms govern before taking a position.
• Calendar the deadline, including any contractual shortening of the four-year period.

If your business is the seller

• Get your terms signed. Warranty limitations, remedy limitations, consequential damages exclusions, a shortened limitations period, a fee clause, and a forum clause are only as good as the contract formation process that puts them in the deal.
• Respond to a claim of defect carefully. A repair program that does not work can cause a limited remedy to fail of its essential purpose. Document what was tried and what the buyer did with the goods.
• Use adequate assurance when a buyer’s ability or willingness to pay becomes doubtful, rather than simply stopping shipments.
• Resell or mitigate in a commercially reasonable way and keep the records showing that you did, if a buyer wrongfully rejects or repudiates.

Frequently asked questions

Does the UCC apply to my contract? If it is primarily a contract for the sale of goods, generally yes. Contracts for services, real estate, and intellectual property are not covered, and mixed contracts are classified by whether goods or services predominate. International sales may be governed by the CISG instead.

The seller’s acknowledgment form disclaimed all warranties. Is that binding? Not necessarily. Between merchants, additional terms in an acceptance do not become part of the contract if they materially alter it, and courts frequently treat warranty disclaimers and consequential damages exclusions as material alterations. If the parties’ forms never formed a contract and the deal was formed by conduct, the terms are those on which the writings agree plus the Code’s default rules.

We have been using the defective equipment for months. Can we still return it? Possibly, through revocation of acceptance, if the defect substantially impairs the equipment’s value to you, you accepted it without discovering the defect or on the assumption it would be fixed, and you act within a reasonable time after the problem became apparent. Continued use can complicate revocation, and a timely written notice of breach is required to preserve any remedy for accepted goods.

The contract limits us to repair or replacement. Are we stuck with that? Not if the remedy fails of its essential purpose, for example if the seller cannot or will not make the goods work within a reasonable time. Whether a separate exclusion of consequential damages still applies is a different question that depends on the contract’s language.

How long do we have to sue? Four years from the breach under Florida’s UCC, which the contract may shorten to as little as one year. For warranty claims, the clock generally starts on delivery, not when the defect is discovered, unless the warranty explicitly extends to future performance.

Can we recover our lost profits? Lost profits are consequential damages for a buyer. They are recoverable if the seller had reason to know of the requirements that produced the loss, the loss could not reasonably have been avoided by cover, and the contract does not effectively exclude consequential damages. They must also be proven with reasonable certainty.

Talk to a Florida commercial litigation attorney

Sale-of-goods disputes are decided by the paperwork and the timeline: which form governs, whether the warranty was effectively disclaimed, whether the limited remedy failed, whether the buyer rejected or gave notice in time, and whether the case was filed inside a period the contract may have shortened. Businesses that understand those rules at the first sign of trouble preserve claims and defenses that are otherwise lost before a lawyer is called.

KWBR’s complex commercial litigation, business transactions, and financial damages practices represent Florida manufacturers, distributors, suppliers, and commercial buyers in supply agreement, warranty, and nonpayment disputes, including international sales, in state and federal court and in arbitration, from our Boca Raton, Fort Lauderdale, and Orlando offices. Our guide to breach of contract in Florida covers the general contract principles that apply alongside the Code. If a supply relationship is breaking down, or you have received goods that do not work, contact us before your next shipment, payment, or notice deadline.

This article is for general informational purposes and is not legal advice. Statutes and case law change, contract terms vary, and every matter turns on its own facts; consult a qualified Florida attorney about your situation.