## Facts

- Sierra Diesel Injection Service, Inc., a small family-run diesel engine parts and service business, sought equipment to improve bookkeeping and accounting.
- A Burroughs salesperson recommended that Sierra Diesel buy a Burroughs B-80 computer system rather than a posting machine; Sierra Diesel attended a demonstration at Burroughs’ office.
- Burroughs sent a pre-sale letter representing that the B-80 “can put your inventory, receivables, and invoicing under complete control,” while also stating the information was “preliminary” and that only the later “order” would be legally binding.
- Sierra Diesel and Burroughs executed Burroughs form contracts for hardware, software, and maintenance; the forms contained an integration clause and a disclaimer of implied warranties (including merchantability and fitness) printed on the reverse side in capital letters.
- Sierra Diesel’s owner had limited formal education and little computer knowledge; he reviewed the paperwork primarily for price and product description and only briefly looked at the reverse side.
- The B-80 system repeatedly failed to perform the invoicing and accounting functions for which it was purchased, including recurring breakdowns; Burroughs attempted repairs without success.
- An independent consultant concluded the Burroughs system would never perform the required functions.
- The parties later stipulated that Burroughs breached the contracts by failing to achieve the promised control over inventory/receivables/invoicing and that the B-80 was not merchantable.
- After partial settlement and dismissal of certain claims (including claims involving a later B-91 system), the remaining dispute included the effect of the integration and warranty-disclaimer provisions and the scope of recoverable damages.

## Issues

1. Whether the Burroughs form contracts were a final integrated agreement that excluded the pre-sale letter’s performance representations.
2. Whether the implied-warranty disclaimers (merchantability and fitness) were “conspicuous” and therefore effective under U.C.C. § 2-316.
3. Whether Sierra Diesel could recover the damages awarded, including consequential damages, in light of contractual limitations and the system’s failure to perform.

## Decision

- The Ninth Circuit affirmed the district court’s determination that the Burroughs form contracts were not fully integrated and that the pre-sale letter’s representations were part of the parties’ agreement.
- The Ninth Circuit affirmed the ruling that the implied-warranty disclaimers were not conspicuous and thus did not exclude implied warranties of merchantability and fitness for a particular purpose.
- The Ninth Circuit affirmed the damages awarded to Sierra Diesel based on Burroughs’ stipulated breach and the B-80’s non-merchantability, rejecting Burroughs’ main appellate challenges.

## Legal Principles

- Whether a writing is a final integrated agreement may be a fact-intensive question; an appellate court will not disturb the trial court’s finding absent clear error.
- Under U.C.C. § 2-316, disclaimers of implied warranties must be conspicuous; boilerplate placed on the reverse side of a form, even in capital letters, may be found inconspicuous in context.
- Specific pre-contract representations about performance may be treated as part of the parties’ bargain when the standard-form documents are not treated as the complete and final expression of the agreement.
- When goods are not merchantable and the seller has breached core performance obligations, contractual limitations on remedies may not bar recovery where the chosen remedy fails to provide a meaningful cure for the buyer’s loss.

## Conclusion

The Ninth Circuit held that Sierra Diesel could rely on Burroughs’ specific performance assurances as contractual terms, that Burroughs’ implied-warranty disclaimers were ineffective for lack of conspicuousness, and that Sierra Diesel was entitled to the affirmed damages for a computer system that failed to perform its promised accounting functions.


Sierra Diesel Injection Serv., Inc. v. Burroughs Corp., 890 F.2d 108 (9th Cir. 1989)