## Facts

- A seller contracted to sell yarn to a buyer for use in manufacturing sweaters under a written agreement governed by New York’s UCC.
- After delivery, the buyer cut and knitted the yarn into sweaters and washed the finished sweaters.
- Only after processing and washing did a defect become apparent: the yarn “shaded,” producing unacceptable color variations within and between pieces.
- The buyer asserted the defect made the sweaters unmarketable, refused to pay the contract price, and counterclaimed for breach based on defective goods.
- The contract included a clause barring claims relating to “quality or shade” if made after weaving/knitting/processing or more than 10 days after receipt, and requiring inspection within 10 days.
- The contract also contained an entire-agreement clause disclaiming warranties except those stated and limiting the seller’s obligation to delivery of “good merchantable yarn.”
- The shading defect was latent in that ordinary inspection within 10 days could not reasonably reveal it.

## Issues

1. Whether a contractual clause requiring notice of claims for “quality or shade” within 10 days and before processing is enforceable when the defect is latent and not reasonably discoverable within that period.
2. Whether warranty and remedy limitations are enforceable where, as applied to latent defects, they effectively deprive the buyer of a meaningful remedy under the UCC.
3. Whether summary judgment for the seller was proper given factual questions about the buyer’s notice after discovery and the existence of breach.

## Decision

- The Court of Appeals reversed the Appellate Division and vacated the trial court’s summary judgment for the seller.
- The court held the 10-day, pre-processing claim bar could not be applied to defeat claims based on latent defects not reasonably discoverable within the contractual period.
- The court concluded that applying the limitation to a latent shading defect would “fail of its essential purpose” under UCC principles by leaving the buyer without an effective remedy.
- The case was remanded for further proceedings, including determination of whether the buyer gave notice within a reasonable time after discovering the defect and whether the goods were unmerchantable.

## Legal Principles

- Contractual notice and remedy limitations in sales contracts may be restricted when their operation would deny a party a fair opportunity to obtain redress for breach involving latent defects.
- Under the UCC, a buyer must notify the seller of breach within a reasonable time after discovery; a contract term that effectively eliminates that opportunity for latent defects may be unenforceable as applied.
- A limitation of remedy may be disregarded where it “fails of its essential purpose,” including when it functions to bar any meaningful recovery for defects that cannot reasonably be detected within the contract’s short time limits.
- Summary judgment is improper where material factual disputes remain regarding the reasonableness and sufficiency of notice after discovery and the existence and extent of nonconformity and damages.

## Conclusion

The court allowed the buyer to pursue breach and counterclaim despite a 10-day, pre-processing claim limitation because the defect was latent and not reasonably discoverable within that period; instead, the buyer’s rights turned on whether it gave notice within a reasonable time after discovery, requiring factual development on remand.


Wilson Trading Corp. v. David Ferguson, Ltd., 23 N.Y.2d 398 (N.Y. 1968)