by Leon F Mead II, Esq.
The Nevada Supreme Court has confirmed that a seller of goods is liable for defects in its
products when it has reason to know how a buyer will use a product, and the product causes
damage because of that defect and use.
The recent case of Hi-Tech Aggregate LLC v. Pavestsone LLC, 140 Nev.Adv.Op. 59, 2024 WL
4234006 (Sept 19, 2024), Hi-Tech sold aggregate (sand) materials to Pavestone for use in the
manufacture of paver blocks. These paver blocks were manufactured for use in residential
driveway, walkway and patio construction. Based on a long-term supplier relationship between
the two companies, Pavestone would make oral purchase orders to Hi-Tech, who would send
back simple invoices. Pavestone would then pick up the aggregate and subject it only to testing
for the size of the aggregate particles. No other testing was done, nor was other testing a
required industry standard. The only specification Pavestone requested was for “washed alluvial
aggregate”. Hi-Tech’s invoices would only reference “masonry sand” or “mortar sand.”
After delivery and size testing, Pavestone manufactured the sand into paver blocks, which were
sold and installed residential driveways. Pavestone customers began to complain, however, that
the pavers were “efflorescing”; that is, a white crust was forming on the pavers after getting wet.
The white crust was also transferring to surrounding landscaping. Upon testing, Pavestone
discovered the sand supplied by Hi-Tech had an elevated level of sodium carbonate, which was
causing the efflorescence. Pavestone sued Hi-Tech for breach of implied warranties of
merchantability and fitness for a particular use, claiming that because the raised levels of
sodium carbonate were not visible through inspection, the “washed alluvial aggregate” was
latently defective.
Since the invoices had no waivers of the implied warranties of merchantability and fitness for a
particular use, per NRS 104.2314(1) these warranties remained between the parties. As the
Nevada Supreme Court noted, unless the implied warranties are contractually disclaimed “when
the seller at the time of contracting has reason to know any particular purpose for which the
goods are required”, and “the buyer is relying on the seller’s skill or judgment to select or
furnished suitable goods”, the seller will be liable to the buyer for damages arising from
defective goods. Pavestone, 140 Nev.Adv.Op. 59 at pg. 5. Since the excessive sodium
carbonate could not be found through visual inspection, Pavestone did not evaluate the material
for elevated levels of sodium carbonate, and such testing was not standard practice in the paver
manufacturing industry, Hi-Tech had no defense to the latent defect claim. Pavestone was
entirely reliant on Hi-Tech to select material suitable for Pavestone’s use and that reliance was
reasonable under the circumstances.
This case points out the critical nature of properly prepared documentation between merchants,
when conducting sales of goods governed by the Uniform Commercial Code. When companies
do business with each other over a long term, it is quite easy to forgo best business practices
because “friends don’t hurt friends”. This is a misnomer. While friends may not intentionally hurt
friends, it is the unintended consequences that can destroy a business when a problem does
arise.
Good business relationships should never be a justification to ignore best business practices.
Contractual terms need to be preprinted on invoices, delivery tickets and other sales documentation. A simple preprinted waiver of the implied warranty of fitness for a particular use
in this case, merely preprinted on the back of Hi-Tech’s invoices, would likely have been fully
enforceable and would have made a major difference in the outcome of this case for Hi-Tech.
Because they were preprinted, there would likely have been no impact on the business
relationship between the companies either. Material suppliers and those who buy their products
to use in their manufacturing or construction processes should take steps to have those simple
purchase orders and invoices reviewed and drafted for their business protection.
The Mead Law Group LLP can review your standard documentation to guard against such
inadvertent errors, protect your business through best business practices and protect your
business from substantial damages.