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Burroughs Corp. v. Chesapeake Petroleum & Supply Co., 282 Md. 406, 384 A.2d 734 (1978) (full-text).
Factual Background Edit
Chesapeake purchased a computer and computer programs from Burroughs. The back of the sales contract contained fourteen paragraphs, one of which disclaimed all express and implied warranties and another which waived all rights to damages under the contract.
The computer programs were included as an addendum and incorporated into the computer sales contract on the same date. Chesapeake financed a portion of the purchase price through a third company, Weston Leasing Company ("Weston"). By the terms of the lease agreement dated October 1971, Weston paid the cash balance due to Burroughs, and Chesapeake agreed to lease the equipment from Weston for a period of sixty months.
Burroughs was to deliver the computer, fully programmed, to Chesapeake by September 1, 1971. Chesapeake did not receive any equipment until mid-October, and the computer did not perform all of the functions specified in the contract. From October 1971 to the spring of 1974, Chesapeake was only able to use the computer to perform simple debit and credit postings. Burroughs attempted, unsuccessfully, to correct the other, defective programs.
During the spring of 1974, Chesapeake stopped using the Burroughs computer and bought another computer, which performed satisfactorily. Chesapeake then filed suit against Burroughs. In counts 1 and 2 of the complaint, Chesapeake alleged that Burroughs had [breach of contract|breached the contract]] and its warranty under the contract. Chesapeake claimed that, in signing the contract, it had relied on prior oral representations made by agents of Burroughs, and on information in Burroughs' sales literature, to the effect that the computer and software would fulfill Chesapeake's needs. Chesapeake also asserted that Burroughs failed to provide equipment and programs adequate to perform the functions listed in the addendum to the contract. In count 3, Chesapeake alleged negligence by Burroughs in designing, programming, and installing the equipment.
Chesapeake amended the initial complaint by adding a fourth count for fraudulent misrepresentations by Burroughs as to the capabilities of the equipment. Chesapeake requested $200,000 in damages on each count.
Trial Court Proceedings Edit
The trial court awarded Chesapeake $30,000 in damages, consisting of (1) the cost of the computer less its salvage value, (2) the cost of an expert consultant, (3) the value of the useless equipment, and (4) miscellaneous labor expenses. On counts I and 2, the court found that Burroughs had breached the contract because the equipment sold to Chesapeake did not perform as represented.
The trial court further held that none of the conditions printed on the reverse side of the sales contract were part of the particular agreement since the first page of the contract stated that the "terms and conditions on reverse side are part of this security agreement." The trial court found that there was no security agreement since Chesapeake financed the purchase through Weston and not Burroughs. Therefore, the court concluded that the waiver of damages and disclaimer of warranties clauses printed on the reverse side of the agreement were not part of the contract.
Appellate Court Proceedings Edit
The appellate court affirmed the trial court's decision, holding, inter alia, that the printed provisions on the reverse side of the sales contract were not operative since the language on the front of the contract indicated that those provisions were applicable only if the document was a security agreement, and that Chesapeake had no financing arrangement with Burroughs.
The court further held that parol evidence of oral warranties was admissible to explain ambiguities in the construction of provisions of the contract, and that the trial court's finding that Burroughs did not supply the goods as promised and warranted under the contract was not clearly erroneous.