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Contractors Should Ensure That Manufacturer Warranties for Future Performance Include a Specific Period of Time
Construction Practices Newsletter
Spring 2009
California Commercial Code § 2725 provides for a four-year statute of limitations on breaches of contract and warranty in connection with the sale of goods, including products and materials installed on a construction project. It also provides for a "future performance" exception (under subsection (2)) that prevents the four-year statute of limitations from running. Section 2725(a) specifically provides: "A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered." A recent California appeals case confirms that this exception applies only when the warranty is for a specific and defined period of time, and that warranties that do not state a specific time period do not invoke the "future exception."
Accordingly, contractors should ensure that all warranties for future performance on products and materials contain a clause that states that the product will work for a specific and defined period of time into the future. Failure to comply with this requirement will cause the statute of limitations to run after four years and will bar a cause of action against a manufacturer for breach of warranty when the manufacturer's product fails after the contractor installs the product.
Factual Overview
In Cardinal Health 301, Inc. v. Tyco Electronics Corp, 169 Cal. App. 4th 116 (Cal. App. 2008), a healthcare products company sued the parts manufacturer for breach of express warranty after it discovered defects in the parts that the health care company purchased from the manufacturer and which it used in its machine that it provided to hospitals. The purchase contract contained a warranty that the part would work for 50,000 cycles. However, the part failed before 50,000 cycles. The buyer sued the parts manufacturer more than four years after the manufacturer delivered the parts. The court considered whether the four-year statute of limitations provided for under California Commercial Code § 2725 barred suit against the manufacturer for breach of warranty.
Analysis
The court stated that because the buyer filed suit more than four years after the manufacturer's final delivery of the parts, the statute of limitations under California Commercial Code § 2725 applied. The future performance exception, under § 2725, subd. (2), only applies where the seller has expressly agreed to warrant its product for a specific and defined period of time. In this case, the contract provision contained a warranty that the product would work for 50,000 cycles, but it did not specify a date in the future or a time period.
Additionally, the court found that the "must await" requirement under the "future performance" exception also barred recovery because the "must await" requirement means that the breach occurs when it is "possible prior to any specific future time" to discover the breach. Here, the buyer could have discovered the breach at the time of delivery of the product. For these reasons, the court found that the future performance exception did not apply and that the four-year statute of limitation applied, barring recovery from the manufacturer.
Additionally, the court found that the buyer could not recover even if the statute of limitations had not run. The court held that the buyer failed to comply with § 2607 subd (3)(A) notice requirements for recovery on a breach of warranty claim, which demands that "[t]he buyer must, within a reasonable time after he or she discovers or should have discovered any breach, notify the seller of breach or be barred from any remedy...." This notice requirement allows the seller the opportunity to repair the defective item, to reduce damages, to avoid defective products in the future, to negotiate settlements, to inform the seller of the need to preserve evidence, and to be prepared to defend against the suit, and as a protection, against stale claims. Here, the buyer did not notify the manufacturer of the breach until filing the lawsuit and, therefore, did not provide reasonable notice.
To refute the running of the statute of limitations, the health products company argued that the statute of limitations tolled under section 2725 because it relied on repair efforts by a successor manufacturer. The court also rejected this argument and found that "[r]epair by third parties does not involve reliance upon the defendant in any way and furnishes no basis for tolling."
Conclusion
The court held that the future performance exception in the warranty did not apply, as the warranty failed to reference a specific and defined period of time for future performance. Accordingly, the claims for breach of warranty against the manufacturer were barred by the statute of limitations under section 2725 because more than four years passed since the time of delivery.
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