Baker v. Dec International

580 N.W.2d 894, 458 Mich. 247

• Court: Michigan Supreme Court
• Decided: July 21, 1998
• Docket: 107656, Calendar No. 6
• Status: Published

Opinions

Boyle, J.

We granted leave in this case to determine when the statute of limitations began to run on plaintiffs’ implied warranty claims under the Uniform Commercial Code. A breach of warranty occurs, and thus the statute of limitations¹ begins to run, when tender of delivery is made.² We hold that where the seller is obligated to install goods under a contract, tender of delivery does not occur until installation is completed.³ Furthermore, tender of delivery is not contingent on inspection or testing in the absence of a clear contractual obligation to the contrary.⁴ There are genuine issues of material fact regarding whether installation was a material term of the contract and when installation of the milking system actually took place. Therefore, summary disposition in favor of defendants is reversed, and the case remanded to the trial court for further proceedings.

i

Plaintiffs are commercial dairy farmers. They entered into a contract⁵ with defendant Tri County Dairy Equipment for the purchase of a milking machine. Tri County is a dealer for Dec International, a company that manufactures parts for milking systems. The equipment was delivered from defendant DEC to defendant Tri County on July 26 and 28, 1989. Defendants allege that the equipment was then delivered to plaintiffs’ farm on or before July 31, 1989. Plaintiffs dispute this date, but concede that the component parts were delivered more than four years before suit was filed. Tri County, assisted by dec, installed the milking system. Defendants contend, and plaintiffs dispute, that the machinery was installed and operational on September 8, 1989. The Michigan Department of Agriculture tested, approved, and licensed the milking system on September 12, 1989.

On September 10, 1993, plaintiffs filed suit against Tri County and dec, claiming that the milking system was defective and had damaged their dairy operation. Defendants filed a motion for summary disposition for the breach of warranty claims, alleging that the four-year period of limitation⁶ had run, and the suit was time barred. The trial court granted the motion.

The Court of Appeals reversed and remanded. It held that tender of delivery did not occur until installation of the milking system was complete and that a genuine issue of fact existed regarding when installation was complete. 218 Mich App 248; 553 NW2d 667 (1996) . We granted leave to appeal. 456 Mich 901 (1997) .

n

All parties agree that the warranty provisions of Michigan’s version of the UCC are controlling and that the appropriate statute of limitations is MCL 440.2725; MSA 19.2725.

Section 2725 provides:

(1) An action for breach of any contract for sale must be commenced within 4 years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than 1 year but may not extend it.

(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. 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.

There have been no allegations of a warranty extending to future performance of the goods.⁷ Thus, the cause of action accrued at the tender of delivery. “Tender of delivery” is defined at MCL 440.2503(1); MSA 19.2503(1):

Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery.

Whether a good is a “conforming good” is defined in MCL 440.2106(2); MSA 19.2106(2). The statute describes a good as conforming when it is “in accordance with the obligations under the contract.”⁸

The Uniform Commercial Code comment following MCL 440.2503; MSA 19.2503 observes that the term “tender” has two different meanings within the section. The first contemplates an “offer coupled with a present ability to fulfill all the conditions resting on the tendering party and must be followed by actual performance if the other party shows himself ready to proceed.” This is the preferred meaning unless “the context unmistakably indicates otherwise . . . .”

The second meaning refers to an offer of goods “under a contract as if in fulfillment of its conditions even though there is a defect when measured against the contract obligation.”

We are persuaded that the latter definition of “tender of delivery” is more appropriate under these facts. Under MCL 440.2507; MSA 19.2507, tender of delivery is a condition to both the buyer’s duty to accept the goods and his duty to pay for them. The first definition would be more appropriate where there is nonacceptance of the goods by the buyer. In order for the seller to be entitled to acceptance or payment, the seller must show that he is ready, willing, and able to perform before seeking remedies for breach of contract.⁹

The second definition of tender anticipates a latent defect in the goods, though performance of the contract otherwise appears to be fulfilled. Professor Hawkland, discussing the two definitions of tender, observed that the term tender is occasionally used “ ‘in Article 2 of the UCC as an offer by the seller to deliver what he believes incorrectly to be conforming goods.’ ”¹⁰ Delineating tender of delivery in this manner is consistent with the policy rationale of providing “a finite period in time when the seller knows that he is relieved from liability for a possible breach of contract for sale or breach of warranty,”¹¹ since a seller could not plausibly believe that mere physical delivery would constitute fulfillment of the contract where installation is required under the terms of the contract.

There is support for the holding that the second definition is the more appropriate definition to be applied to UCC 2-725(2). In Standard Alliance Industries v Black Clawson Co, 587 F2d 813, 819 (CA 6, 1978),¹² the court observed:

We think that “tender” as used in UCC § 2-725(2) is the latter and not the former. A contrary interpretation would extend the statute of limitations indefinitely into the future since a defect at the time of delivery would prevent proper “due tender” from taking place until it was corrected. Under section 2-725, a cause of action accrues upon initial installation of the product regardless whether it functions properly or not so long as the warranty does not extend to future performance.

In applying the second meaning of tender to the facts of this case, tender would not have occurred until the defendant offered conforming goods. The goods would not be conforming, pursuant to MCL 440.2106(2); MSA 19.2106(2), unless the goods were in accordance with the contract obligations. If installation were a term of the contract, then mere physical delivery would not fulfill defendant’s contractual obligation. Only when the component parts were fully installed could the defendant be viewed as tendering goods “as if in” fulfillment of its contractual responsibilities.¹³

We further hold that “tender of deliveiy” is not contingent upon inspection, testing, or acceptance in the absence of a clear contractual provision to the contrary. Our holding is consistent with many other jurisdictions’ interpretations of the ucc.¹⁴ In many of these cases, the buyer contends that the presence of a latent defect precludes the tender of delivery of conforming goods.¹⁵ We agree that this argument must fail, because otherwise the limitation period provided in the statute would never apply until the seller tenders nondefective conforming goods.¹⁶ This argument would be contrary to the purpose of the statute, which is to provide “a finite period in time when the seller knows that he is relieved from liability for a possible breach of contract for sale or breach of warranty.”¹⁷

in

Under the facts of this case, the Court of Appeals erred regarding defendant dec in holding that the statute of limitations began to run after installation. Dec had no contractual obligation to install the milking machine. Dec’s agreement was to sell the machinery to Tri County, who in turn sold the goods to the Bakers.

As to defendant Tri County, there is no clear indication that installation was a material term of the contract. Whether the contract between the parties embodied installation is a question properly determined by the trier of fact.¹⁸ Plaintiff contends that the system was not fully installed until September 12, 1989. Defendant, on the other hand, maintains that the system was demonstrated to the plaintiff (necessarily implying that the system was installed) on September 8, 1989. Because there is a genuine issue of material fact regarding when the milking system was installed, the Court of Appeals was correct in reversing summary disposition in favor of defendant Tri County and remanding the issue to the trial court for further proceedings.

Accordingly, we affirm the decision of the Court of Appeals with respect to defendant Tri County. We reverse the decision of the Court of Appeals and reinstate the trial court’s order granting summary disposition to defendant dec.

Brickley, Cavanagh, and Kelly, JJ., concurred with Boyle, J.

1 MCL 440.2725; MSA 19.2725.

2 MCL 440.2503; MSA 19.2503.

3 See 3 Foran, Williston on Sales (5th ed), § 25-55, p 716. See also Shero v Home Show USA, Ltd, 193 AD2d 1072; 598 NYS2d 408 (1993); City of Wittmar v Short-Elliott-Hendrickson, Inc, 475 NW2d 73, 80-81 (Minn, 1991); Dreier Co, Inc v Unitronix Corp, 218 NJ Super 260, 270; 527 A2d 875 (1986); Dowling v Southwestern Porcelain, Inc, 237 Kan 536, 544; 701 P2d 954 (1985); Unitron Graphics v Mergenthaler Linotype Co, 75 AD2d 783; 428 NYS2d 243 (1980); Triangle Underwriters, Inc v Honeywell, Inc, 604 F2d 737 (CA 2, 1979); Val Decker Packing Co v Com Product Sales Co, 411 F2d 850, 851 (CA 6, 1969).

4 By placing “emphasis on the date of physical delivery rather than on the terms of the specific contract before it,” the dissent’s bright-line rule would reach “the perverse conclusion that the statute of limitations began to run before the breach occurred.” St Anne-Nackawic Pulp Co, Ltd v Research-Cottrell, Inc, 788 F Supp 729, 736 (SD NY, 1992) (discussing the result reached in Cincinnati, Ohio v Dorr-Oliver, Inc, 659 F Supp 259 [D Conn, 1986]).

5 See Appendix, post at 264.

⁶

7 Where a warranty explicitly extends to future performance, the cause of action accrues when the breach is or should have been discovered. Williston on Sales, n 3 supra, § 25-58, p 722.

8 Professor Anderson observes that “it can easily be deduced that the obligation of the seller is to deliver the goods called for by the contract with the buyer. When the goods satisfy the requirements of the contract in every respect, the goods are said to be ‘conforming.’ ” 1 Anderson, Uniform Commercial Code (3d ed), § 2-106:17, p 605.

Furthermore, “[n]on-conformity cannot be viewed as a question of the quantity and quality of goods alone, but of the performance of the totality of the seller’s undertaking.” Wilke v Cummins Diesel Engines, Inc, 252 Md 611, 618; 250 A2d 886 (1969); Southland Mobile Home Corp v Chyrchel, 255 Ark 366, 372; 500 SW2d 778 (1973). See also Campbell v Pollack, 101 RI 223, 230; 221 A2d 615 (1966).

9 See 17A Am Jur 2d, Contracts, § 613, p 621. See also Crowder v Aurora Co-operative Elevator Co, 223 Neb 704, 711; 393 NW2d 250 (1986) (“Tender Is essential in fixing certain rights and duties attendant to a contract for sale of goods”).

10 2 Hawkland, Uniform Commercial Code, § 2-503:2, p 2-931 (emphasis added). See also Ontario Hydro v Zallea Systems, Inc, 569 F Supp 1261 (D Del, 1983); Allied Semi-Conductors Int’l, Ltd v Pulsar Components Int’l, Inc, 907 F Supp 618 (ED NY, 1995).

11 Cincinnati v Dorr-Oliver, n 4 supra at 263, quoting Ontario Hydro v Zallea Systems, Inc, n 10 supra at 1267.

12 See also Jandreau v Sheesley Plumbing & Heating Co, 324 NW2d 266, 271 (SD, 1982).

13 The dissent cites Neibarger v Universal Cooperatives, Inc, 439 Mich 512; 486 NW2d 612 (1992), for the proposition that the installation services were incidental to the contract for the milking machinery. While this is true, the predominant purpose test is only relevant in determining whether the ucc controls. It has no effect on the overall contractual obligallons defendants owed to the plaintiff, and no effect on tender of delivery for the purposes of MCL 440.2725; MSA 19.2725.

Long Island Lighting Co v Transamerica Delaval, Inc, 646 F Supp 1442 (SD NY, 1986), is the only case cited by the dissent for the proposition that installation is not required to effectuate tender of delivery. In that case, the seller had continuing responsibility for supervising installation. The opinion distinguishes the facts of the case from New York City v Pullman, Inc, 662 F2d 920 (CA 2, 1981), cert den sub nom Rockwell Int’l Corp v New York City, 454 US 1164 (1982), in coming to the conclusion that tender of delivery occurred upon delivery. However, neither the official comments to UCC 2-503 nor other case law is discussed in reaching the holding. Because the analysis in Long Island Lighting is cursory and does not address all the countervailing considerations, it is questionable whether its holding represents the “better reasoned” view. Post at 263.

14 Many courts have held that contractual provisions for postdelivery testing or inspection do not toll the accrual of breach of warranty claims. See Cincinnati v Dorr-Oliver, n 4 supra; H Sand & Co, Inc v Airtemp Corp, 738 F Supp 760 (SD NY, 1990); Ontario Hydro v Zallea Systems, Inc, n 10 supra.

15 See Cincinnati v Dorr-Oliver, n 4 supra at 263; Ontario Hydro v Zallea Systems, Inc, n 10 supra at 1267.

16 See Ontario Hydro v Zallea Systems, Inc, n 10 supra at 1267.

17 Id. Our decision today merely holds that a seller has not tendered delivery within the meaning of MCL 440.2725; MSA 19.2725 until he has satisfied the requisite contractual obligations, which may or may not include installation. The holding today is not premised on the discovery rule. We agree that the plain language of the statute renders a buyer’s actual knowledge (or lack thereof) of defects totally irrelevant for the purposes of the accrual of the cause of action. We note, however, that a plain reading of MCL 440.2725; MSA 19.2725, places an affirmative obligation on the buyer to determine if the goods are defective and to seek remedies within the four-year period of limitation.

A buyer has the right to inspect for defects in goods under a sales contract “at any reasonable place and time and in any reasonable manner” under MCL 440.2513; MSA 19.2513. A buyer acts to his detriment if he does not become aware of latent defects, or does not seek the appropriate remedies for breach of implied warranties within the four-year period. The fact that a buyer’s knowledge is irrelevant for the purposes of the accrual of the statute of limitations should not preclude the buyer from having the opportunity to inspect after the seller has tendered goods that otherwise conform to the contract.

18 The dissent maintains that because installation was not an express term of the contract, tender of delivery does not require installation of the goods. Post at 259. The provision of the ucc dealing with parol evidence is MCL 440.2202; MSA 19.2202, which provides:

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement ....

Professor Anderson notes that

[b]y definition, the parol evidence rule is not applicable when the writing is not the complete contract, in which case apart from UCC § 2-202 there is no applicable regulation of the matter. When the parties did not regard their purchase order as the final expression of their agreement, parol evidence is admissible to establish what that agreement was. [2 Anderson, Uniform Commercial Code (3d ed), § 2-202:51, p 168.]

While review of the appendix, post at 264, shows that there was no express provision regarding installation, we note that there is also no provision declaring that the contract was intended to serve as a complete integration of the agreement between the parties.