Nationwide Insurance v. General Motors Corp.

625 A.2d 1172, 533 Pa. 423, 21 U.C.C. Rep. Serv. 2d (West) 276, 1993 Pa. LEXIS 120

• Court: Supreme Court of Pennsylvania
• Decided: May 26, 1993
• Docket: 52 W.D. Appeal Docket 1990
• Status: Published

Opinions

OPINION OF THE COURT

CAPPY, Justice.

This appeal presents the issue of whether an express, 12 month/12,000 mile “New Car Limited Warranty” promising “repairs and needed adjustments” to correct manufacturing defects is a warranty that “explicitly extends to future performance of the goods” for purposes of determining when a cause of action for breach of that warranty accrues under the statute of limitations provision of the Uniform Commercial Code— Sales, 13 Pa.C.S. § 2725. We are also asked to determine whether the implied warranties of merchantability and fitness for a particular purpose so extend. For the following reasons, we hold that the express warranty does explicitly extend to future performance of the goods but that the implied warranties do not. We now reverse in part and affirm in part the decision of the Superior Court.

The essential facts are undisputed. On June 20, 1986, the Appellant, Nationwide Insurance Company, instituted this action against Appellee General Motors Corporation/Chevrolet Motor Division and Durbiano Chevrolet Company¹ by way of a Writ of Summons. According to the Complaint that was later filed, Appellant is the insurance carrier for Michael Joseph Villi, who on January 5, 1982 purchased and accepted delivery of a 1982 Chevrolet Corvette manufactured by Appellee. On November 22, 1982, the car “malfunctioned and/or exhibited a defect, caught fire and was destroyed.” (Reproduced Record, R 4, ¶ 5.) Appellant paid Mr. Villi $18,473.00 for damage to the vehicle. The Complaint alleged that Appellee was liable for this amount because it had breached: (1) a written 12 month/12,000 mile warranty (Count One); (2) an implied warranty of merchantability (Count Two); and (3) an express or implied warranty of fitness for a particular purpose (Count Three).²

Appellee filed a motion for summary judgment, which the Court of Common Pleas of Allegheny County initially denied. Upon reargument, however, the court granted the motion on the basis that the action was barred by the four-year statute of limitations at 13 Pa.C.S. § 2725: Although the action had been filed within four years of the date the car allegedly malfunctioned or displayed a defect, it had not been filed within four years of the date of tender of delivery. The trial court deemed the cause of action to have accrued upon tender of delivery because the court specifically found that the express, 12 month/12,000 mile warranty did not “explicitly extend to future performance of the goods” and therefore that the “discovery rule” exception of § 2725 did not apply. The Superior Court affirmed in an unpublished opinion, with Judge Brosky dissenting. 396 Pa.Super. 662, 570 A.2d 1093.³ This Court granted Appellant’s Petition for Allowance of Appeal.

Section 2725 of the Uniform Commercial Code — Sales states, in pertinent part:

§ 2725. Statute of limitations in contracts for sale

(a) General rule. — An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued....

(b) Accrual of cause of action. — 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.

13 Pa.C.S. § 2725 (emphasis added). In this case, the question is whether the warranties explicitly extended to future performance of the vehicle so that the cause of action accrued when the breach was discovered (allegedly November 2, 1982)⁴, in which case the action was timely filed, or whether the general rule regarding breach of warranty applies and the cause of action accrued upon tender of delivery (January 5, 1982), so that the action was untimely filed.

In the ordinary case, a breach of warranty action accrues on, and suit must be filed within four years of, the date the seller tenders delivery of the goods, even if the breach is not apparent until after delivery has been tendered. Section 2725 sets tender of delivery as the point at which the cause of action accrues because the section “presumes that all warranties, express or implied, relate only to the condition of the goods at the time of sale.” Max E. Klinger, The Concept of Warranty Duration: A Tangled Web, 89 Dick.L.Rev. 935, 939 (1985) (hereinafter, “A Tangled Web ”). Such warranties are breached, if at all, when the goods are delivered but do not meet that standard. Of course, the deficiency contained in the goods may not be discovered by the buyer within four years of delivery. However,

[I]n the usual circumstances, ..., defects are apt to surface within that time period, and the few odd situations where this is not the case, resulting in hardship to the buyer, are thought to be outweighed by the commercial benefit derived by allowing the parties to destroy records with reasonable promptness.

William D. Hawkland, Uniform Commercial Code Series § 2-725:02, at 480 (1984). See 13 Pa.C.S. § 2725, Uniform Commercial Code Comment (four year period “is most appropriate to modern business practice” because it “is within the normal commercial record keeping period”). Thus, in breach of warranty cases the four-year statute of limitations is essentially a statute of repose.

Section 2725 contains an exception, however, for warranties that “explicitly extend to future performance of the goods” where discovery of the breach must await the time of future performance. Where such a warranty is involved, the cause of action does not accrue until “the breach is or should have been discovered.” This exception has caused confusion among courts, lawyers, and commentators for years. See generally, e.g., James J. White & Robert S. Summers, Uniform Commercial Code § 11-9 (3d ed. 1988); Klinger, A Tangled Web, 89 Dick.L.Rev. at 937-950 (discussing conflicting cases). Professors White and Summers have noted that “[although the time of accrual under [§ 2725] is ordinarily clear — ‘when tender of delivery is made’ — the exception to this general rule poses interpretive difficulties.” White & Summers, Uniform Commercial Code § 11-9, at 477. They go on to cite the very type of express warranty at issue here as an agreement that “leaves one in considerable doubt about its true meaning” and that could be interpreted either as a warranty that “explicitly extends to future performance” or as simply an agreement to repair.⁵ Id. at 479.

Despite its ambiguity, one thing the plain language of § 2725(b) makes clear is that our analysis of whether the written warranty “explicitly” extends to future performance must focus on the express language of that warranty. It is entitled “1982 Chevrolet New Car Limited Warranty” and provides, in part:

WHAT IS COVERED

CHEVROLET

Chevrolet Motor Division, General Motors Corporation, warrants each new 1982 car.

DEFECTS

This exclusive warranty covers any repairs and needed adjustments to correct defects in material or workmanship. REPAIRS

Your Chevrolet dealer will make the repairs or adjustments, using new or remanufactured parts.

WHICHEVER COMES FIRST

This warranty is for 12 months or 12,000 miles, whichever comes first.

WARRANTY BEGINS

The warranty period begins on the date the car is first delivered or put in use.

NO CHARGE

Warranty repairs and adjustments (parts and/or labor) will be made at no charge. A reasonable time must be allowed after taking the car to the dealer.

WARRANTY APPLIES

This warranty is for Chevrolets registered and normally operated in the United States or Canada.

(R 25.)⁶ The document also states: “ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE APPLICABLE TO THIS CAR IS LIMITED IN DURATION TO THE DURATION OF THIS WRITTEN WARRANTY. CHEVROLET SHALL NOT BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES RESULTING FROM BREACH OF THIS WRITTEN WARRANTY.” (Id.)

Appellant argues that the express warranty explicitly extends to future performance of the goods because the warranty is for a specific duration, “12 months or 12,000 miles, whichever comes first.” According to Appellant, such a warranty must contemplate the vehicle’s future performance, at least for the stated period following delivery. Appellee, on the other hand, argues that the warranty does not explicitly extend to future performance of the goods because it does not promise that the goods will perform in a particular way in the future.⁷

We cannot accept Appellee’s position for a number of reasons.⁸ First, we do not read the words “explicitly extends to future performance of the vehicle” to require that the warranty make an explicit promise regarding how the goods will perform in the future. We believe that the focus of § 2725 is not on what is promised, but on the duration of the promise— ie., the period to which the promise extends. Cf. Safeway Stores, Inc. v. Certainteed Corp., 710 S.W.2d 544, 549 (Tex. a986) (Robertson, J., concurring) (pointing out that “explicitly” modifies the words “extends,” and not the word “warranty”; therefore, it is the extension that must be explicit). Therefore, we agree with Appellant that the phrase “explicitly extends to future performance” can be interpreted to include a promise that, by its terms, comes into play upon, or is contingent upon, the future performance of the goods. There can be little doubt that an explicit extension has been given where the warranty itself plainly states that it “is for 12 months or 12,000 miles” and that “[t]he warranty periods begins on the date the car is first delivered or put in use.” (R 25 (emphasis added).) Logically, a promise to repair or adjust defective parts within the first 12 months or 12,000 miles after delivery cannot be breached until the vehicle requires repair or adjustment, and “discovery of the breach must await the time of [future] performance.” 13 Pa.C.S. § 2725(b).

Second, the essence of Appellee’s position is that the document here is not a warranty, but a promise to repair or replace defective parts.⁹ To be sure, the agreement here is not a model of clear draftsmanship. It could plausibly be interpreted any one of three ways: as creating a warranty that extends for 12 months or 12,000 miles, with a limited remedy of repair or adjustment for breach of the warranty; as creating not a warranty, but a repair agreement that extends 12 months or 12,000 miles; or as creating an “un-extended” warranty with a limited remedy of repair or adjustment if a breach is reported within 12 months or 12,000 miles. However, any difficulty interpreting the agreement must be resolved in favor of the non-drafting party. See, e.g., Rusiski v. Pribonic, 511 Pa. 383, 390, 515 A.2d 507, 510 (1986); Central Transportation, Inc. v. Bd. of Assessment Appeals of Cambria County, 490 Pa. 486, 496, 417 A.2d 144, 149 (1980) (“[I]t is well settled that a written agreement will be construed against the party preparing it.”). It was the Appellee who drafted the document here, labeled it a “warranty,” and included statements such as: “Chevrolet Motor Division, General Motors Corporation, warrants each new 1982 car” and “This warranty is for 12 months or 12,000 miles, whichever comes first.” (R 25 (emphasis added).) If the drafter did not intend the document to operate as a warranty — and, more importantly for our purposes, if it did not intend the warranty to “[be] for 12 months or 12,000 miles,” (R 25) — then it should have stated so more clearly.

Moreover, Appellee’s attempt to argue, in essence, that this is not really a warranty reveals the internal inconsistency, and hence the weakness, in its position. On the one hand, Appellee’s position depends upon calling the document a warranty, because only then can it argue that the cause of action accrued upon tender of delivery. See 13 Pa.C.S. § 2725(b). On the other hand, Appellee argues that the “warranty” promises nothing about the condition or performance of the car, but is simply a promise to repair or replace defective parts. If that were the case, then the cause of action would not accrue until the promise to repair were breached. Id.

We recognize that the document does not create a classic warranty that fits neatly within the UCC view of warranties. Although it is a “promise made by the seller to the buyer which relates to the goods,” 13 Pa.C.S. § 2313(a)(1) (“Express warranties by affirmation, promise, description or sample”),¹⁰ it does not “express[ly] warran[t] that the goods shall conform to the ... promise,” id. (emphasis added). However, even if “repair or replace” warranties are viewed as remedies rather than as warranties, they do not fit strictly into the conceptual framework established by the provisions of the UCC, and a conceptually satisfactory resolution cannot be achieved. See generally Klinger, A Tangled Web, 89 Dick.L.Rev. at 943-950 (pointing out difficulty in distinguishing between limited warranty and limited remedy and in applying warranty and remedy provisions of UCC to “repair or replace” warranties). We also note that, although “repair or replace” warranties are not traditional warranties, they do fit within the modern concept of warranty. For example, the federal MagnusonMoss Warranty Act includes in its definition of “warranty” any undertaking in writing in connection with the sale by a supplier of a consumer product to refund, repair, replace, or take other remedial action with respect to such product in the event that such product fails to meet the specifications set forth in the undertaking ...

15 U.S.C. § 2301(6)(B).

Furthermore, we will not permit Appellee and other sellers who draft similar documents to escape the consequences of presenting them to the consumer as “extended warranties.” There can be little question that the consumer will consider the length of any warranty offered in determining whether to purchase a particular vehicle: The consumer naturally would believe that the longer the warranty, the greater the protection, and hence, the better the value, he or she is receiving. If Appellee’s position were to prevail, the protection afforded the buyer during the latter part of a warranty approaching four years would be largely illusory, as the buyer would have a very short period of time in which to bring a cause of action for breach. Moreover, the longer-term protection afforded by a warranty extending beyond four years would be completely illusory.

Finally, reading the express warranty as one that “explicitly extends to future performance of the goods” will do no violence to the purposes of § 2725. Sellers will still be able to determine the time period for which they should maintain their records, simply by adding the limitation period to the warranty period. In addition, nothing in our analysis would prevent the parties from reducing the period of limitation in accordance with § 2725(a), which provides that “[b]y the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it,” provided, of course, that the period is reduced in a. way that is not unconscionable. See generally 13 Pa.C.S. § 2302.

Because we find that the express warranty “explicitly extends to future performance of the goods” for purposes of applying 13 Pa.C.S. § 2725, we find that the cause of action alleging breach of that warranty was timely filed and reverse the decision of the Superior Court with respect to Count One of the Complaint. We express no opinion, however, as to whether a cause of action has been stated or as to the appropriate remedy for breach of the express warranty.

Although we find the express warranty to explicitly extend to future performance of the goods, we cannot find that the implied warranties of merchantability and fitness for a particular purpose so extend. The warranty contains the following language: “ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE APPLICABLE TO THIS CAR IS LIMITED IN DURATION TO THE DURATION OF THIS WRITTEN WARRANTY.” (R 25.) We do not read this language as explicitly extending the terms of any implied warranties, because the document states that any implied warranties are of a duration no longer than that of the express warranty and not that they are of a duration equal to that of the express warranty. The quoted language does not create implied warranties, because such warranties are created not by contract language but by operation of law in certain circumstances. See 13 Pa.C.S. §§ 2314 and 2315. The legal effect of the quoted language is merely to limit the protection that the law might otherwise impose. Therefore, it cannot be read as the type of language that “explicitly extends to future performance” for purposes of § 2725(b). In addition, the great weight of authority takes the position that an implied warranty, by nature, cannot “explicitly” extend to future performance. See, e.g., General Motors Corp. v. Tate, 257 Ark. 347, 516 S.W.2d 602, 605-606 (1974); City of Carlisle v. Fetzer, 381 N.W.2d 627, 629 (Iowa 1986) (collecting cases); Safeway Stores, Inc. v. Certainteed Corp., 710 S.W.2d 544, 546-548 (Tex.1986) (collecting cases); White & Summers, Uniform Commercial Code § 11-9, at 478 n. 17 (collecting cases); Hawkland, Uniform Commercial Code Series § 2-2725:02, at 480; Anno., What Constitutes Warranty Explicitly Extending to Future Performance” for Purposes of UCC § 2-725(2), 93 A.L.R.3d 690, § 2 (collecting cases).

Because the implied warranties do not explicitly extend to future performance of the car, we conclude that Counts Two and Three of the complaint, alleging breach of implied warranties, were filed too late.

Accordingly, we reverse the decision of the Superior Court as to Count One and affirm as to Counts Two and Three. The case is remanded to the Court of Common Pleas of Allegheny County for further proceedings consistent with this opinion.

LARSEN, J., files a dissenting opinion in which PAPADAKOS, J., joins. ZAPPALA, J., files a dissenting opinion.

1 . Pursuant to a Consent Order of Discontinuance dated February 5, 1988, Durbiano Chevrolet Company is no longer a party to this action.

2 . Although Appellant did plead breach of an express warranty of fitness for a particular purpose, it did not plead facts; indicating that such a warranty was created. Therefore, we will consider only its allegation that Appellee breached an implied warranty of fitness for a particular purpose.

3 . The lower courts did not address Appellee’s argument that it was entitled to summary judgment because the express warranty promised only the repair or replacement of defective parts and specifically excluded liability for consequential damages, and that issue is not before us.

4 . This point fell within the warranty period because it was less than 12 months from the date the car was "first delivered or put in use" (R 25), and the car had been driven less than 12,000 miles (R 10).

5 . The example cited is an agreement in which "the manufacturer promises to repair any defect in a car’s drivel rain that occurs within two years or 24,000 miles, whichever occurs first.”

6 . Under "WHAT IS NOT COVERED,” the warranty excludes tires; damage due to accidents, misuse, or alterations; damage from the environment; and damage due to lack of maintenance or use of the wrong fuel, oil or lubes. It also states that normal maintenance is the owner's responsibility and that “extra expenses” relating to the loss of use of the car during repairs are not covered. (R 25.)

7 . This position has been taken by courts in ocher states that have considered similar automobile warranties. See, e.g., Tittle v. Steel City Oldsmobile GMC Truck, Inc., 544 So.2d 883 (Ala. 1989); Voth v. Chrysler Motor Corp., 218 Kan. 644, 545 P.2d 371 (1976); Stoltzner v. American Motors Jeep Corp., 127 Ill.App.3d 816, 82 Ill.Dec. 909, 469 N.E.2d 443 (1984) (also holding that express disclaimer of implied warranties "for any period beyond the express warranty” did not amount to explicit extension), appeal denied; Poppenheimer v. Bluff City Motor Homes, 658 S.W.2d 106 (Tenn.Ct.App.1983); Muss v. Mercedes-Benz of North America, Inc., 734 S.W.2d 155 (Tex.Ct.App.1987). In construing the same General Motors warranty language that is at issue in this case, the Supreme Court of Alabama stated:

This language clearly does not guarantee that the car will perform free of defects for the term of the agreement. In fact, as the court in Voth [v. Chrysler Motor Corp., 218 Kan. 644, 545 P.2d 371 (1976)] recognized, the language of the guarantee anticipates that defects will occur. We, therefore, hold that the warranty provided Tittle upon the purchase of his car did not extend to the car’s future performance.

Tittle, 544 So.2d at 891.

Decisions of the courts of other states on this issue are influential, given the purposes of the UCC. One of the explicit purposes of the Code in general is ”[t]o make uniform the law among the various jurisdictions.” 13 Pa.C.S. § 1103(b)(3). Section 2725 is intended specifically to "introduce a uniform statute of limitations for sales contracts.” 13 Pa.C.S. § 2725, Uniform Commercial Code Comment. It would, therefore, be both acceptable and tempting simply to follow the lead of other courts. However, we decline to do so because we believe that the other courts’ reasoning is flawed and would lead to absurd results if extended to its logical conclusion. For example, carrying through with the analysis described above would lead to a situation where a consumer who purchases a vehicle with a 7 year/70, 000 mile warranty would have no cause of action for breach of that warranty if the breach were to occur in the fifth year following the date of delivery. Further, with the exception of the General Motors warranty at issue in Tittle, the warranties involved in the cited cases were worded differently from the warranty in the case sub judice, and some are distinguishable on that basis. The warranties in Stoltzner, Poppenheimer, and Muss, in particular, were more clearly promises to repair or replace defective parts for the stated “warranty” period.

8 . The Superior Court agreed with Appellee because it found this case to be similar in all significant respects to Ranker v. Skyline Corp., 342 Pa.Super. 510, 493 A.2d 706 (1985). In Ranker, the Superior Court stated that a warranty did not explicitly extend to future performance of the goods under § 2725 where it provided that the dealer would correct all manufacturing defects reported within one year after delivery. That statement, however, was dicta unnecessary to the court’s holding that the action was untimely filed, because the buyer in that case did not commence suit until more than four years after discovery of the breach. 493 A.2d at 709.

9 . Appellee never explicitly argues that the document is not a warranty. Indeed, having drafted the document and labeled it a warranty, Appellee would be hard-pressed to so argue. Instead, Appellee argues, somewhat disingenuously, that this is not a "performance warranty,” but a "repair warranty.” Section 2725 draws no such distinction. In addition, although Appellee argues that the document makes no promise regarding the condition or performance of the vehicle, its statement that it "warrants each new 1982 car” could be read to provide otherwise.

10 . The other ways of creating an express warranty — by description of the goods, § 2313(a)(2), or by sample or model, § 2313(a)(3) — are not relevant to this discussion.