Justices consider timeliness of breach of contract complaint

A timeliness dispute between a dump truck manufacturer and one of its customers focusing on when causes of action accrued in the case went before the Indiana Supreme Court for oral arguments late last week.

The case of Kenworth of Indianapolis, Inc., et al. v. Seventy-Seven Ltd., et al., 19S-PL-00037, traces back to 2005, when Kenworth of Indianapolis, Inc. manufactured and sold a fleet of dump trucks to Seventy-Seven Limited. Upon delivery, Seventy-Seven immediately discovered the trucks vibrated excessively while idling. After several failed attempts to fix the problem within the one-year/100,000-mile basic vehicle warranty period specified in the parties’ warranty agreement, Kenworth extended the warranty period to four years/250,000 miles.

Seventy-Seven filed a complaint against Kenworth four years later, asserting, among other things, claims for breach of warranty and breach of contract when the trucks continued to vibrate. Kenworth filed a motion for summary judgment, contending Seventy-Seven’s causes of action accrued when the trucks were delivered and, thus, were barred by the warranty agreement’s one-year time limit for commencing legal action.

The Marion Superior Court denied the summary judgment motion, and after initially reversing and remanding for further proceedings in 2016, the Indiana Court of Appeals ruled in September 2018 that Kenworth failed to prove its timeliness argument.  

During arguments before the high court last week, counsel for Kenworth, David T. Schaefer, defended the argument that the cause of action accrued at delivery, stating he didn’t see a failure of essential purpose as affecting the accrual of the cause of action.

“If we don't agree with that, that it's at delivery…why wouldn't we then have to look at whether the repair and replace fix failed its essential purpose?” Chief Justice Loretta Rush asked.

In response, Schaefer said it would have gone to remedies, but there were none in this case. He continued that although it may seem harsh, if the case was untimely filed, the cause of action accrued at delivery and the limitation period expired within a year.

“In (Uniform Commercial Code) transactions, these manufacturers and sellers in Indiana and elsewhere require predictability, certainty, and, honestly, plaintiffs, purchasers deserve predictability and certainty too,” Schaeffer said. “In fact, the statute is clear that cause of action accrues at delivery even if the buyer is not aware of the breach.”

Counsel for Kenworth also stated that it did not see the expiration of the extended four-year warranty period as relevant to the expiration of the limitation period because the cause of action accrued at delivery was already expired at that time.

“The expiration of the warranty period simply does not relate to accrual or expiration of the time to file suit,” he concluded.

Counsel for Seventy-Seven, Scott A. Benkie, then argued to the panel that the plaintiffs had one or four years from the date the warranty period expired for each truck to file suit, and that at the time the complaint was filed, Seventy-Seven was still within the accepted timeframe.

“It would be unconscionable to hold the Plaintiffs to the delivery date as accrual of the cause of action where Kenworth believed the first fix had eliminated the excessive vibration, and then after it failed, did further testing, and sought other resolutions, and long after January 2007, the date Kenworth claims the statute of limitation expired,” Benkie wrote in his brief in response to Kenworth’s transfer petition.

“How is it that Kenworth can argue Plaintiffs immediately knew of the breach of their warranty, when Kenworth believed the first recommended fix resolved the issue, and the subsequent fixes would eliminate the vibration problem?” Benkie continued. “Further, Kenworth had right to cure the excessive vibration under the Uniform Commercial Code.”

Benkie then argued Kenworth still had knowledge that it would be able to repair the defect in the trucks in a 2008 correspondence between the companies, “but it wasn't until the end of the warranty period, then they said, ‘Well, you're out of luck.’”

On rebuttal, Justice Christopher Goff told Schaefer he was troubled by the fact that there were facts sufficient to go to trial on the issue of whether or not there was a breach of the warranty. But Schaefer continued to hold that Kenworth did not see it as a factual dispute.

“In a particular case such as this one, where the nonconformity existed from the get-go, there were, as they say, two failed fixes by 2008, and then by late 2008 all we could do was say, ‘Proactively, we will pay to replace your engine mounts as far as you go, as long as you own the trucks,’” Schaefer said. “We don't see a factual dispute. The cause of action accrued either at delivery or by 2008.”

The full oral arguments can be watched here.