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Warranties: The distinction between “no defects as delivered” vs. “future performance” makes a difference in when the statute of limitations starts to run

In a case about dump trucks that had mechanical problems, the Indiana Supreme Court provides a useful explanation of how the statute-of-limitations clock starts ticking for a warranty of future performance of goods when the warranty failure is discovered; this is in contrast to a warranty that the goods as delivered are free from defects, where the clock starts ticking at delivery. See Kenworth of Indianapolis, Inc., v. Seventy-Seven Ltd., No. 19S-PL-37 (Ind. Nov. 12, 2019).

The warranty language read:

Kenworth Truck Company warrants directly to you that the Kenworth vehicle identified below . . . will be free from defects in materials and workmanship during the time and mileage periods set forth in the Warranty Schedule and appearing under normal use and service. 

Id., slip op. at 3 (also at 8-9) (emphasis added). The supreme court said: 

Had Sellers not used future-tense language, for example, or had they omitted a specific future time period for the trucks’ quality and performance, or had they promised only to repair and replace defects rather than warrant against future defects, then this warranty would fall outside the limited future-performance exception. But as written, this bargained-for warranty constitutes a future-performance warranty, and the courts must apply the discovery rule to determine when the breach-of-warranty cause of action accrued.

Id., slip op. at 13-14 (emphasis added). The court vacated and remanded summary judgment in favor of the manufacturer, on grounds that a genuine issue of material fact existed about when the defects should have been discovered by the buyer, and thus when the clock started ticking on the limitation period.

Drafting lesson: When drafting — or reviewing — a warranty about goods, take note of whether the warranty is a “present day” promise about the state of the goods as delivered, or whether instead the warranty is a “future performance” promise of what the goods will or won’t do during a specified time period. Under the Uniform Commercial Code article 2, the distinction makes a difference in when the statute of limitations clock will start to tick.