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Kenworth of Indianapolis, Inc. v. Seventy-Seven Limited

Supreme Court of Indiana

November 12, 2019

Kenworth of Indianapolis, Inc., et al., Appellants (Defendants),
Seventy-Seven Limited, et al., Appellees (Plaintiffs).

          Argued: February 14, 2019

          Interlocutory Appeal from Marion Superior Court, No. 49D04-1010-PL-43362 The Honorable Cynthia Ayers, Judge

          On Petition to Transfer from the Indiana Court of Appeals, No. 49A02-1710-PL-2502

          ATTORNEYS FOR APPELLANTS David T. Schaefer Anthony M. Zelli Dinsmore & Shohl LLP Louisville, KY David J. Jurkiewicz Bose McKinney & Evans LLP Indianapolis, IN

          ATTORNEYS FOR APPELLEES Scott A. Benkie Benkie & Crawford Indianapolis, IN Rodney V. Taylor Hilary A. Barnes Christopher & Taylor Indianapolis, IN


          Goff Justice

         This litigation arises from the sale of forty dump trucks-a transaction in goods governed by the Uniform Commercial Code (UCC). The agreement governing this sale contained a warranty and a one-year limitations period for filing a breach-of-contract suit. Mechanical problems plagued the trucks soon after delivery. Several years later, following sellers' unsuccessful attempts at repair, buyers sued for breach of warranty.

         Under the UCC, a party's cause of action accrues (thus triggering the limitations period) upon delivery of goods. However, if a warranty explicitly guarantees the quality or performance standards of the goods for a specific future time period, the cause of action accrues when the aggrieved party discovers (or should have discovered) the breach. This is known as the future-performance exception.

         As part of the larger issue of whether buyers' complaint was untimely, this case presents two novel issues for our consideration: (1) whether these parties' bargained-for warranty falls under the future-performance exception within Indiana's version of the UCC; and (2) whether the sellers' conduct-including their efforts at repairing the trucks-could toll the one-year limitations period under the doctrine of equitable estoppel.

         We hold that, under the express terms of their agreement, the parties here contracted for a future-performance warranty and any breach-of-warranty claims did not accrue until the buyers knew (or should have known) of the breach. We also hold that, under the equitable estoppel doctrine, a party's conduct-even relating to the repair of goods-may toll a contractually agreed-upon limitations period when that conduct is of a sufficient affirmative character to prevent inquiry, elude investigation, or mislead the other party into inaction.

         However, because there remain genuine issues of material fact relating to both issues, we hold that summary judgment is not appropriate now. We, therefore, affirm the trial court order denying summary judgment and remand for proceedings consistent with this opinion.

          Factual and Procedural History

         Seventy-Seven Limited and six other trucking companies[1] (collectively, the Buyers) purchased forty customizable Kenworth T800 dump trucks manufactured by PACCAR and Kenworth Truck Company and sold by Kenworth of Indianapolis (collectively, the Sellers). For each truck sold, Buyers and Sellers executed a Warranty Agreement that provided, in relevant part, as follows:

Kenworth Truck Company warrants directly to you that the Kenworth vehicle . . . 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.
Your sole and exclusive remedy against Kenworth Truck Company and the selling Kenworth Dealer arising from your purchase and use of the vehicle is limited to the repair and replacement of defective materials or workmanship . . . to the extent of Kenworth Truck Company's obligations under the Warranty Schedule on the reverse side of this Agreement.

Ex. A; Appellants' App. Vol. III, pp. 13, 152-70. Sellers disclaimed all other warranties (express or implied) and liability for incidental or consequential damages. The Warranty Agreement imposed the following limitations period for filing a lawsuit:

It is agreed that you have one year from the accrual of the cause of action to commence any legal action arising from the purchase or use of the vehicle, or be barred forever.

Ex. A.

         In November 2005, Jeary Smith, of Seventy-Seven Limited, took delivery of the first truck. On his drive from Chillicothe, Ohio, to Greenfield, Indiana, he noticed the truck vibrating excessively. Smith reported the vibration immediately to Sellers, instructing them to remedy the problem before delivering the remaining trucks. Smith received assurances from Sellers that the vibration problem "would fall under warranty, it'll be fixed and it will all go away." Appellees' App. Vol. II, p. 118.

         With these assurances, Buyers took delivery of the remaining trucks from late 2005 through 2006. But these trucks also vibrated excessively at idle and at certain RPMs. Buyers again reported the problem to Sellers. Unable to identify the source of the vibration, Sellers installed modified engine mounts as an alternative fix. But the problem returned in 2007. See Kenworth of Indpls, Inc. v. Seventy-Seven Ltd., No. 49A02-1504-PL-249, 2016 WL 1158460 (Ind.Ct.App. Mar. 24, 2016). Sellers installed new, different engine mounts the following year, but, after a temporary reduction in vibration, the problem persisted. Id.

         Having failed to resolve the issue to Buyers' satisfaction, Sellers agreed, in March 2008, to extend the base vehicle warranty to four years/250, 000 miles. Sellers also promised to replace the engine mounts for as long as Buyers owned the trucks. Despite these attempts to cure, several Buyers returned the trucks and stopped making payments in late 2008.

         By November of that year, Sellers, seeking to limit their liability exposure, debated whether to recall the trucks or to simply maintain the status quo. The latter option, according to one Kenworth employee, would "likely lead to litigation" because continually changing engine mounts would "probably not be acceptable to the customer." Appellees' App. Vol. III, pp. 39, 61. He was right.

         In September 2010, Kenworth of Indianapolis (d/b/a ITC Acceptance Company) filed a replevin action against two Buyers based on their loan defaults. The following month-on October 4, 2010-Buyers filed this action, alleging breach of contract, constructive fraud, and rescission of contract claims. Buyers later amended that complaint, adding claims of breach of express and implied warranties, estoppel, and non-conforming goods as defined under Indiana Code section 26-1-2-106. Buyers' second amended complaint invoked the UCC's provision allowing for suit when an exclusive, limited remedy fails its essential purpose. See Ind. Code § 26-1-2-719(2) (1995). The trial court eventually consolidated these actions into one case.

         Sellers moved for summary judgment, contending that, because Buyers did not file their complaint until October 2010, their claims were time barred. "The causes of action for all of these trucks accrued upon tender of delivery" in late 2005 and early 2006, Sellers argued, "the same time when [Buyers] first discovered the excessive vibration." Appellees' App. Vol. II, pp. 7-8. Thus, Sellers insisted, the one-year limitation period specified in the Warranty Agreement ended in January 2007 "at the latest." Id. at 9.

         Buyers responded by arguing that the cause of action accrued not upon delivery but when the four-year warranty period ends. What's more, they argued, the doctrine of equitable estoppel tolled the limitations period here.

         In denying summary judgment, the trial court found that Sellers' "promise to work on a permanent fix to the excessive vibration problem throughout the modified warranty period" was an implied promise of future performance under the UCC. Appellants' App. Vol. II, p. 63. See I.C. § 26-1-2-725(2). Based on this finding, the court concluded that the cause of action accrued not on the date of delivery but on the date the extended warranty expired-that is, "four years from the date of in-service for each vehicle." Appellants' App. Vol. II, p. 64.

         Beyond this conclusion, the trial court-finding "substantial reasons" to toll the limitations period-deemed Buyers' complaints timely. Id. at 64-65. In particular, the court cited Sellers' (1) extension and modification of the original warranty period, (2) promise to change the engine mounts as long as Buyers owned the trucks, (3) assurances of providing a permanent repair, (4) failure to include a limitations period in the modified warranty, and (5) continued assurances and failures to remedy the excessive vibration which prevented Buyers from filing suit.

         Sellers appealed, arguing that Buyers' causes of action accrued upon delivery. What's more, they insisted, under Ludwig v. Ford Motor Co., 510 N.E.2d 691 (Ind.Ct.App. 1987), "Indiana law is clear that promises or attempts to repair defects do not toll the limitations period." Appellants' Br. at 29.

         In a divided opinion, the Court of Appeals affirmed, with the majority rejecting Sellers' Ludwig argument. Kenworth of Indpls. Inc. v. Seventy-Seven Ltd., 112 N.E.3d 1106, 1111-12 (Ind.Ct.App. 2018). We granted Sellers' petition to transfer, thus vacating the Court of Appeals opinion. Ind. Appellate Rule 58(A).

         Standard ...

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