Ensure Your Warranty Position Before The Ship Has Sailed

ENSURE YOUR WARRANTY POSITION BEFORE THE SHIP HAS SAILED

Robert S. Tanner, Esq.

Warranty law is important to both sellers and buyers. Suppliers of construction materials may be held liable under a warranty theory, while the contractors who purchase construction materials may believe the materials they purchased were defective and, therefore, want due compensation from the seller (or other party in the distribution chain). The outcome of such warranty claims depend upon a variety of factors, including the type of product at issue, the damage sustained, the law applicable to the transaction, and the terms of the agreement. While the following case did not involve construction materials, it nevertheless is instructive on some warranty issues.

In Marlborough Holdings Group, Ltd. V. Azimut-Benetti, Spa, 2013 WL 375178 (11 th Cir. Jan. 31, 2013), Azimut-Benetti, SpA ("manufacturer") was an Italian yacht manufacturer. In 1999, while building a yacht known as M/Y Symphony, Manufacturer damaged the yacht's hull. Extensive repairs were made. In 2000, Manufacturer sold the yacht to Richard Bertram Yachts, Inc. ("Dealer"). The damage and repairs were disclosed and Manufacturer provided Dealer with a 10 year written warranty that was contained in the sales agreement. In 2001, Dealer sold the yacht to an end user ("Buyer"). Dealer did not disclose the damage and provided Buyer with only a 5 year written warranty.

In 2008, Buyer sold the yacht to Marlborough Holdings Group, Ltd. ("Marlborough"). Within approximately 1 month, Marlborough discovered a crack in the hull. Marlborough notified Manufacturer of manufacturing defects in the yacht and that legal action might take legal action. After the yacht was improperly lifted onto a transport ship, the 1999 repairs made by Manufacturer were discovered. Manufacturer inspected but refused to pay, even though the 10 year warranty it gave to Dealer had not expired.

Marlborough sued Manufacturer and others on a variety of legal theories. The federal trial court entered summary judgment against Marlborough. Marlborough appealed.

Among its theories were that it should be entitled to enforce the 10-year warranty against Manufacturer pursuant to the Magnuson-Moss Warranty Act ("MMWA"), a federal law. Although the MMWA "generally applies to written warranties covering consumer products," the Act defines a written warranty as one that, among other things, "becomes part of the basis of the bargain between a supplier and a buyer for purposes other than resale of such product." The appellate court determined that the written agreement containing the 10 year warranty was entered into for purposes of resale and, therefore, it was not a written warranty within the meaning of the MMWA.

Marlborough also asserted that the warranty should be enforced under Florida law. Florida Statutes, section 672.313(1)(a) states that, "any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise." That provision is found within the Uniform Commercial Code governing the transactions in goods as adopted by Florida. Although one might not immediately think of a yacht as a "good", this part of the Code applies quite broadly and creates some special rights and liabilities. Both mobile homes and modular housing units have been held by courts in a variety of states to be "goods" subject to the UCC governing transactions in goods.

Since a yacht is a "good" for purposes of that law, the warranty provisions in the law would apply to benefit Marlborough, if the other factors were present. Unfortunately for Marlborough, Manufacturer's express warranty was contained in the sales agreement with Dealer and that sales agreement contained an anti-assignment clause. Dealer never assigned the warranty. Marlborough argued that it should be considered a third-party beneficiary of the express warranty, but under Florida law, a person who is not a party to a contract will have third-party beneficiary rights to enforce the contract only if he was an intended beneficiary of the contract. The sales agreement between Manufacturer and Dealer was not intended to benefit Marlborough, so Marlborough had no right to enforce the express warranty in that agreement.

Although the appellate opinion does not disclose the price Marlborough paid for the yacht, it does mention that when Marlborough purchased it, the market value was $9.2 million. Presumably the repairs sought pursuant to the warranty were of substantial value.

Whether you are going to spend millions of dollars, or just thousands, in the purchase of goods, taking steps to ensure that you have warranty rights against the right parties might be a worthwhile investment. On the other hand, if you are a manufacturer, dealer, or seller, you might want to take steps to limit your liability for warranty claims. Whether you are a seller or a buyer (many businesses are both), having experienced counsel review your transactions, contracts, and warranty documents can help you protect your interests and your bottom line.

You can find other articles of ours discussing warranty issues here, here, and here.