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  4.  | The “Cardinal” Rule: No “More Than Four” Year Statute of Limitations Period Under UCC 2-725 Without Specific Time Reference

The “Cardinal” Rule: No “More Than Four” Year Statute of Limitations Period Under UCC 2-725 Without Specific Time Reference

| Jan 26, 2009 | Firm News |

Cardinal Health 301, Inc. v. Tyco Electronics Corp., (2008) 169 Cal. Ap. 4th 116, 87 Cal. Rptr. 3d 5.

Cardinal Health manufactured medicine-dispensing cabinets for use in hospitals. When these suffered repeated malfunctions, Cardinal sued the suppliers of the defective component.

First Key Issue: Statute of Limitations Under UCC 2-725– Four Years or More?

Applying California’s version of UCC 2-725, the court ruled that the statute of limitations for breach of warranty causes of action is four years from the date of tender. Cardinal argued for more than four years, based UCC 2-725(2), which allows for a greater warranty period if the “warranty explicitly extends to future performance“–in which case the accrual date is triggered when the breach is, or should have been, discovered. Cardinal’s warranty stated that the defective part would function for “50,000 cycles.” This wasn’t good enough to extend the limitations period beyond four years. The “more than four” warranty extension only applies if the warranty “refers to a specific time period.”

Second Key Issue: No Privity Required For Implied Warranty Claim When There Are Direct Dealings

Cardinal claimed that the successor in interest to the manufacturer of the defective component was also liable for breach of implied warranty. The successor asserted the defense of “lack of privity because it had no contract with Cardinal. Under express warranty claims no privity is required. However, under California law, vertical privity is required for a breach of implied warranty claim–unless an exception applies. Applying the rule of US Roofing, Inc. v. Credit Alliance Corp., (1991) 228 Cal. App. 3d 1431, 279 Cal. Rptr. 533, the Court held that no contract privity was required when there are “direct dealings.”

Since the successor adopted the same designs, used the same manufacturing tools, and continued to manufacture the parts in the same manner as the initial supplier, and the parties understood that “things would be business as usual,” the court found sufficient evidence of direct dealings to establish liability for breach of implied warranty.

The opinion covers a number of other important areas. Bottom line for us:

(1) No “more than four” years for breach of express warranty without a specific reference to time.
(2) There may be liability for breach of implied warranty, without express contract privity, when there are “direct dealings” between buyer and seller.