Central Washington Refrigeration, Inc. v. Barbee
946 P.2d 760, 34 U.C.C. Rep. Serv. 2d (West) 273, 133 Wash. 2d 509 (1997)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A buyer of goods may maintain an implied contractual indemnity action against the seller for liability incurred to a third party due to a defect in the goods, and the statute of limitations for this indemnity action begins to run when the buyer pays damages to the third party or the third party obtains a judgment against the buyer, whichever occurs first.
Facts:
- In 1987, Central Washington Refrigeration, Inc. (Central) contracted with a Yakima orchard to install cold storage rooms for fruit.
- Central subsequently contracted with McCormack Engineering (McCormack) to purchase specially manufactured refrigeration coils for the cold storage rooms.
- In August 1987, McCormack timely delivered the refrigeration coils to Central, which then installed them.
- From the start, the orchard experienced problems with the cold storage rooms, including issues that led to an intervening bankruptcy for the orchard.
- The orchard eventually defaulted on payments to Central for the cold storage rooms.
Procedural Posture:
- After the orchard defaulted on payments for the cold storage rooms, Central sued the orchard for payment.
- In March 1989, the orchard counterclaimed against Central, alleging Central misdesigned the system, used poor workmanship, installed improper components, and failed to repair it.
- On May 22, 1992, Central filed a third-party complaint against McCormack, alleging defective coils caused the problems and seeking contribution and/or indemnity.
- McCormack moved for summary judgment of dismissal, arguing Central's tort claim was precluded by the tort reform act and its breach of contract claim was barred by the U.C.C.'s four-year statute of limitations.
- The trial court granted McCormack's motion for summary judgment and dismissed McCormack from the case.
- Shortly thereafter, Central settled with the orchard by paying $220,000.
- Central appealed the summary judgment dismissal to the Court of Appeals.
- The Court of Appeals affirmed the dismissal, reasoning Central's tort claim failed, and its contractual/indemnity claim was barred by the U.C.C. four-year statute of limitations.
- The Supreme Court of Washington granted review to determine the issues.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a buyer of goods have an implied contractual right to indemnity against a seller for liability incurred to a third party due to a product defect constituting a breach of the seller's warranties, and if so, when does the statute of limitations for such an indemnity claim begin to run?
Opinions:
Majority - Sandkrs, J.
Yes, a buyer of goods may maintain an implied contractual indemnity action against the seller for liability to a third party caused by a defect in the goods, and the statute of limitations for this action begins when the buyer pays damages or a judgment is obtained against the buyer. The court holds that indemnity is a separate equitable cause of action for reimbursement when one party discharges a liability that another should rightfully have assumed. Implied contractual indemnity, or 'implied in fact' indemnity, arises from the nature of the relationship between parties, such as the buyer-seller relationship under the U.C.C. The court adopts the majority rule, holding that the contractual relationship, with its implied warranties under the U.C.C., provides a sufficient basis for such a claim when the buyer incurs third-party liability due to a defect constituting a breach of the seller's warranties. This differentiates it from a mere claim for breach of contract, which would be subject to the U.C.C.'s four-year statute of limitations from the date of delivery (RCW 62A.2-725). Indemnity actions are distinct and separate from the underlying wrong, and their statutes of limitations accrue when the party seeking indemnity pays or is legally adjudged obligated to pay damages to a third party. Since Central filed its third-party complaint against McCormack at the same time it settled with the orchard, its indemnity action is not time-barred, and the case should proceed on its merits.
Dissenting - Guy, J.
No, a buyer of goods may not bring an indemnity action against the seller for liability incurred to a third party if the claim falls outside the Uniform Commercial Code’s (U.C.C.) four-year statute of repose. The dissent argues that U.C.C. Article 2 is intended to provide a comprehensive and consistent framework for all commercial sales transactions, including its four-year statute of repose (RCW 62A.2-725), which starts at the time of delivery. Allowing contract-based indemnity claims to operate outside this specific time limit undermines the U.C.C.'s purpose of predictability and leaves commercial retailers exposed to liability indefinitely. The dissent asserts that the notion of a 'majority rule' on this issue is not as clear as the majority implies, with a significant split of authority among jurisdictions. The U.C.C.'s four-year period balances fairness with the concept of bargained-for risk, providing a reasonable period for commercial buyers to expect warrantability and for sellers to expect to be held liable. Because U.C.C. § 2-725 is a statute of repose, a cause of action accrues when the breach occurs—upon tender of delivery—regardless of the buyer's knowledge of the defect. Central's claim, filed more than four and a half years after the coils were delivered in August 1987, is therefore time-barred under U.C.C. § 2-725, and the trial court's dismissal should be affirmed.
Analysis:
This case significantly clarifies the distinction between direct breach of warranty claims under the U.C.C. and equitable claims for implied contractual indemnity. By establishing that implied indemnity claims are separate causes of action with an accrual date tied to the payment or judgment of third-party liability, the court protects buyers (often downstream retailers or installers) from being unfairly time-barred by the U.C.C.'s delivery-based statute of limitations. This ruling ensures that the party ultimately responsible for a defective product, typically the manufacturer or original seller, bears the burden, even if the defect manifests years after delivery. It influences how businesses manage liability for defective products and highlights the equitable principles underlying indemnity in commercial transactions.
