Man Engines & Components, Inc. and Man Nutzfahrzeuge Aktiengesellschaft v. Doug Shows
57 Tex. Sup. Ct. J. 661, 2014 WL 2535963, 434 S.W.3d 132 (2014)
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Rule of Law:
The implied warranty of merchantability, unless validly disclaimed by the manufacturer at the time of the initial sale, extends to subsequent purchasers of used goods. A downstream purchaser cannot obtain a greater warranty than that given to the original purchaser.
Facts:
- MAN Nutzfahrzeuge Aktiengesellschaft and its US counterpart, MAN Engines & Components (collectively MAN), manufactured and sold high-performance inboard engines.
- In 2002, Doug Shows purchased the Caliente, a used fifty-foot yacht powered by MAN engines, through a broker named Texas Sportfishing.
- Prior to the purchase, Shows had the engines inspected by Ace Marine Diesel (AMD), an authorized service dealer for MAN.
- In connection with the sale, Shows signed a document from Texas Sportfishing stating that the vessel was being sold 'as is.'
- In June 2004, the yacht's starboard engine failed because of a defective valve.
- One year later, the same engine failed again due to the same defective valve, this time resulting in damage beyond repair.
- Shows replaced the engine at a significant cost.
Procedural Posture:
- Doug Shows sued MAN in a Texas trial court for multiple claims, including breach of the implied warranty of merchantability.
- A jury found MAN liable for breach of the implied warranty of merchantability and awarded Shows $89,967.
- The trial court granted MAN's motion for judgment notwithstanding the verdict (JNOV), entering a take-nothing judgment against Shows.
- Shows, as appellant, appealed to the court of appeals, where MAN was the appellee.
- The court of appeals reversed the trial court's judgment, holding that the implied warranty extends to purchasers of used goods.
- The court of appeals also held that MAN had waived its express-disclaimer defense by failing to plead it as an affirmative defense.
- MAN, as petitioner, sought review from the Supreme Court of Texas.
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Issue:
Does the implied warranty of merchantability created at the first sale of a product by a manufacturer extend to a subsequent purchaser of that product as a used good?
Opinions:
Majority - Justice Willett
Yes, the implied warranty of merchantability extends to subsequent purchasers of used goods unless it was validly disclaimed at the initial sale. Texas law, under its version of the Uniform Commercial Code (§ 2.318), leaves questions of privity to the courts. Citing its precedent in Nobility Homes, the court holds that the lack of a direct contractual relationship (privity) between a downstream purchaser and a remote manufacturer does not bar a claim for economic loss based on breach of implied warranty. The rationale applies equally to new and used goods because the claim holds the manufacturer accountable for the product's condition when it first entered the stream of commerce. A valid disclaimer made at the first sale travels with the good to subsequent purchasers, but the mere resale of a product as 'used' does not automatically terminate the warranty for latent defects. The court declined to consider MAN's express disclaimer and the 'as is' clause on procedural grounds, as MAN failed to properly raise these defenses in the lower courts.
Analysis:
This decision solidifies that, in Texas, the implied warranty of merchantability 'runs with the good' to subsequent purchasers, regardless of privity. It clarifies that a manufacturer's warranty obligation for latent defects is not extinguished simply because a product has been resold. The ruling places a clear burden on manufacturers to effectively disclaim implied warranties at the point of the original sale if they wish to limit future liability. The case also serves as a strong reminder of procedural diligence, as the manufacturer's primary defenses were waived for failure to timely plead them as affirmative defenses, significantly altering the case's outcome.
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