Man Engines & Components, Inc. v. Shows

• Decision Date: 06 June 2014
• Docket Number: No. 12–0490.,12–0490.
• Citation: 57 Tex. Sup. Ct. J. 661,434 S.W.3d 132
• Court: Texas Supreme Court
• Parties: MAN ENGINES & COMPONENTS, INC. and Man Nutzfahrzeuge Aktiengesellschaft, Petitioners, v. Doug SHOWS, Respondent.

434 S.W.3d 132

57 Tex. Sup. Ct. J. 661

MAN ENGINES & COMPONENTS, INC. and Man Nutzfahrzeuge Aktiengesellschaft, Petitioners,

v.Doug SHOWS, Respondent.

No. 12–0490.

Supreme Court of Texas.

Argued Oct. 8, 2013.

Delivered June 6, 2014.

J. David Breemer, Pacific Legal Foundation, Sacramento, CA, for Amicus Curiae.

Keith Stanley Donati, Kochman Donati & Charbonnet, LLP, Houston, TX, for Petitioners.

Michael Andrew Harris, Pagel, Davis & Hill, P.C., Houston, TX, for Respondent.

Justice WILLETT delivered the opinion of the Court.

This breach-of-warranty case poses a fundamental question: Does the implied warranty of merchantability extend to purchasersof used goods? Our answer: It depends.

A manufacturer largely controls its own fate. When a manufacturer disclaims implied warranties, such express language necessarily applies downstream to subsequent purchasers, as Buyer # 2 cannot tenably boast a greater warranty than that given to Buyer # 1.

But some manufacturers, intentionally or inadvertently, do not expressly disclaim implied warranties. That scenario raises two questions:

1. Does resale of a used good automatically terminate any remaining implied-warranty obligation?

2. Does it make a legal difference if the used good is explicitly sold “as is”?

We answer “no” to the first question and, in this case, cannot reach the second.¹

We take cases as they come, and given how this case was tried, we agree with the court of appeals that the downstream buyer was entitled to rely on the implied warranty of merchantability. We thus affirm the court of appeals' judgment.

I. Factual and Procedural Background

In 2002, Doug Shows purchased the Caliente, a used, fifty-foot yacht, through a broker, Texas Sportfishing, for $525,000. The Caliente was powered by high-performance inboard engines manufactured and sold by MAN Nutzfahrzeuge Aktiengesellschaft and its United States counterpart, MAN Engines & Components (collectively MAN).²

Prior to purchase, Shows had the engines inspected by Ace Marine Diesel (AMD), an authorized service dealer for MAN. At the time of purchase, Texas Sportfishing gave Shows a letter from AMD's president originally addressed to a broker. The letter, dated September 17, 2001, stated that a two-year express warranty applied to the engines “on everything” and an additional three-year warranty applied “on major components.” In connection with the sale, Shows signed a “certification of acceptance of vessel” on Texas Sportfishing letterhead stating that the vessel was being sold “as is.”

In June 2004, while Shows was fishing with friends off the Louisiana coast, the Caliente 's starboard engine failed because of a bad valve. Although the full two-year warranty had expired by that time, the additional three-year protection was still active. Shows filed a warranty claim only to discover that the parts involved were not “major components” covered by the warranty. Nonetheless, MAN issued Shows a check from its goodwill account for about $5,800 to help defray repair costs, which totaled slightly under $40,000.

A year later, the same engine failed, this time beyond repair. The failure resulted from the same bad valve. Again, Shows was told the damage was not covered by warranty. Shows replaced the engine and in June 2006 sued MAN for negligence, fraud, negligent misrepresentation, breaches of express and implied warranties, and deceptive trade practices. The jury found MAN liable only for breach of the implied warranty of merchantability and awarded Shows $89,967. The trial court, however, granted MAN's motion for judgment notwithstanding the verdict and issued a take-nothing judgment. The trial court concluded that Shows could not prevail on an implied-warranty theory because of either (1) lack of privity—Shows was a subsequent purchaser of the used yacht with no contractual relationship with MAN, or (2) disclaimer—MAN disclaimed any implied warranty at the time of first sale.

The trial court's disclaimer-based ground relied on a document that Shows unearthed through an internet search after the 2004 engine failure. It is a 2003 generic warranty issued by MAN that creates express warranties while expressly disclaiming implied warranties including the implied warranty of merchantability. It states: “The limited warranty herein set forth is the sole and exclusive warranty with respect to Series D 28 engines. There are no other warranties, expressed or implied, including any warranties of merchantability or fitness for any particular purpose and all such other warranties hare [sic] hereby displaced.” We refer to this disclaimer as “MAN's disclaimer” or the “express disclaimer,” as opposed to the “as is” clause found in the contract between Shows and Texas Sportfishing.

The court of appeals reversed, holding that someone who buys goods knowing they are used may still rely on an implied warranty from the manufacturer to the original buyer, since the warranty passes with the goods.³ The court of appeals relied on our 1977 decision in Nobility Homes of Texas, Inc. v. Shivers.⁴ In that case, we allowed a mobile-home purchaser to pursue an implied-warranty claim against the manufacturer where the only intermediary between them was a retailer.⁵

The court of appeals refused to consider MAN's express-disclaimer defense, concluding that MAN failed to raise it as an affirmative defense in its pleadings and that the issue was not tried by consent.⁶ The court of appeals did not consider the effect of the “as is” clause, because MAN did not raise this argument in the trial court or in the court of appeals.

II. Discussion

This case concerns the implied warranty of merchantability, which assures buyers that goods are, among other things, “fit for the ordinary purposes for which such goods are used.” ⁷ MAN asserts that its express disclaimer of implied warranties negated Shows's implied-warranty claim.

Before reaching the substantive question whether implied warranties apply to used-good purchasers, we must first decide a procedural question: whether we can consider MAN's express-disclaimer defense. To answer that question, we must decide whether “express disclaimer” is an affirmative defense under Texas Rule of Civil Procedure 94.

A. “Express Disclaimer” Is An Affirmative Defense That Must Be Pleaded Under Rule 94.

The court of appeals held that MAN's express-disclaimer defense is, under Rule 94, an affirmative defense, which MAN waived by failing to plead it or to try it by consent. MAN argues that the court of appeals erred by concluding that “express disclaimer” is an affirmative defense.⁸ We agree with the court of appeals: Disclaimer of implied warranties is an affirmative defense that cannot be raised on appeal if it was not raised in the trial court.⁹Rule 94 makes clear that affirmative defenses must be properly raised in pretrial pleadings:

In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense.¹⁰

MAN first mentioned its express-disclaimer argument in its Motion for JNOV and Entry of Take–Nothing Judgment.

Disclaimer is an affirmative defense subject to Rule 94 requirements. Rule 94 provides a list of affirmative defenses and then adds a catch-all that sweeps in “any other matter constituting an avoidance or affirmative defense.” ¹¹ Disclaimer falls into this “any other matter” catch-all. The enumerated defenses share “the common characteristic of a bar to the right of recovery even if the general complaint were more or less admitted to.” ¹² Disclaimer performs a similar role, not rebutting the facts asserted by the plaintiff, but establishing an independent reason why the plaintiff should not recover.¹³

Like the defenses listed in Rule 94, the defense of disclaimer “is one of avoidance, rather than a defense in denial.” ¹⁴ And like those listed, MAN's disclaimer defense does not challenge the factual allegations in Shows's complaint. Rather, it seeks to add another ingredient to the mix that would defeat the claim. In this way, disclaimer resembles expressly enumerated defenses.

Rule 94's purpose “is to give the opposing party notice of the defensive issue to be tried.” ¹⁵ It is a rule of fairness that requires the defendant to identify affirmative defenses, involving facts distinct from the elements of the plaintiff's claim, so that the plaintiff may reasonably prepare to rebut or explain them.¹⁶ Like Rule 94's enumerated defenses, disclaimer is an affirmative defense that must be pleaded, as several Texas decisions recognize.¹⁷

MAN failed to plead its express disclaimer of implied warranties. Rule 94 requires that affirmative defenses be raised before trial. An affirmative defense presents a “situation where a plaintiff cannot recover even if his claims are true because of some other fact that the defendant has pled as a bar.” ¹⁸ Since an affirmative defense raises additional issues of fact, Rule 94 demands that it appear in a pretrial pleading. Otherwise, the fairness and efficiency facilitated by the rule would be defeated. Plus, if we read Rule 94 to allow for the post-trial raising of an affirmative defense, the rule would become meaningless, since it would do nothing more than other rules governing waiver of issues on appeal.

Accordingly, MAN cannot rely on its purported express disclaimer of implied warranties issued at the first sale unless it properly raised that defense in the trial court. The court of appeals held that MAN failed to plead the defense in the trial court, and MAN does not challenge that holding here. We therefore must affirm the court of appeals on this issue.

Having disposed of MAN's...