Opinion ID: 2980882
Heading Depth: 3
Heading Rank: 1

Heading: Burden of Proving Breach of Warranty

Text: The elements of a claim for breach of contract under Michigan law are: (1) the existence of a valid contract between the parties, (2) the terms of the contract require performance of certain actions, (3) a party breached the contract, and (4) the breach caused the other party injury. In re Brown, 342 F.3d 620, 628 (6th Cir. 2003) (citations omitted). The district court reasoned that, because Keiper’s contract with Intier contained express warranties regarding the goods sold thereunder, Keiper’s burden of showing that it had performed its obligations under the contract included the burden of proving compliance with the warranties. We conclude that this reasoning is contrary to longstanding Michigan law. In Waterman-Waterbury Co. v. School Dist. No. 2 of Wyoming Twp., 148 N.W. 673 (Mich. 1914), the plaintiff company contracted to sell to the defendant school district a heating and ventilation system. The parties’ contract included an express warranty “that this system will be constructed of first-class material, the same as described in the catalog, and manufactured in a careful, workmanlike manner free from defective material.” Id. at 673. The contract further warranted that the system was guaranteed “to heat the schoolroom to 12 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. 70 degrees during the coldest weather and to provide good ventilation during school hours.” Id. The plaintiff installed the system and, after it was used to some extent, the defendant concluded that it did not operate satisfactorily and refused to pay for it. Id. The plaintiff filed suit for the payment due, and the school district defended on the grounds that the plaintiff had breached the warranties contained in the contract because the system did not perform as promised. The trial court refused to give a jury instruction proffered by the plaintiff which stated that the burden was on the defendant to prove a breach of the warranties. Id. at 674. Instead, the trial court instructed the jury, in pertinent part: Under its contract the plaintiff was required to install a heater that would heat the schoolhouse to 70 degrees during the coldest weather . . . . If the furnace, properly operated, would not heat the schoolroom to 70 degrees during the coldest weather, then it was not such a furnace as the plaintiff contracted to furnish, and the plaintiff would not be entitled to recover the purchase price under the circumstances of this case. . . . (So, before the plaintiff is entitled to recover in this case, it must convince your minds, by a fair preponderance of the evidence, that it complied with its contract by furnishing a furnace that would, if properly operated, maintain a temperature of 70 degrees in the coldest weather.) Id. (emphasis added). On appeal by the plaintiff after an adverse jury verdict, the Supreme Court of Michigan held that the above instruction was erroneous: In a case like the present, where the article contracted for was delivered by the plaintiff and accepted by the defendant as in accordance with the contract and warranty, and the defendant relies upon an affirmative defense, it is clear that the burden of proof rests upon the defendant to establish the defense relied upon – in this case a breach of the warranty as to what the furnace would do under proper care and operation. 13 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. Id. (emphasis added) (citations omitted). Similarly, in Smith v. Pickands, 112 N.W. 122 (Mich. 1907), the plaintiff contracted to sell fruit trees, which the contract warranted would be “delivered in a healthy condition.” Id. at 122. The defendant accepted the trees, some of which later died. The court instructed the jury that the burden was on the defendant buyer to prove that the trees were not, in fact, healthy when delivered. Id. On appeal, the Supreme Court of Michigan held that the jury instruction was correct, noting that the burden of proof as to conformity with a warranty will depend on whether the goods are accepted: Had defendant never accepted these trees, this charge would have been erroneous. It would then have been an “essential part of plaintiff’s case to prove that the goods tendered complied with the contract.” . . . But in this case the defendant had accepted these trees, and most of them did comply with the contract. Under these circumstances we think the burden rested upon her to prove that the trees so accepted did not comply with the contract. Id. (emphasis added) (citations omitted). Accord Bay State Milling Co. v. Szucs, 196 N.W. 355, 356 (Mich. 1923) (holding that where defendant buyer was furnished the brand of flour he ordered, accepted and used part of it, but later refused to pay for it on the grounds that it was unfit for use, the burden of proving the flour’s condition was on him and not on the plaintiff seller); R.G. Moeller Co. v. Van Kampen Constr. Co., 225 N.W.2d 742, 745 (Mich. App. 1975) (“[A]s to goods accepted, the burden is on the buyer to establish any claimed 14 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. breach of warranty.”) (citing M.C.L.A. § 440.-2607.(4)4). See also Alberta Ltd. v. Stedelbauer Chevrolet Oldsmobile (1975) Ltd., 2001 ABQB 909, 302 A.R. 316, para. 25 (Can.) (holding that burden is on purchaser to show defect that breaches warranty agreement). The facts of this case are similar to those of the above cases. Keiper tendered the recliner systems to Intier, who accepted them and incorporated then into the seats it sold to Chrysler. Only later did malfunctions in some of the systems occur, prompting Intier to withhold payment. Under the above authority, even though the warranty obligations were contained in the parties’ contract, the burden is on Intier to prove that the goods it accepted were not in conformity with those warranties. It is thus immaterial that Intier does not label its defense to Keiper’s claim for payment a breach of warranty “affirmative defense” when, in substance, that is exactly what it asserts. We thus conclude that the district court erred in placing the burden on Keiper to show that it did not breach the contractual warranties in question. B. Material Disputes of Fact Preclude Summary Judgment Having determined that the burden at the summary judgment stage was on Intier to show that Keiper breached its contractual warranties, the next question is whether summary judgment was nonetheless appropriate. We conclude it was not. 4 This section of Michigan’s Uniform Commercial Code states: “The burden is on the buyer to establish any breach with respect to the goods accepted.” M.C.L.A. § 440.-2607.(4). 15 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. The record, as recounted above, demonstrates that there is a clear dispute of material fact as to whether Keiper complied with its contractual warranties in providing the recliner systems to Intier.5 That is, there is a conflict in the evidence as to what caused some (and only some) of the recliner motors to fail: was it because the motors did not meet the specifications provided by Chrysler and Intier, or was there a superseding cause related to the placement of the seats in the full-forward position for extended periods of time by Intier, Chrysler, and ultimately by the consumers? In finding no triable issue, the district court misconstrued or overlooked certain facts in the record. For example, in discussing the “7-Step Corrective Action Plan” report prepared by Keiper in its initial investigation of the motor failures, the court stated that there was “no mention” in the report of the seat full-forward position issue. (R. 73 at 6). This is incorrect. Under “Investigation of the Cause,” the report specifically states that the seat backs were reported to be “at or near the full forward stop” position when returned to Chrysler dealers. (R. 64-6 at 3). Indeed, the record is clear that in August 2005, just months after the warranty returns began, Keiper updated its root-cause analysis and informed Intier that it believed the root cause of the motor failures was the positioning of the seat backs in the full-forward position for extended periods of time, and it recommended that Intier modify the angle of the full- 5 The district court correctly concluded that the evidence was sufficient to show that the 1998 and 2005 Terms and Conditions governed the parties’ agreement. (R. 73 at 15 n.3). 16 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. forward incline point. (R. 70-3, Webber Depo. at 151, 154; R. 70-11, Brassat Depo. 109-10). Intier’s own report and the minutes of the February 19, 2008, meeting with representatives of all three companies support the conclusion that the recliner systems met all specifications and that the full-forward seat positioning was a possible contributing cause to the motor failures. (R. 70-16 at 6; R. 70-12 at 2-3). Indeed, Intier engineer Corey Webber testified that “the recliners met the technical design specs.” (R. 70-3 at 153). The email authored by Chrysler engineer and warranty executive, Gregory Pochmara, foreshadowed this dispute: At this point, I think there is agreement that the warranty failures were caused by an unexpected “hard stop” condition in the full up position. However, the argument is now about who is “at fault” for the unexpected failures. Is Chrysler’s “PF” to blame? Is Chrysler/Intier to blame for designing the recliner with the “up” stop only 4 degrees forward of design? Is Keiper at fault for not knowing about this design failure in their DFMEA and then giving direction on where to position the “up” stop? (R. 70-15 at 2) (emphasis added). Although the district court found this evidence “speculative” (R. 73 at 24), that label belies the materiality of the above facts. Simply because the parties disagree as to what caused the motor failures does not mean, where there is evidentiary support for both positions, that resolution of the dispute depends on speculation. For example, in In re Atlas Concrete Pipe, Inc., 668 F.2d 905 (6th Cir. 1982), this court considered a similar dispute and concluded that the district court’s grant of summary judgment was improper. There, the plaintiff pipe company entered into a contract with a 17 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. construction company to supply pipe for several sewer projects. Id. at 906-07. The contract incorporated certain specifications regarding the quality and performance of the pipe to be supplied by the plaintiff. Id. at 907. After construction began, the defendant discovered defects in the pipe and consequently refused to pay outstanding amounts owed under the contract. Id. The plaintiff filed suit for breach of contract, and the defendant asserted, among other defenses, that the pipe failed to comply with the contract’s specifications. Id. The district court granted summary judgment to the plaintiff on the defendant’s counterclaim that the pipe failed to meet the contract specifications, finding that “the qualitative defects in the pipe supplied did not cause the pipeline to fail the infiltrationexfiltration tests.” Id. at 908. This court reversed, holding that because the parties disputed the cause of the pipe’s failure to meet the test specifications contained in the contract – the plaintiff asserted improper installation and the defendant asserted defective manufacture – “summary judgment is improper and the district court should afford the parties a full trial on the merits.” Id. at 909. So it is here. The record contains sufficient evidence from which a reasonable jury could conclude that Keiper complied with its contractual warranties, that the motor failures resulted from a superseding cause, and that Intier is therefore in breach of its contract by failing to pay Keiper the full amount due for the recliner systems it purchased. From the 18 No. 10-1486 Keiper, LLC v. Intier Automotive Inc. same evidence, however, a jury could find in favor of Intier. Summary judgment is therefore inappropriate.