Facts
- Chuck Babb bought a new Regal-brand boat from Powerboats N.W. (PBNW), an independent, authorized Regal dealer, rather than from Regal Marine Industries, Inc. (Regal), the manufacturer.
- Regal issued a limited written warranty stating that the dealer would repair or replace defective parts for one year after delivery, subject to exclusions; the boat’s Volvo engine was covered by a separate Volvo warranty.
- After winter storage, the boat repeatedly stalled when Babb took it out again.
- Regal directed Babb to take the boat to a specified repair facility and also sent a replacement for a broken wakeboard tower.
- The repair facility found a crack in the engine, and Regal concluded the damage was consistent with freeze damage caused by improper winterization.
- Regal told Babb that the engine problem was not covered under Regal’s limited warranty.
- Babb sued Regal for breach of express warranty and breach of implied warranties, including the implied warranty of merchantability.
- The superior court granted summary judgment to Regal on all claims.
- In a prior appeal, the court affirmed dismissal of the express-warranty claim but reversed dismissal of the implied-warranty claims because the record did not show Babb had waived implied warranties.
- On remand, at the Washington Supreme Court’s direction, the Court of Appeals addressed whether Babb’s implied-warranty-of-merchantability claim was barred because Babb lacked contractual privity with Regal.
Issues
- Whether a buyer who purchased a boat from an authorized dealer, not the manufacturer, may bring a UCC implied-warranty-of-merchantability claim against the manufacturer despite lack of contractual privity.
- Whether the buyer could satisfy the privity requirement by showing he was an intended third-party beneficiary of the manufacturer–dealer agreement.
Decision
- The Court of Appeals held Babb was a “vertical nonprivity” purchaser as to Regal because he bought from PBNW, not Regal.
- The court held that, on this record, Babb did not show he was an intended third-party beneficiary of the contract between Regal and PBNW.
- Because Babb lacked privity (and lacked a substitute such as intended-beneficiary status), his implied warranty of merchantability claim against Regal failed as a matter of law.
- The court affirmed summary judgment dismissing the implied-warranty-of-merchantability claim.
Legal Principles
- Under Washington’s UCC framework, the implied warranty of merchantability ordinarily runs from a seller to its buyer; a remote manufacturer is not automatically liable on an implied merchantability theory for purely economic loss when the plaintiff purchased through the distribution chain.
- A “vertical nonprivity” purchaser may proceed on an implied-warranty theory against a remote manufacturer only if a recognized basis supplies the privity element.
- One recognized basis is intended third-party beneficiary status, which requires a showing that the contracting parties clearly intended to confer a direct benefit and a direct obligation to the third party; benefit to consumers from an ordinary manufacturer–dealer relationship is not enough.
- On summary judgment, the nonmoving party must present evidence sufficient to support the needed elements; speculation or inference from the existence of a dealer network does not establish intended-beneficiary intent.
Conclusion
Because Babb purchased the boat from an authorized dealer rather than from Regal, he was a vertical nonprivity plaintiff and could maintain an implied warranty of merchantability claim against Regal only by proving he was an intended third-party beneficiary of Regal’s dealer contract. The Court of Appeals concluded the evidence did not show such intent and therefore affirmed summary judgment dismissing the implied merchantability claim for lack of privity.