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Texas Supreme Court Weekly Update October 23, 2020

On Behalf of | Oct 23, 2020 | Texas Supreme Court Weekly Update

This week, in Northland Industries Inc. et al. v. Gilbert Kouba et al., the Texas Supreme Court issued an opinion addressing whether an implied warranty of merchantability attached when the manufacturer sold a treadmill to a gym, and that defective treadmill later caused a fatal injury. Northland Industries, Inc. (seller) manufactured and sold treadmills. JHTNA Manufacturing, L.L.C. (buyer) purchased assets from that seller, including treadmills used at a local gym. While using that treadmill, Audrey Kouba fell, sustaining fatal injuries, after the treadmill allegedly changed speeds unexpectedly. Her heirs then sued both the buyer and seller of the treadmill. The buyer moved for summary judgment claiming that as an asset purchaser, it had no liability other than assumed liability. The trial court grated summary judgment for the buyer. On appeal, the plaintiff’s challenged summary judgment only as to the claim of implied warranty of merchantability. The court of appeals reversed as to that claim holding that the buyer assumed liability to implied warranties.

The Texas Supreme Court held that the buyer assumed some of the manufacturer’s liabilities but did not assume implied product warranties under the asset-purchase agreement. The Court followed the majority rule that an asset purchaser does not assume the seller’s liabilities for harm from defective products sold commercially, unless there is an exception. The buyer did not dispute that the warranty of merchantability did attach to the sale of the treadmill and was not properly excluded or modified under the Uniform Commercial Code. However, the buyer asserted that it assumed only the written warranty on repair and replacement.

The Court noted that whether the buyer assumed the seller’s implied warranties is determined by the terms of the asset-purchase agreement. The relevant inquiry was whether the asset-purchase agreement, as a whole, demonstrated the buyer’s intent to assume the implied warranty of merchantability. The Court, in looking to the language of the asset purchase agreement found that the buyer had no intent to assume implied product warranties. The Court held that the buyer only assumed the obligation to repair-or-replace parts as expressly written in the asset purchase agreement. Thus, the buyer had no liability as a matter of law. The Supreme Court reversed the opinion of the court of appeals, holding that the trial court properly granted summary judgment.

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