Sacramento Regional Transit District v. Grumman Flxible

Discussion

I

n response to plaintiff’s contention that it adequately pled a cause of action for products liability we briefly review the authorities which define the contours of a products liability action.

“A manufacturer is strictly liable in tort when an article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.” (Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57 , 62 [ 27 Cal.Rptr. 697 , 377 P.2d 897 , 13 A.L.R.3d 1049 ].)

“Subsequent cases have expanded the scope of the Greenman doctrine by imposing strict liability on retail dealers [citation]; wholesale and retail distributors [citation]; home builders [citations]; bailors and lessors of personal property [citations]; and licensors of chattels [citation]. The standard of strict liability has been held to apply to a defect in design as well as a defect in manufacture [citations] and extends not only to actual consumers or users but to any human being to whom an injury from the defect is reasonably foreseeable. [Citations.]” (Silverhart v. Mount Zion Hospital (1971) 20 Cal.App.3d 1022 , 1026 [ 98 Cal.Rptr. 187 , 54 A.L.R.3d 250 ].)

Liability is imposed not only where the defective product causes personal injury, but also where the defective product causes physical damage to property. (S eely v. White Motor Co. (1965) 63 Cal.2d 9 , 19 [ 45 Cal.Rptr. 17 , 403 P.2d 145 ]; International Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal.App.3d 1001 , 1005 [ 168 Cal.Rptr. 301 ]; Kaiser Steel Corp. v. Westinghouse Elec. Corp. (1976) 55 Cal.App.3d 737 , 746, fn. 5 [ 127 Cal.Rptr. 838 ]; Ghema v. Ford Motor Co. (1966) 246 Cal.App.2d 639 , 649 [ 55 Cal.Rptr. 94 ].) The damaged property may consist of the product itself. (See Seely v. White Motor Co., supra, 63 Cal.2d at p. 19; International Knights of Wine, Inc. v. Ball Corp., supra, 110 Cal.App.3d at p. 1005; Ghema v. Ford Motor Co., supra, 246 Cal.App.2d at p. 649.)

However, where damage consists solely of “economic losses,” recovery on a theory of products liability is precluded. (Cronin v. J.B.E. Olson Corp. (1972) 8 Cal.3d 121 , 130 [ 104 Cal.Rptr. 433 , 501 P.2d 1153 ]; Seely v. White Motor Co., supra, 63 Cal.2d at pp. 18-19; Pisano v. American Leasing (1983) 146 Cal.App.3d 194 , 196-197 [ 194 Cal.Rptr. 77 ]; International Knights of Wine, Inc. v. Ball Corp., supra, 110 Cal.App.3d at p. 1008 (cone, and dis. opn. of Fleming, J.); Rodrigues v. Campbell Industries (1978) 87 Cal.App.3d 494 , 498 [ 151 Cal.Rptr. 90 ]; Kaiser Steel Corp. v. Westinghouse Elec. Corp., supra, 55 Cal.App.3d at p. 746, fn. 5;

who by his occupation holds himself out as having such knowledge or skill.” (§ 2104, subd. (1).) The drafters of the Uniform Commercial Code wrote, “This article assumes that transactions between professionals in a given field require special and clear rules which may not apply to a casual or inexperienced seller or buyer. It thus adopts a policy of expressly stating rules applicable ‘between merchants’ and ‘as against a merchant’, wherever they are needed instead of making them depend upon the circumstances of each case . . . .” (Official comment to § 2104; see generally Lattin, Uniform Commercial Code, Article 2 on Sales: Some Observations on Four Fundamentals (1965) 16 Hastings L.J. 551 , 552-561.)

Here, the facts pleaded in the complaint demonstrate that, as a transit district, plaintiff had knowledge and skill peculiar to the goods (busses) involved in the transaction. Plaintiff, like defendant, was therefore clearly a “merchant” as defined by section 2104. The Uniform Commercial Code regulated the various aspects of plaintiff’s purchase of busses from defendant, including liability for defects based on express and implied warranties. (See, e.g., §§ 2303, 2313, 2314, 2315; Fundin v. Chicago Pneumatic Tool Co. (1984) 152 Cal.App.3d 951 , 957-960 [ 199 Cal.Rptr. 789 ]; see generally Lattin, op. cit. supra.) We see no reason why we should apply tort law to govern plaintiff’s commercial relations with another merchant. “The law of sales has been carefully articulated to govern the economic relations between suppliers and consumers of goods. The history of the doctrine of strict liability in tort indicates that it was designed, not to undermine the warranty provisions of the sales act or of the Uniform Commercial Code but, rather, to govern the distinct problem of physical injuries.” (Seely v. White Motor Co., supra, 63 Cal.2d at p. 15.)

Kaiser Steel Corp. v. Westinghouse Elec. Corp., supra, 55 Cal.App.3d 737 also supports this view. There, Westinghouse manufactured and delivered to Kaiser an electrical generator built to Kaiser’s specifications. Defects in welding of rivets caused the generator to self-destruct. Loss of the generator caused a portion of Kaiser’s manufacturing plant to shut down. (P. 742.)

Upholding a nonsuit granted as to Kaiser’s tort cause of action based on products liability, the court said: “Because the Legislature through the adoption of the Uniform Commercial Code has defined the precise conditions to, and extent of, liability for defective products in situations covered by the code, we must not, in deference to the Legislature, create rules of liability which displace those of the Uniform Commercial Code. (Titus, Restatement (Second) of Torts Section 402 A and the Uniform Commercial Code (1970) 22 Stan.L.Rev. 713 , 755.) The rule of strict liability for defective products is an example of necessary paternalism judicially shifting risk of loss by application of tort doctrine because California’s statutory

scheme fails to adequately cover the situation. Judicial paternalism is to loss shifting what garlic is to a stew—sometimes necessary to give full flavor to statutory law, always distinctly noticeable in its result, overwhelmingly counterproductive if excessive, and never an end in itself.” (Kaiser Steel Corp., supra, at p. 747.)

Plaintiff relies heavily on Gherna v. Ford Motor Co., supra, 246 Cal.App.2d 639 and International Knights of Wine, Inc. v. Ball Corp., supra, 110 Cal.App.3d 1001 .

The plaintiff in Gherna appealed from a judgment of nonsuit entered at the close of plaintiff’s presentation of evidence (Code Civ. Proc., § 581c, subd. (a)). (Gherna v. Ford Motor Co., supra, 246 Cal.App.2d at p. 644.) Plaintiff attempted to prove that defective wiring or a design defect consisting of the juxtaposition of the transmission fluid dipstick and the exhaust manifold caused a fire which damaged plaintiff’s automobile.

On appeal, the court held that the evidence was sufficient (as to both defects) to avoid a nonsuit. (Id., at p. 650.) The Gherna court expressly held that products liability affords a remedy to one whose property has been physically injured and impliedly held that the remedy is available where the property injured is the defective product. (Id., at pp. 649-650.)

Gherna is distinguishable from the instant case in that the defects in the product were claimed to have caused different and further damage to non-defective portions of the product. In the instant case the only injury to the product is the defect itself. Moreover, the plaintiff in Gherna was not a merchant as defined by the Uniform Commercial Code.

In International Knights of Wine, Inc. v. Ball Corp., supra, 110 Cal.App.3d 1001 (hereafter IKW), plaintiff appealed from a judgment on the pleadings. Plaintiff had alleged it purchased wine from defendant Nave Pierson Winery, Inc., to be marketed under plaintiff’s label and trade name. Subsequently, plaintiff discovered that the wine was damaged and unmarketable because of faulty metal caps which sealed the bottles. Plaintiff sued a number of defendants alleging negligence, breach of warranties and products liability. The defendants were described by the trial court in the following terms: “ ‘Nave Pierson Winery produced wine. It purchased metal caps for wine bottles from Latchford [Package Company], which purchased from Ball [Corporation], the manufacturer of the caps. Ball had sent the metal used in the caps to Wester [Metal Decorating Co.] for coating before it was made into caps. Biner-Ellison [Manufacturing Co.] sold the capping equipment which was manufactured by Resina [Manufacturing Co.] to Nave.’” (Id., at p. 1004.)

All defendants moved for judgment on the pleadings as to the products liability cause of action; the trial court granted the motion. (Ibid.)

The author of the lead opinion in IKW (Roth, P. J.) held that (1) the proper test of the inapplicability of the doctrine of products liability in commercial transactions is confined to the single issue of whether “the party seeking to invoke the doctrine could have negotiated so as to remove from himself the risk of loss from defective products” (id., at p. 1007, fn. 1, original italics); (2) the pleadings did not disclose sufficient facts to resolve this issue (id., at p. 1007); and (3) the issue of damages need not be addressed to reach a decision in the case. (Ibid.)

Justice Fleming concurred and dissented. He “agree[d] that plaintiff has pleaded a tort cause of action in strict liability against noncontracting parties for property damages, but [Justice Fleming took] the view that the relative size and bargaining power of plaintiff vis-a-vis the noncontracting parties are inconsequential. For that reason the trial court erred in giving the supplier-defendants judgment on the pleadings on the cause of action for strict liability.” (Id., at p. 1008.)

Justice Fleming dissented on the issue of damages opining that “plaintiff’s damages in its tort action in strict liability against noncontracting parties (as contrasted with its negligence action) are limited to property losses (the wine) and may not include such other economic losses or loss of profits, loss of business opportunity, loss of goodwill, and the like.” (Ibid.)

Justice Beach concurred in the lead opinion regarding the pleading issue and joined Justice Fleming’s dissent on the issue of damages. (Id., at p. 1009.)

IKW is distinguishable from the instant case in that it was alleged “ ‘that due to defective caps or defective application of caps the wine became unsusable and economic loss was incurred. ’ ” (Id., atp. 1004.) This allegation may be construed to allege physical injury to plaintiff’s wine caused by defective caps. To the extent that IKW may stand for the proposition that a merchant may sue in products liability for physical injury to its property where that injury consists of nothing more than the product defect upon which liability is founded, we decline to follow it.

Plaintiff asserts it is anomalous to allow a consumer to sue on a theory of products liability when physical injury to a person has occurred but not when a defect is discovered that will -ultimately cause the physical injury. In the circumstances of this case, we disagree.

Plaintiff’s argument assumes a purchaser has discovered a defect in the product. The viable policy question is whether imposition of liability in tort

is reasonably necessary to prevent use of the known defective product with its consequent potential for causing injury to people. We conclude imposition of tort liability on the manufacturer is unnecessary to prevent use of a defective product purchased by one who is a “merchant” under the Uniform Commercial Code. As a merchant having peculiar knowledge of the goods, there is no question but that plaintiff would (and did) perceive the full potential for injury to persons that could occur if the defective product was put to its ordinary use. We will not assume a merchant who discovers a defect with the potential for causing injury will place the defective product in use unless the product’s manufacturer bears the cost of repairs. Nothing in reason or experience supports such an assumption. Rather, the more reasonable view is that the merchant will repair the product as plaintiff did here. Since the question is not whether a defective product will be put in use, but rather who should bear the economic cost of repairs, we see no reason to disturb the allocation of those costs agreed to by knowledgeable merchants.

Plaintiff also contends it has properly pled an action in negligence against defendant. We disagree. “[I]n actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone. [Citations.]” (Seely v. White Motor Co., supra, 63 Cal.2d at p. 18.) As we have noted, the cost of repair of a defect in a manufactured product constitutes economic loss; that loss is not recoverable in a tort action based on negligence. (National Crane Corp. v. Ohio Steel Tube Co., supra, 332 N.W.2d at p. 44; Chrysler Corp. v. Taylor, supra, 234 S.E.2d at p. 124; AlfredN. Koplin & Co. v. Chrysler Corp., supra, 364 N.E.2d at p. 107.) This rule is necessary so that the Uniform Commercial Code, governing commercial transactions, is not completely subsumed by the law of tort. (See Alfred N. Koplin, supra, 364 N.E.2d at p. 107; Rabin & Grossman, Defective Products or Realty Causing Economic Loss: Toward a Unified Theory of Recovery (1981) 12 Sw.U.L.Rev. 4 , 16.) Moreover, “judicial expansion of negligence law to cover purely economic losses would only add more confusion in an area already plagued with overlapping and conflicting theories of recovery.” (Clark v. International Harvester Co., supra, 581 P.2d at p. 794.)

A similar issue was addressed in Fentress v. Van Etta Motors (1958) 157 Cal.App.2d Supp. 863 [ 323 P.2d 227 ], where the trial court had sustained a general demurrer to plaintiff’s complaint seeking recovery for damages to his car caused by a crash resulting from negligently manufactured brakes. The court asked, “Will an action lie against the manufacturer of an article which, if negligently made, is likely to produce injury to person or property, for damages resulting from an accident caused by the negligence, where the

the negligence of a builder of a structure poses no conflict with the law of sales as set forth in the Uniform Commercial Code. We therefore question whether Pisano’s reliance on J’Aire was well placed. Nonetheless, for present purposes, it is sufficient that we find Pisano distinguishable. Nothing in Pisano indicates the plaintiff cabinet maker had special knowledge of the mechanical sander sufficient to make him a “merchant” with respect to the transactions in question. (See § 2104.) Here, where merchants are involved, we conclude that the Uniform Commercial Code, and not tort law, should govern their commercial affairs, including any economic loss caused by a defective product.

The trial court properly sustained the demurrer.

Disposition

The judgment is affirmed.

Evans, Acting P. J., and Sparks, J., concurred.

A petition for a rehearing was denied August 13, 1984, and the opinion was modified to read as printed above. Appellant’s petition for a hearing by the Supreme Court was denied September 12, 1984.