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                       SUPREME COURT OF THE UNITED STATES

                                    --------
                                   No. 95-1764
                                    --------
                     SARATOGA FISHING COMPANY, PETITIONER v.
                                                          __
                       J. M. MARTINAC & COMPANY AND MARCO
                                  SEATTLE INC.


       ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
                                  NINTH CIRCUIT

                                 [June 2, 1997]

  JUSTICE BREYER delivered the opinion of the Court.

  The issue before us concerns limits upon the damages that a tort plaintiff in
admiralty can recover for physical damage to property caused by a defective
product.  In East River S. S. Corp. v. Transamerica Delaval Inc., 476 U. S. 858
             ______________________    __________________________
(1986), the Court held that an admiralty tort plaintiff cannot recover for the
physical damage the defective product causes to the "product itself"; but the
plaintiff can recover for physical damage the product causes to "other
property."  In this case all agree that the "product itself" consists at least
                                                                      ________
of a ship as built and outfitted by its original manufacturer and sold to an
initial user.  This case asks how this corner of tort law treats the physical
destruction of extra equipment (a skiff, a fishing net, spare parts) added by
               ________________                                      ______
the initial user after the first sale and then resold as part of the ship when
the ship itself is later resold to a subsequent user.  Is that added equipment
part of the "product itself," in which case the plaintiff cannot recover in tort
for its physical loss?  Or is it "other property," in which case the plaintiff
can recover?  We conclude that it is "other property."  Hence (assuming other
tort law requirements are satisfied) admiralty's tort rules permit recovery.

                                95-1764 - OPINION

2                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

                                        I
  This case arises out of an engine room fire and flood that led to the sinking
of the fishing vessel M/V Saratoga in January 1986.  We must assume that a
hydraulic system defectively designed by respondent Marco Seattle Inc. was one
significant cause of the accident.  About 15 years before the accident,
respondent J. M. Martinac & Co. had built the ship, installed the hydraulic
system, and sold the ship new to Joseph Madruga.  Madruga then added extra
equipment - a skiff, a seine net, and various spare parts - and used the ship
for tuna fishing.  In 1974, Madruga resold the ship to the petitioner, Saratoga
Fishing Co., which continued to use the ship for fishing.  In 1987, after the
ship caught fire and sank, Saratoga Fishing brought this tort suit in admiralty
against Marco Seattle and J. M. Martinac.
  The District Court found that the hydraulic system had been defectively
designed, and it awarded Saratoga Fishing damages (adjusted to reflect Saratoga
Fishing's own partial fault).  Those damages included damages for the loss of
the equipment that Madruga had added after the initial purchase of the ship.
  The Ninth Circuit held that the District Court should not have awarded damages
for the added equipment.  Saratoga Fishing Co. v. Marco Seattle Inc., 69 F. 3d
                          ____________________    ___________________
1432, 1445 (CA9 1995).  A majority noted that the equipment, though added by
Madruga, was part of the ship when Madruga resold the ship to Saratoga Fishing,
and, for that reason, the majority held, the added equipment was part of the
defective product that itself caused the harm.  Applying East River's
                                                         __________
distinction between the product that itself caused the harm and "other
property," the majority concluded that Saratoga Fishing could not recover in
tort for the loss.  A dissenting judge believed that the "product itself" was
the ship

                                95-1764 - OPINION

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  3
                                        __

when launched into the stream of commerce by Martinac, its original builder. 
Consequently, the added equipment was "other property."  We granted certiorari
to resolve this uncertainty about the proper application of East River.  We now
                                                            __________
agree with the dissenting judge.
                                       II
  The facts before us show: (1) a Component Supplier who (2) provided a
defective component (the hydraulic system) to a Manufacturer, who incorporated
it into a manufactured product (the ship), which (3) the Manufacturer sold to an
Initial User, who (4) after adding equipment and using the ship, resold it to a
Subsequent User (Saratoga Fishing).  The applicable law is general maritime law,
"an amalgam of traditional common-law rules, modifications of those rules, and
newly created rules," drawn from both state and federal sources.  East River,
                                                                  ___________
supra, at 865; see also Fitzgerald v. United States Lines Co., 374 U. S. 16, 20
______                  __________    ________________________
(1963); Kermarec v. Compagnie Generale Transatlantique, 358 U. S. 625, 630
        ________    ___________________________________
(1959).  The context is purely commercial.  The particular question before us
requires us to interpret the Court's decision in East River: does the term
                                                 ___________
"other property," as used in that case, include the equipment added by the
Initial User before he sold the ship to the Subsequent User?  We conclude that
it does: When a Manufacturer places an item in the stream of commerce by selling
it to an Initial User, that item is the "product itself" under East River. 
                                                               __________
Items added to the product by the Initial User are therefore "other property,"
and the Initial User's sale of the product to a Subsequent User does not change
these characterizations.
  East River arose at the intersection of two principles that govern recovery in
  __________
many commercial cases involving defective products.  The first principle is that
tort law in this area ordinarily (but with exceptions) permits recovery from a
manufacturer and others in the initial

                                95-1764 - OPINION

4                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

chain of distribution for foreseeable physical harm to property caused by
                                      ________
product defects.  See Restatement (Second) of Torts S402A (1965); W. Keeton, D.
Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts S101 (5th ed.
1984); East River, supra, at 867.  The second principle is that tort law in this
       __________________
area ordinarily (but with exceptions) does not permit recovery for purely
                                           ___
economic losses, say, lost profits.  See Restatement (Third) of Torts: Products
Liability S6, Comment d  (Proposed Final Draft, Preliminary Version, Oct. 18,
                      _
1996); e.g., Rardin v. T & D Machine Handling, Inc., 890 F. 2d 24, 27-30 (CA7
       ____________    _____________________________
1989).  The Court in East River favored the second principle, for it held that
                     __________
an injury to the defective product itself, even though physical, was a kind of
"economic loss," for which tort law did not provide compensation.  East River,
                                                                   ___________
476 U. S., at 871.
  The Court reasoned that the loss of the value of a product that suffers
physical harm - say, a product that destroys itself by exploding - is very much
like the loss of the value of a product that does not work properly or does not
work at all.  See id., at 870.  In all such cases, the Court held, "[c]ontract
                 ______
law, and the law of warranty in particular, is well suited" to setting the
responsibilities of a seller of a product that fails to perform the function for
which it was intended.  Id., at 872-873.  The commercial buyer and commercial
                        ____
seller can negotiate a contract - a warranty - that will set the terms of
compensation for product failure.  If the buyer obtains a warranty, he will
receive compensation for the product's loss, whether the product explodes or
just refuses to start.  If the buyer does not obtain a warranty, he will likely
receive a lower price in return.  Given the availability of warranties, the
courts should not ask tort law to perform a job that contract law might perform
better.  Ibid.; Seely v. White Motor Co., 63 Cal. 2d 9, 18-19, 403 P. 2d 145,
         ______ _____    ________________
151 (1965) (en

                                95-1764 - OPINION

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  5
                                        __

banc).
  The Ninth Circuit reasoned that East River required it to define the defective
                                  __________
"product itself" by looking to that which the plaintiff had purchased, for that
is the product that, in principle, the plaintiff could have asked the seller to
warrant.  Since Saratoga Fishing, the Subsequent User, might have asked Madruga,
the Initial User, to warrant the M/V Saratoga, skiff, nets, and all, that
product, skiff, nets, and all, is the "product itself" that stands outside the
reach of tort recovery.  In our view, however, this holding pushes East River's
                                                                   ____________
principle beyond the boundary set by the principle's rationale.
  For one thing, the Ninth Circuit's holding creates a tort damage immunity
beyond that set by any relevant tort precedent that we have found.  State law
often distinguishes between items added to or used in conjunction with a
defective item purchased from a Manufacturer (or its distributors) and (follow-
ing East River) permits recovery for the former when physically harmed by a
    __________
dangerously defective product.  Thus the owner of a chicken farm, for example,
recovered for chickens killed when the chicken house ventilation system failed,
suffocating the 140,000 chickens inside.  A. J. Decoster Co. v. Westinghouse
                                          __________________    ____________
Electric Corp., 333 Md. 245, 634 A. 2d 1330 (1994).  A warehouse owner recovered
_______________
for damage to a building caused by a defective roof.  United Air Lines, Inc. v.
                                                      ______________________
CEI Industries of Ill., Inc., 148 Ill. App. 3d 332, 499 N. E. 2d 558 (1986). 
_____________________________
And a prior case in admiralty (not unlike the one before us) held that a ship
charterer, who adds expensive seismic equipment to the ship, may recover for its
loss in a fire caused by a defective engine.  Nicor Supply Ships Assocs. v.
                                              __________________________
General Motors Corp., 876 F. 2d 501 (CA5 1989).  Indeed, respondents here
_____________________
conceded that, had the ship remained in the hands of the Initial User, the loss
of the added equipment could have been recovered in tort.  See Tr. of Oral Arg.
29-30.  We have found no suggestion in state

                                95-1764 - OPINION

6                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

(or in federal) law that these results would change with a subsequent sale -
that is, we have found no case, other than the Ninth Circuit case before us,
that suggests that the courts would deny recovery to a subsequent chicken
farmer, who had later purchased the farm, chickens, coop, ventilation system,
and all.
  Indeed, the denial of recovery for added equipment simply because of a
subsequent sale makes the scope of a manufacturer's liability turn on what
seems, in one important respect, a fortuity, namely whether a defective product
causes foreseeable physical harm to the added equipment before or after an
Initial User (who added the equipment) resells the product to a Subsequent User. 
One important purpose of defective-product tort law is to encourage the
manufacture of safer products.  The various tort rules that determine which
foreseeable losses are recoverable aim, in part, to provide appropriate safe-
product incentives.  And a liability rule that diminishes liability simply
because of some such resale is a rule that, other things being equal, diminishes
that basic incentive.  That circumstance requires a justification.  That is to
say, why should a series of resales, after replacement and additions of ever
more physical items, progressively immunize a manufacturer to an ever greater
extent from the liability for foreseeable physical damage that would otherwise
fall upon it?
  The East River answer to this question - because the parties can contract for
      __________
appropriate sharing of the risks of harm - is not as satisfactory in the context
of resale after an initial use.  That is because, as other courts have
suggested, the Subsequent User does not contract directly with the Manufacturer
(or distributor.)  Cf. Peterson v. Idaho First Nat. Bank, 117 Idaho 724, 727,
                       ________    ______________________
791 P. 2d 1303, 1306 (1990); Tillman v. Vance Equipment Co., 286 Ore. 747,
                             _______    ____________________
755-756, 596 P. 2d 1299, 1304 (1979).  Moreover, it is likely more difficult for
a consumer - a commercial user and reseller - to offer an

                                95-1764 - OPINION

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  7
                                        __

appropriate warranty on the used product he sells akin to a manufacturer's (or
distributor's) warranty of the initial product.  The user/reseller did not make
(or initially distribute) the product and, to that extent, he normally would
know less about the risks that such a warranty would involve.  Cf. Tillman,
                                                                   ________
supra, at 755, 596 P. 2d, at 1303-1304; Peterson, supra, at 726-727, 791 P. 2d,
______                                  _________________
at 1305-1306.  That is to say, it would seem more difficult for a reseller to
warrant, say, a ship's engine; as time passes, the ship ages, the ship undergoes
modification, and it passes through the hands of users and resellers.
  Of course, nothing prevents a user/reseller from offering a warranty.  But
neither does anything prevent a Manufacturer and an Initial User from
apportioning through their contract potential loss of any other items - say,
added equipment or totally separate physical property - that a defective
manufactured product, say an exploding engine, might cause.  No court has
thought that the mere possibility of such a contract term precluded tort
recovery for damage to an Initial User's other property.  Similarly, in the
absence of a showing that it is ordinary business practice for user/resellers to
offer a warranty comparable to those typically provided by sellers of new prod-
ucts, the argument for extending East River, replacing tort law with contract
                                 ___________
law, is correspondingly weak.  That is to say, respondents have not explained
why the ordinary rules governing the manufacturer's tort liability should be
supplanted merely because the user/reseller may in theory incur an overlapping
liability in contract.
  Respondents make two other important arguments.  First, they say that our
reasoning proves too much.  They argue that, if a Subsequent User can recover
for damage a defective manufactured product causes to property added by the
Initial User, then a user might recover for damage a defective component causes
the

                                95-1764 - OPINION

8                  SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

manufactured product, other than the component itself.  Saratoga Fishing, for
example, could recover the damage the defective hydraulic system caused to any
other part of the ship.  But the lower courts, following East River, have held
                                                         ___________
that it is not a component part, but the vessel - as placed in the stream of
commerce by the manufacturer and its distributors - that is the "product" that
itself caused the harm.  See Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825
                             _________________    _________________________
F. 2d 925, 928 (CA5 1987); see also, e.g., National Union Fire Ins. Co. of
                                     _____ _______________________________
Pittsburgh v. Pratt & Whitney Canada, Inc., 107 Nev. 535, 539-542, 815 P. 2d
__________    _____________________________
601, 604-605 (1991).  As the Court said in East River,
                                           ___________
   "`Since all but the very simplest of machines have component parts, [a
   contrary] holding would require a finding of `property damage' in virtually
   every case where a product damages itself.  Such a holding would eliminate
   the distinction between warranty and strict products liability.'"  East
                                                                      ____
   River, 476 U. S., at 867 (quoting Northern Power & Engineering Corp. v.
   ______                            ___________________________________
   Caterpillar Tractor Co., 623 P. 2d 324, 330 (Alaska 1981)).
   ________________________

  Our holding here, however, does not affect this rule, for the relevant
relations among initial users, manufacturers, and component suppliers are
typically different from those at issue here.  Initial users when they buy
typically depend upon, and likely seek warranties that depend upon, a
manufacturer's primary business skill, namely the assembly of workable product
components into a marketable whole.  King v. Hilton-Davis, 855 F. 2d 1047, 1052
                                     ____    _____________
(CA3 1988); Shipco 2295, supra, at 929; National Union Fire Ins., supra, at 541,
            ___________________         _________________________________
815 P. 2d, at 605.  Moreover, manufacturers and component suppliers can allocate
through contract potential liability for a manufactured product that does not
work, thereby ensuring that component suppliers have appropriate

                                95-1764 - OPINION

                   SARATOGA FISHING CO. v. J. M. MARTINAC CO.                  9
                                        __

incentives to prevent component defects that might destroy the product.  King,
                                                                         _____
supra, at 1054; cf. Shipco 2295, supra, at 930.  There is no reason to think
_______             ___________________
that initial users systematically control the manufactured product's quality or,
as we have said, systematically allocate responsibility for user-added
equipment, in similar ways.  Regardless, the case law does suggest a distinction
between the components added to a product by a manufacturer before the product's
sale to a user, e.g., Airlift Int'l, Inc. v. McDonnell Douglas Corp., 685 F. 2d
                _____ ___________________    _________________________
267 (CA9 1982); King, supra; Shipco 2295, supra; and those items added by a user
                ____________ ___________________
to the manufactured product, e.g., Nicor Supply Ships Assocs. v. General Motors
                             ________________________________    ______________
Corp., 876 F. 2d 501 (CA5 1989); and we would maintain that distinction.
______
  Second, respondents argue that our holding would impose too great a potential
tort liability upon a manufacturer or a distributor.  But we do not see how that
is so.  For one thing, a host of other tort principles, such as foreseeability,
proximate cause, and the "economic loss" doctrine already do, and would continue
to, limit liability in important ways.  For another thing, where such principles
are satisfied, liability would exist anyway had the manufactured product simply
remained in the hands of the Initial User.  Our holding merely maintains
liability, for equipment added after the initial sale, despite the presence of a
               _______________
resale by the Initial User.
  We conclude that equipment added to a product after the Manufacturer (or
distributor selling in the initial distribution chain) has sold the product to
an initial User is not part of the product that itself caused physical harm. 
Rather, in East River's language, it is "other property."  (We are speaking, of
           ____________
course, of added equipment that itself played no causal role in the accident
that caused the physical harm.)  Thus the extra skiff, nets, spare parts, and
miscellaneous equipment at issue here, added to the ship by a user after an
initial

                                95-1764 - OPINION

10                 SARATOGA FISHING CO. v. J. M. MARTINAC CO.
                                        __

sale to that Initial User, are not part of the product (the original ship with
the defective hydraulic system) that itself caused the harm.
  The decision of the Ninth Circuit is
                                                                       Reversed.
                                                                       ________