Title: Grimes v. Axtell Ford Lincoln-Mercury

State: iowa

Issuer: Iowa Supreme Court

Document:

403 N.W.2d 781 (1987) James O. GRIMES, Mark Alan Grimes, and Brandt, Inc., a Wisconsin Corporation, Plaintiffs, v. AXTELL FORD LINCOLN-MERCURY, a Corporation, Defendant-Movant. AXTELL FORD LINCOLN-MERCURY, a Corporation, Plaintiff-Movant, v. GRALNEK-DUNITZ COMPANY, Defendant. No. 86-994. Supreme Court of Iowa. April 15, 1987. Thomas J. Walsh Sr. and Thomas J. Walsh Jr. of Walsh, Fullenkamp, Doyle & Rau, Omaha, Neb., and Troyce Wheeler of Anderson & Wheeler, Council Bluffs, for Grimes and Brandt. John D. Sens and William R. Hughes Jr. of Stuart, Tinley, Peters, Thorn, Smits & Sens, Council Bluffs, for Axtell Ford. Dean F. Suing of Katskee & Henatsch, Omaha, Neb., and David F. McCann of Dipple & McCann, Council Bluffs, for Gralnek-Dunitz. Considered by HARRIS, P.J., and SCHULTZ, CARTER, WOLLE, and LAVORATO, JJ. LAVORATO, Justice. The United States Court of Appeals for the Eighth Circuit has certified three questions of law to us. See Iowa Code ch. 684A; Iowa R.App.P. 451-61. The issue is whether we will extend the doctrine of strict liability to sellers of used goods. The plaintiffs were injured as a result of the failure of a used axle shaft installed on their vehicle. The defect in the shaft was not a manufacturing or design defect, nor was it created by either the defendant (installer) or the third-party defendant (salvage yard). Instead, the defect was caused by an unknown person while the axle shaft was in the possession of an unknown previous owner. The federal court stated the relevant facts as follows: The federal court posed certified questions as follows: 3. Can an automobile salvage yard which did not inspect or alter the used axle which had a latent defect be properly *783 held liable under the doctrine of strict liability in tort where the used axle was defective when it came into the salvage yard's possession, was defective when it was sold to a repair garage, and a jury has determined that the repair garage had no right to expect that the axle be free of defects? I. We decline to answer question one under the facts presented. We begin with the federal court's question number two, which we answer negatively. Thus, question three requires no answer. In addressing the question, we restrict our answer to the facts provided with the certified questions. Mulcahy v. Eli Lilly & Co., 386 N.W.2d 67, 70 (Iowa 1986). We do not foreclose the possibility of our applying the doctrine of strict liability to sellers of used goods under other circumstances. We first examine the policy reasons behind the doctrine of strict liability. We adopted strict liability in tort, as set out at Restatement (Second) of Torts section 402A, in Hawkeye-Security Ins. Co. v. Ford Motor Co., 174 N.W.2d 672, 684 (Iowa 1970) (suit against manufacturer of defective brakes).[1] We gave the following reasons for adopting the doctrine: 174 N.W.2d at 683-84 (citations omitted). Our goal in imposing strict liability is twofold. First, we hope to deter the sale of defective goods by holding those who control the manufacturing process strictly liable. Consequently, we have applied strict liability to retailers as well as to manufacturers. Osborn v. Massey-Ferguson, Inc., 290 N.W.2d 893, 901 (Iowa 1980). But see 1986 Iowa Acts ch. 1211, § 32 (codified at Iowa Code § 613.18 (1987)) (limits scope of strict liability as to nonmanufacturers, including retailers, under certain circumstances). Retailers are in a position to inspect and repair their products or to exert pressure on manufacturers to improve product safety. See Note, Protecting the Buyer of Used Products: Is Strict Liability for Commercial Sellers Desirable?, 33 Stan.L.Rev. 535, 539-42 (1981). Second, we intend to provide compensation to those injured by defective goods. For example, we made the strict liability doctrine available to injured bystanders in addition to consumers and users of defective goods. Haumersen v. Ford Motor Co., 257 N.W.2d 7, 16 (Iowa 1977). II. Several courts have addressed the general question whether and in what circumstances a dealer in used products should be held strictly liable. See generally Annotation, Strict Liability in Tort: Liability of Seller of Used Product, 53 A.L.R.3d 337 (1973). Their answers are as varied as the many different fact situations that engender the issue, resulting in a split of authority. *784 Some courts imposing strict liability on sellers of used products have done so because they conclude Restatement section 402A is not limited by its terms to sellers of new products. See, e.g., Jordan v. Sunnyslope Appliance Propane & Plumbing Supplies Co., 135 Ariz. 309, 660 P.2d 1236, 1237 (Ct.App.1983); Hovenden v. Tenbush, 529 S.W.2d 302, 306 (Tex.Ct.App.1975). Those courts found that the same policy reasons for holding sellers of new goods strictly liable under section 402A apply to dealers in used goods. See Jordan, 660 P.2d at 1242; Turner v. International Harvester Co., 133 N.J.Super. 277, 336 A.2d 62, 71 (Law Div.1975); Hovenden, 529 S.W.2d at 310. In contrast, those courts that have declined to extend the doctrine of strict liability to sellers of used products have found that the policy reasons for holding sellers of new goods strictly liable are not fully applicable to sellers of used products. See, e.g., Peterson v. Lou Bachrodt Chevrolet Co., 61 Ill. 2d 17, 329 N.E.2d 785, 786-87 (1975); Tillman v. Vance Equip. Co., 286 Or. 747, 596 P.2d 1299, 1304 (1979); Crandell v. Larkin & Jones Appliance Co., 334 N.W.2d 31, 34 (S.D.1983) (adopting Tillman reasoning). Those courts conclude that section 402A does not apply. In Tillman v. Vance Equip. Co., 286 Or. 747, 596 P.2d 1299, 1304 (1979), the Oregon Supreme Court held that strict liability would not apply to the seller of a used crane having a manufacturer's design defect. The court reviewed its three policy reasons for strict liability: (1) reasonable expectations of consumer or user, (2) impetus to manufacture a better product, and (3) compensation. Id. at 1303. The court decided that the first two policy reasons would not be advanced by imposing strict liability on dealers in used goods. Buyers of used goods who do not bargain for specific assurances of quality have lesser expectations of safety than buyers of new products. See id. at 1303-04. Because the dealer in used goods is normally entirely outside the original chain of distribution, the incentive to reduce risk accomplished by imposing strict liability would be insignificant. Id. at 1304. Regarding compensation, the court stated that 596 P.2d at 1304. The court concluded that the policy reasons do not justify imposing strict liability for defective products on dealers in used goods. Id. In Peterson v. Lou Bachrodt Chevrolet Co., 61 Ill. 2d 17, 329 N.E.2d 785 (1975), the Illinois Supreme Court faced a fact situation involving defective brakes on a used car. As in this case, the defect was caused by an unknown third party while the automobile was in the possession of an unknown previous owner. Id. at 787. Despite allegations that the defect would have been discovered upon reasonable inspection, id. at 788 (Goldenhersh, J., dissenting), the majority declined to impose strict liability. The court reasoned that 329 N.E.2d at 787. Accord Masker v. Smith, 405 So. 2d 432, 434 (Fla.Dist.Ct.App. 1981). Thus, the Illinois Supreme Court would apply strict liability to dealers in used goods only in the case of design or manufacturing defects or where the dealer itself created the defect. See Peterson, 329 N.E.2d at 787. More recently the South Dakota Supreme Court addressed the issue in the context of the sale of a defective used clothes dryer described by the seller as a "Quality Reconditioned Unit" which was "Guaranteed." Crandell v. Larkin & Jones Appliance Co., 334 N.W.2d 31, 32 (S.D.1983). The court agreed with the rule stated by the Oregon Supreme Court in Tillman to the extent it applies to the broad commercial *785 used-goods market. Id. at 34. The South Dakota court recognized the exception, however, that dealers who rebuild or recondition goods are subject to strict liability, regardless of fault, because of heightened consumer expectations. Id. III. The specific issue presented to us by question two is whether the seller of a defective used good can be held strictly liable where the defect is (1) not a manufacturing or design defect, (2) not caused by the dealer, and (3) not discoverable by reasonable and customary inspection. The used good in the fact pattern presented was not a rebuilt, reconditioned, or recapped product. We reject the plaintiffs' theory that Axtell's replacing the grease seal and pinion yoke before installing the assembly constitutes rebuilding or reconditioning the used rear axle. Under these facts, we decline to apply the doctrine of strict liability. The federal district court allowed the strict liability claim against Axtell because "product representations made in general by car dealerships ... would heighten consumer expectations to a level that would justify an implied representation of safety," and because Axtell "had a continuing business relationship with the manufacturer of the product, Ford Motor Company." We do not agree that car dealerships that sell used parts make a more particular representation of quality than any other dealer in used goods. Tillman, 596 P.2d at 1304. Id. at 1303. We also do not agree that Axtell, as a dealer in used goods, is in any special position vis-a-vis the original manufacturer, Ford Motor Company. Id. at 1304. This is not a case involving a manufacturing or design defect. Nor did Ford Motor Company supply the used axle to Axtell. We agree with the Illinois and Oregon courts that our goal to deter the sale of defective goods would not be significantly furthered by applying strict liability to dealers in used goods under the facts given. See Peterson, 329 N.E.2d at 786-87; Tillman, 596 P.2d at 1304. We also concur with the statement in Tillman that the compensation goal cannot be the sole justification for imposing strict liability. Tillman, 596 P.2d at 1304. IV. We will not extend the doctrine of strict liability to a dealer in used goods for latent defects, not arising from design or manufacture, which were caused while the goods were in the possession of a previous owner. We therefore answer certified question number two in the negative. We decline to answer certified question number one under the facts presented. Certified question number three requires no answer. CERTIFIED QUESTIONS ANSWERED. [1] Restatement (Second) of Torts § 402A (1965) provides: (1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such a product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold. (2) The rule stated in Subsection (1) applies although (a) the seller has exercised all possible care in the preparation and sale of his product, and (b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.