Opinion ID: 457751
Heading Depth: 2
Heading Rank: 1

Heading: Count I: Negligent Design and Manufacture

Text: 13 In Count I, Sanco sought recovery under a tort theory of negligent design and manufacture for economic losses occasioned by the problems it had experienced with the trucks. After finding no Indiana authority directly on point, the district court determined that Indiana would not permit recovery for such losses in tort, and held that Sanco was limited to its warranty remedies. Accordingly, the district court granted summary judgment in favor of Ford on Count I. Sanco argues that in so doing, the district court ignored Indiana authority that, it claims, indicates Indiana would allow Sanco to maintain a negligence action under the facts of this case. 14 The allegations of Sanco's complaint indicate that it seeks to recover the cost of repairs to the trucks and lost profits. As the district court correctly recognized, courts are divided over whether such losses may be recovered in a negligence action or whether, instead, a buyer is limited to his contractual and warranty remedies under the Uniform Commercial Code. The majority of jurisdictions that have considered this issue have not permitted the recovery of purely economic losses in a negligence or strick liability action. 5 See, e.g., Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir.1981) (Pennsylvania law); Vulcan Materials Co. v. Driltech, Inc., 251 Ga. 383, 306 S.E.2d 253 (1983); Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784 (1978); Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982); Arrow Leasing Corp. v. Cummins Arizona Diesel, Inc., 136 Ariz. 444, 666 P.2d 544 (Ariz.App.1983). 15 Dean Prosser summarized the majority rule with respect to recovery of economic losses as follows: 16 There can be no doubt that the seller's liability for negligence covers any kind of physical harm, including not only personal injuries, but also property damage to the defective chattel itself, as where an automobile is wrecked by reason of its own bad brakes, as well as damage to any other property in the vicinity. But where there is no accident, and no physical damage, and the only loss is a pecuniary one, through loss of the value or use of the thing sold, or the cost of repairing it, the courts have adhered to the rule ... that purely economic interests are not entitled to protection against mere negligence, and so have denied the recovery. 17 W. Prosser, Handbook on the Law of Torts, Sec. 101 at 665 (4th ed. 1971). A persuasive explanation for this rule is found in Justice Traynor's majority opinion in Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). In Seely, the plaintiff sought recovery of lost profits and a refund of the purchase price of a defective truck. The California Supreme Court held that such damages, while recoverable in a breach of warranty action, were not recoverable in a strict liability action: 18 The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the luck of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will. Even in actions for negligence, a manufacturer's liability is limited to damages for physical injury and there is no recovery for economic loss alone. 19 63 Cal.2d at 18, 45 Cal.Rptr. at 23, 403 P.2d at 151 (citations omitted). 20 Some jurisdictions have embraced a contrary view, most following the reasoning of the New Jersey Supreme Court in Santor v. A. & M. Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965). See, e.g., Mead Corp. v. Allendale Mutual Insurance Co., 465 F.Supp. 355 (N.D.Ohio 1979); Cova v. Harley Davidson Motor Co., 26 Mich.App. 602, 182 N.W.2d 800 (1970); City of LaCrosse v. Schubert, Schroeder & Associates, 72 Wis.2d 38, 240 N.W.2d 124 (1976). Interestingly, however, the New Jersey Supreme Court has recently limited the Santor decision to cases involving noncommercial buyers. Spring Motors Distributors, Inc. v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985). The New Jersey court determined that, in cases involving commercial parties, the provisions and purposes of the Uniform Commercial Code would be distorted by allowing recovery for purely economic losses under a tort theory. Id., at 566, 489 A.2d at 671. The court reasoned that by enacting the U.C.C., the legislature had adopted a carefully conceived system of rights and remedies to govern commercial transactions, and that application of tort principles to such transactions would dislocate the legislative structure. Id.; see also Seely, supra, 63 Cal.2d at 19, 45 Cal.Rptr. at 22, 403 P.2d at 150. 21 The district court in the instant case concluded: 22 [I]f a negligence cause of action were available, Sanco could recover despite any effective disclaimer of warranty under Ind.Code 26-1-2-316, or any failure of Sanco to adhere to the notice requirements of Ind.Code 26-1-2-316. [T]his result would represent an unwarranted extension of the traditional boundaries of tort law into an area that [the] legislature, by enacting the Uniform Commercial Code, has provided with a finely tuned mechanism for dealing with the rights of parties to a sales transaction with respect to economic losses. We are confident that the Supreme Court of Indiana would view unfavorably any encroachment of tort law on the sales scheme of the Uniform Commercial Code. 23 Sanco argues that, in reaching this conclusion, the district court ignored two cases it claims demonstrate Indiana's adoption of the minority view on this issue. In Barnes v. Mac Brown & Co., 264 Ind. 227, 342 N.E.2d 619 (1976), plaintiffs, subsequent purchasers of a house, sought recovery against a builder-vendor for breach of an implied warranty of habitability when the house's basement walls developed extensive cracks. The builder defended on the ground that it was not in privity of contract with the plaintiffs. The question before the court, then, was whether lack of privity should bar plaintiffs' action on the implied warranty. In determining that it should not, the court rejected the suggestion of the dissent that the privity requirement was more appropriately relaxed in tort cases involving personal injury than in warranty cases, stating that the distinction between personal injury and economic loss was without merit. 24 Sanco seizes on this language to support its argument that it should be allowed to proceed in tort for recovery of purely economic losses. We do not believe that Barnes is authority for Sanco's position, as that court was not confronted with the issue involved in this case. Rather, the Barnes court was faced with an action on a warranty, in which recovery for economic losses is traditionally appropriate. Thus, the court was not required to consider the collision between tort principles and the carefully-wrought provisions of the U.C.C. that informed the district court's conclusion below. 25 Essex v. Ryan, Ind.App., 446 N.E.2d 368 (1983), upon which Sanco also relies, provides even less support for its position than does Barnes. In Essex, the question before the court was whether Barnes required that privity requirements be abolished for negligence actions on personal service contracts (specifically, on a claim that a survey had been negligently performed). The court refused to relax the privity requirement for such actions. Needless to say, personal service contracts are not subject to the U.C.C., and Essex contains no discussion relevant to the issue here. 26 We agree with the district court that Indiana would follow the majority view and deny a cause of action in tort for the recovery of losses such as Sanco's. Accordingly, we affirm the grant of summary judgment in favor of Ford on Count I. 6 27