Opinion ID: 1737633
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Heading: Uniform Commercial Code Issues

Text: Chief Justice Traynor stated in Seely that: 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. 45 Cal.Rptr. at 21, 403 P.2d at 149. In writing about claims for economic loss, Dean Keeton has explained: Jurisprudentially, it is difficult to understand how the Code can be ignored in dealing with such claims. Those who drafted the Code doubtless contemplated that the obligations imposed by law for commercial losses, without respect to fault, were exclusively contained in the Code. Keeton, Torts, 1971 Survey of Tex. Law, 25 Sw.L.J. 1 (1971). The Code was drafted specifically to govern commercial losses and obviously provides the proper remedies to recover such losses. To support a recovery for economic loss, the Uniform Commercial Code provides both express and implied warranties. Neither the Code's express warranty, Tex.Bus. & Comm.Code Ann. § 2.313 (1967), nor the Texas Deceptive Trade Practices Consumer Protection Act, Tex.Bus. & Comm.Code Ann. § 17.41 to .63 (Supp.1976-1977), are before us; consequently, these remedies are not affected by this decision. The Code also provides two implied warrantiesthe warranty of merchantability, section 2.314, and the warranty of fitness, section 2.315. Section 2.314's warranty of merchantability is before us. Section 2.314 explains that a seller impliedly warrants that goods are merchantable, and that goods are merchantable if they are, fit for the ordinary purposes for which such goods are used.... Tex.Bus. & Comm.Code Ann. § 2.314(b)(3) (1967). Under the terms of the Code, a manufacturer may also be a seller. The Code does not limit its definition of seller to the immediate seller of a product. Instead, the Code defines a seller as a person who sells or contracts to sell goods. Tex.Bus. & Comm.Code Ann. § 2.103(4). Nobility Homes sells or contracts to sell goods; consequently, Nobility Homes is a seller under the Code. Plaintiff Shivers pleaded and the trial court found that Nobility Homes breached its warranty of merchantability to Shivers by manufacturing a product which, was unfit for the purpose for which it was purchased, to-wit, a home. Without discussion, the court of civil appeals affirmed. this holding. A critical question in this case is whether Nobility Homes' implied warranty of merchantability runs to Shivers with whom Nobility Homes is not in privity. We now hold that a manufacturer can be responsible, without regard to privity, for the economic loss which results from his breach of the Uniform Commercial Code's implied warranty of merchantability. The Uniform Commercial Code as enacted by the Texas Legislature is neutral as to the requirement of privity. This neutrality is expressed in the Code's statement that: This chapter does not provide whether anyone other than a buyer may take advantage of an express or implied warranty of quality made to the buyer or whether the buyer or anyone entitled to take advantage of a warranty made to the buyer may sue a third party other than the immediate seller for deficiencies in the quality of the goods. These matters are left to the courts for their determination. Tex.Bus. & Comm.Code Ann. § 2.318 (1968). For the most part, the requirement of privity has been abolished in strict liability tort actions. See, Prosser, The Fall of the Citadel (Strict Liability to the Consumer), 50 Minn.L.Rev. 791 (1966). There is a split among both Texas courts and courts of other jurisdictions as to whether privity should also be abolished in implied warranty actions for economic loss. [6] In holding that the requirement of privity should be abolished in such actions, the Alaska Supreme Court explained that it is unfair to allow a consumer to recover for his physical loss against a manufacturer with whom he is not in privity but to deny the same right to a consumer who suffers economic injury. Morrow v. New Moon Homes, Inc., 548 P.2d 279 (Alas.1976). We agree. The fact that a product injures a consumer economically and not physically should not bar the consumer's recovery. Economic loss can certainly be as disastrous as physical injury. As Justice Peter's separate opinion in Seely pointed out, economic loss as well as personal injury can constitute the overwhelming misfortune in one's life which merits redress. Today, a consumer, without regard to privity, can recover against a manufacturer whose defective product causes the consumer to suffer the slightest physical injury. It would be inconsistent to demand privity as a prerequisite to the same consumer's recovery against a manufacturer whose defective product causes the consumer to lose his entire life savings. Consequently, we hold that privity is not a requirement for a Uniform Commercial Code implied warranty action for economic loss. To hold otherwise, would encourage manufacturers to use thinly capitalized collapsible corporations to sell their commercially inferior products leaving no one for the buyer to sue for his economic loss. See, Roberts, The Case of the Unwary Home Buyer: The Housing Merchant Did It, 52 Cornell L.Rev. 835, 836 (1967). Further, by holding that implied warranty remedies apply to economic injuries, we are consistent with, the well developed notion that the law of contract should control actions for purely economic losses and that the law of tort should control actions for personal injuries. Comment, The Vexing Problem of Purely Economic Loss in Products Liability: An Injury in Search of a Remedy, 4 Seton Hall L.Rev. 145, 175 (1972). Courts which have declined to overturn the privity requirement in warranty actions for economic loss have reasoned that economic loss is more subjective and less predictable than physical loss. These courts fear that holding manufacturers liable for economic loss imposes unlimited and unforeseeable liability upon manufacturers. These fears are justified when manufacturers are held strictly liable for economic loss under the terms of section 402A of the Restatement (Second) of Torts. But, these fears are not justified when manufacturers are held liable by the Uniform Commercial Code because the Code, itself, protects manufacturers against unlimited and unforeseeable liability. First, the Uniform Commercial Code allows manufacturers to restrict their liability by the exclusion or modification of both implied and express warranties. Tex.Bus. & Comm.Code Ann. § 2.316 (1967). [7] Second, manufacturers' liability is restricted by the very terms of the Uniform Commercial Code sections which furnish the consumer's implied warranty remedies, sections 2.314 and 2.315. Section 2.314 provides an implied warranty that the goods are merchantable but only if the seller is a merchant with respect to goods of that kind. Tex.Bus. & Comm. Code Ann. § 2.314(a). Section 2.314 also states that merchantable goods, are fit for the ordinary purposes for which such goods are used .... Tex.Bus. & Comm. Code Ann. § 2.314(b)(3). The manufacturer has liability, under section 2.314, only if the consumer uses the goods for an ordinary purpose. If the goods are employed for a purpose other than the ordinary purposes for which such goods are used, the manufacturer is not liable. Section 2.315 furnishes the consumer his second implied warranty protection. The section provides an implied warranty of fitness for a particular purpose. Tex.Bus. & Comm.Code Ann. § 2.315 (1968). This implied warranty only arises where, the seller at the time of contracting has reason to know any particular use for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods .... Unless the manufacturer has this specific knowledge, he is not liable upon an implied warranty of fitness for a particular purpose. The Uniform Commercial Code provisions provide a predictable definition of a manufacturer's potential liability. These provisions adequately protect a manufacturer against unlimited and unforeseeable liability. Many manufacturers have, in fact, always paid for the consumer's economic loss. As the New York Court of Appeals stated in Randy Knitwear, Inc. v. American Cyanamid Co., 11 N.Y.2d 5, 226 N.Y.S.2d 363, 181 N.E.2d 399 (1962): It is true that in many cases the manufacturer will ultimately be held accountable for the falsity of his representations, but only after an unduly wasteful process of litigation. Thus, if the consumer or ultimate business user sues and recovers, for breach of warranty, from his immediate seller and if the latter in turn, sues and recovers against his supplier in recoupment of his damages and costs, eventually, after several separate actions by those in the chain of distribution, the manufacturer may finally be obliged to shoulder the responsibility which should have been his in the first instance. Dean Prosser explains that this chain of actions is an expensive, time-consuming and wasteful process, and it may be interrupted by insolvency, lack of jurisdiction, disclaimers, or statutes of limitations. Prosser, The Assault Upon the Citadel, 69 Yale L.J. 1099, 1124 (1960). Our holding avoids such wasteful litigation.