Opinion ID: 2027675
Heading Depth: 1
Heading Rank: 4

Heading: Motion for Directed Verdict on Warranty Theories.

Text: Hoechst challenged Tomka's ability to recover under warranty theories on several bases. Among Hoechst's arguments were (1) Tomka was not the buyer of the implant, and (2) Tomka could not recover because he sustained only economic losses and no physical damage to his property. Tomka took the position that he was the functioning purchaser and therefore entitled to rely on warranty theories of recovery. We conclude that even if Tomka can be considered the buyer of the hormones, he is still not entitled to recover from Hoechsta remote seller because he sustained only economic loss damages. A. Breach of express warranty. We have recently held that non-privity buyers cannot recover consequential economic loss damages under a theory of express warranty. Beyond the Garden Gate, Inc. v. Northstar Freeze-Dry Mfg., Inc., 526 N.W.2d 305, 309-10 (Iowa 1995). This rule bars any recovery by Tomka under his express warranty theory. Whether a party is in privity with another party depends on whether they are parties to a contract. If the parties have contracted with each other, they are in privity. 1 James J. White & Robert S. Summers, Uniform Commercial Code § 11-2, at 528 (3d ed.1988) (hereinafter White and Summers). If they have not, they are not in privity. Id. White and Summers gives an example of a non-privity plaintiff as one who purchases a product but does not buy it directly from the defendant. Id. That is the situation we have here. Even if Tomka can be considered a buyer, he did not buy the product from the defendant manufacturer. He purchased Finaplix from the veterinarians. Therefore, Tomka was not in privity with Hoechst. Additionally, the damages that Tomka seeks to recover are consequential economic loss damages. As we explained in Beyond the Garden Gate, direct economic loss damage is `the difference between the actual value of the goods accepted and the value they would have had if they had been as warranted.' Beyond the Garden Gate, Inc., 526 N.W.2d at 309 (quoting White and Summers at 536). Consequential economic loss includes `loss of profits resulting from the failure of the goods to function as warranted, loss of goodwill, and loss of business reputation.' Id. Tomka seeks damages for lost profits and loss of good will. Therefore, his damages are consequential economic loss. Because Tomka is at best a non-privity buyer and because he seeks to recover only consequential economic loss damages, he may not rely on a theory of breach of express warranty. Id. at 310. The trial court correctly directed a verdict for the defendant on this theory of liability. B. Implied warranties of merchantability and fitness for a particular purpose. Under Iowa law a warranty that goods sold are merchantable is implied in a contract for their sale. Iowa Code § 554.2314 (1993). Additionally, if the seller has reason to know at the time of contracting that the buyer is purchasing the goods for a particular purpose and that the buyer is relying on the seller's skill and judgment to furnish suitable goods, there arises a warranty that the goods shall be fit for that purpose. Id. § 554.2315. We have never allowed recovery for solely consequential economic losses under these implied warranty theories by one not in privity with the defendant. We decline to do so now. The same reasons we found persuasive in Beyond the Garden Gate to disallow recovery under an express warranty theory apply here. In addition, an extension of implied warranty theories to non-privity buyers would seriously hamper the ability of remote sellers to disclaim warranties as allowed by the Uniform Commercial Code. See Professional Lens Plan, Inc. v. Polaris Leasing Corp., 234 Kan. 742, 675 P.2d 887, 898 (1984) (extension of implied warranties to remote manufacturers would spawn numerous problems in the operation of the Uniform Commercial Code). We should not lightly undermine the legislative scheme for governance of commercial transactions. See Szajna v. General Motors Co., 115 Ill.2d 294, 104 Ill.Dec. 898, 905, 503 N.E.2d 760, 767 (1986) (refusing to extend implied warranties to remote buyer seeking economic loss damages as such would be judicial legislation). In summary, we hold that a purchaser may not maintain a suit for breach of implied warranties by a remote manufacturer where the only damages sought are for consequential economic loss. Rhodes v. General Motors Corp., 621 So.2d 945, 947 (Ala.1993); Prairie Prod., Inc. v. Agchem Division-Pennwalt Corp., 514 N.E.2d 1299, 1301-02 (Ind.Ct.App.1987); Professional Lens Plan, Inc., 675 P.2d at 898-99; Arell's Fine Jewelers, Inc. v. Honeywell, Inc., 170 A.D.2d 1013, 566 N.Y.S.2d 505, 507 (1991). We note that a purchaser such as Tomka is not left without a remedy. He bought the hormones from local veterinarians and he may look to them for recovery under warranty theories.