Court Opinion

ID: 9516448
Source: CourtListenerOpinion
Date Created: 2023-08-06 23:42:40.234439+00
Date Added: 2024-06-11T09:37:15.616330
License: Public Domain

HANDLER, J.,
concurring.
In this case the Court rules that common-law causes of action sounding in strict products liability and negligence against the supplier of a product are no longer available to “commercial buyers” who incur economic loss attributable to a defective condition in the product. The Court holds specifically that such a buyer may recover economic damages from a “remote supplier in a distributive chain” only for breach of warranty under the Uniform Commercial Code (U.C.C.), N.J.S.A. 12A:2-714. Ante at 561. The concern that prompts me to write specially is not so much the application of this holding to the facts of this case but its possible reach to situations different from that presented by this litigation.
I agree with the Court that under the particular circumstances of this case, resort to the Uniform Commercial Code is appropriate. Spring Motors Distributors, Inc. (Spring Motors) is a commercial entity engaged in the business of leasing *590trucks, which it purchases for use in the regular course of its business. Spring Motors maintains a fleet of 300 trucks. In this case it purchased 14 trucks from Ford Motor Co. (Ford). There is nothing in the record to suggest that the transaction was anything but a regular and typical commercial undertaking for Spring Motors or that the transaction between these experienced parties was other than a common commercial event for them. Further, the contract between Spring Motors and Ford specified that the trucks would be supplied with transmissions manufactured by Clark Equipment Co. (Clark). Thus, Spring Motors apparently had the commercial experience, economic status, and bargaining power to be able to specify to its principal supplier, Ford, that it required a particular transmission and to designate Clark as the supplier of that component.
Almost immediately, Spring Motors and its lessees began experiencing problems with the Clark transmissions. After several unsuccessful attempts to repair the transmissions, Spring Motors initiated this suit. The claims, based on breach of warranty, negligence, and strict liability, were filed four years and one month after delivery of the trucks, beyond the statute of limitations prescribed by the U.C.C., N.J.S.A. 12A:2-725. Spring Motors sought damages based on the decrease in value of the trucks, expenses incurred in repairing and replacing parts, and lost profits.
The Court characterizes Clark as a “remote supplier,” one not standing in direct privity with Spring Motors. The absence of privity in its traditional sense would generally constitute an insurmountable obstacle to recovery of losses for breach of contract. But cf. Aronsohn v. Mandara, 98 N.J. 92 (1984) (finding an implied assignment of home-improvement contract in absence of direct privity and allowing suit for breach of implied warranty against contractor by successor home-owner who was not a party to original contract). Thus, in this case, in finding under the U.C.C. a potential contract remedy for Spring Motors against Clark for losses attributable to the defective transmissions, the Court takes the significant step of eliminat*591ing privity — a direct contractual relationship — as a prerequisite for a cause of action based on a commercial contract. Ante at 582.
I do not denigrate the jurisprudential significance of the elimination of direct privity as a basis for an action under the U.C.C. It ranks in importance with our recent willingness to dispense with traditional privity in an action on an ordinary contract. See Aronsohn, supra. Nevertheless, under the circumstances of this case, the privity requirement as a bar to a cause of action may have been somewhat exaggerated or magnified. In my opinion, direct privity need not have presented a bar to relief in this case. It is not difficult to envisage the transaction as a tripartite or three-party arrangement. Each of the parties stood in a fairly close, contractual relationship with the others, albeit, as between Spring Motors and Clark possibly not in direct or immediate privity in its conventional sense. See Heavner v. Uniroyal, Inc., 63 N.J. 130, 150 (1973). Although Spring Motors and Clark did not contract directly with each other, Clark was specified by Spring Motors to Ford as a supplier. Clark thus became a party to the transaction, in a sense acting with and through Ford, at the direction of Spring Motors. In such circumstances, the nexus or close relationship that is required by the privity rule might be reasonably satisfied. See Thompson Farms v. Corno Feed Products, 173 Ind.App. 682, 366 N.E.2d 3 (1977) (court allowed recovery on implied warranty notwithstanding lack of privity when the intermediate seller was shown to be an agent of manufacturer and the buyer had seen advertisements of the product exhibited by the agent).
I mention the possibly attenuated privity aspect of this case to emphasize that the result that is reached by the Court can be justified by more than a disenchantment with the privity doctrine in its rigid traditional form. The regular commercial context in which the transaction took place, the relative contractual closeness of the parties, their course of dealings with one another, their business experience, and their apparent compara*592ble bargaining power are factors that collectively indicate that the ensuing transaction is the kind that is typically the concern of the U.C.C. Consequently any asserted claims arising out of this transaction are most appropriately addressed under the U.C.C. I therefore read the Court’s opinion narrowly. I understand the Court’s ruling — that the Uniform Commercial Code is the exclusive remedy for a commercial consumer’s claim of economic loss against its “remote seller” — to be restricted to the circumstances of this case.
It is also important to emphasize that the selection by the Court of a particular remedy does not turn on a label. It would not be correct to consider the U.C.C. remedy to be exclusively applicable to a purchaser’s claim simply because the transaction can be viewed as “commercial” or having occurred in the course of business, or because the ultimate purchaser is in business or is itself a commercial entity. For example, the ultimate purchaser of a vehicle could be a travelling salesperson or a small-scale trucker, or a carpenter, plumber, electrician, or landscape gardener. It does not follow automatically that if the vehicle proves to be defective, the U.C.C. shall apply as the exclusive remedy to govern the recovery of direct or consequential economic loss solely because such purchaser is in business or bought the vehicle for use in business. Rather, the analysis should turn on whether a purchase made in that kind of setting, even if for a business or commercial purpose, is sufficiently distinguishable from a purchase for personal use by an ordinary private consumer to justify a difference in remedial treatment.
In Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), Justice Peters disagreed with the majority’s conclusion that strict liability should never apply to a claim against a remote seller for damages of an economic nature. He would have allowed such a claim when the plaintiff is an “ordinary consumer.” In Seely, plaintiff had bought a truck for use in his business of heavy-duty hauling. But it was the only truck he owned; he was “not a fleet-owner who bought *593trucks in the course of his business. He was the final link in the marketing chain, having no more bargaining power than does the usual individual who purchases a motor vehicle on the retail level.” Id. at 28, 45 Cal.Rptr. at 30, 45 P.2d at 158. Based on these facts, Justice Peters would have considered the plaintiff to be an “ordinary consumer,” and as such, entitled to claim damages for economic harm under a tort theory of recovery.
Justice Peters’ reasoning in Seely is parallel to that reflected in the Court’s opinion in this case. The reasons we give as justification for limiting commercial purchasers to their U.C.C. remedies suggest conversely that the U.C.C. may be inapplicable in cases involving purchasers who are different from those involved in this case. As further observed by Justice Peters in Seely, the important considerations are “the relative roles played by the parties to the purchase contract and the nature of their transaction.” Id. at 21, 45 Cal.Rptr. at 25, 403 P.2d at 153. Since “the rules governing warranties were developed to meet the needs of ‘commercial transactions,’ ... then why not look to the transaction between the buyer and the seller and see if it was a ‘commercial’ transaction rather than a sale to an ordinary consumer at the end of the marketing chain?” Id. at 26, 45 Cal.Rptr. at 28, 403 P.2d at 156. Therefore the U.C.C. should not be applied uncritically simply because the buyer is in business.
In its determination of the available causes of action and remedies for economic loss attributable to a defective product, a court should consider not only that the transaction or the purchase is “commercial” but that the parties, among other things, are commercially experienced and have comparatively equal bargaining power in dealing with one another with respect to the underlying transaction. In considering the good sense and fairness in using the U.C.C. as an exclusive remedy, supplanting strict products liability, the opinion aptly observes that strict products liability is less likely to be invoked when the parties have equal bargaining power. Ante at 576. Converse*594ly, the reasons for applying strict products liability, or negligence remedies, are stronger when the parties are unequal in bargaining strength, rendering the modes of relief available under the U.C.C. unfair or inappropriate.
The significance of comparable bargaining power is also underscored by the nature of warranty remedies that may be available under the U.C.C. In addition to other issues left open, the Court specifically reserves determination of the effectiveness of a remote manufacturer’s disclaimer of implied warranties. Ante at 588. A real difficulty posed is that the ultimate purchaser frequently would not have had the opportunity to negotiate with the remote supplier. Additionally, the final purchaser in a distributive chain will often be unaware of warranty exclusions in the contract between the remote supplier and the distributor. Applying such an exclusion might not afford the notice contemplated by the “conspicuousness” requirement of the warranty disclaimer provision of the U.C.C. N.J.S.A. 12A:2-316; Gladden v. Cadillac Motor Car Div., 83 N.J. 320, 331 (1980); Zabriskie Chevrolet, Inc. v. Smith, 99 N.J.Super. 441 (Law Div.1968). These concerns can have a crucial bearing upon the nature and availability of relief. See Candlelight Homes, Inc. v. Zornes, 414 N.E.2d 980 (Ind.App. 1981) (court follows majority rule that remote purchaser cannot recover economic damages under implied warranties). Compare Western Equipment Co. Inc. v. Sheridan Iron Works, Inc. 605 P.2d 806 (Wyo.1980) (even though privity for economic loss was not a requirement, court enforced against ultimate purchaser implied warranty exclusions in contract between remote supplier and intermediate seller) with Groppel Co., Inc. v. United States Gypsum Co., 616 S.W.2d 49 (Mo. App.1981) (warranty exclusions by remote supplier to its immediate purchaser not honored as against ultimate purchaser).
While a suit for breach of warranty is still theoretically available against the immediate supplier based on whatever warranties were included in the agreement, the enforcement of implied warranty exclusions may effectively deny an aggrieved *595consumer any remedy at all if redress cannot be secured from the immediate seller. Thus, in certain circumstances the use of such asserted disclaimers may militate against the use of U.C.C. remedies entirely.
There may also be special problems that occur with respect to implied warranties of fitness for a particular purpose. Under N.J.S.A. 12A:2-315, for such a warranty to attach, the seller must know at the time of the contract the purpose for which the goods are required and the purchaser must rely on the seller’s judgment in making his selection. However, a remote purchaser will not often be in such a relation with the seller. See Industrial Graphics, Inc. v. Asahi Corp., 485 F.Supp. 793 (D.Minn.1980); see also R. & L. Grain Co. v. Chicago E. Corp., 531 F.Supp. 201 (N.D.Ill.1981) (implied warranty exclusions effective only because plaintiff was considered third party beneficiary of original contract; manufacturer knew at time of contracting of ultimate purchaser’s existence); cf. Ontai v. Staub Clinic & Hosp., 659 P.2d 734 (Hawaii 1983) (plaintiff suffering personal injuries when an X-ray table collapsed, allowed to sue on manufacturer’s implied warranty of fitness, because manufacturer was aware of anticipated use of table).
Another consideration in determining what avenues of relief are open to parties for loss occasioned by defective products is risk allocation. In further support of an exclusive U.C.C. remedy, the Court states that Spring Motors is “at least as well situated as the defendants to absorb the impact of economic loss, perhaps even better situated.” Ante at 576. Other purchasers, however, may not be so situated even though their ultimate use of the product may be “commercial.” As noted by the Court, ante at 567, the manufacturer is generally better able than an individual purchaser to spread the cost of the risk of harm caused by a defective product. We have said many times since our decision in Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358 (1960), that one of the primary purposes of strict liability is to allocate the risk to the party better able to absorb it. E.g., Beshada v. Johns-Manville Products Corp., 90 *596N.J. 191, 205 (1982); Suter v. San Angelo Foundry & Mach. Co., 81 N.J. 150, 173 (1979). Where the parties do not bargain with comparable economic strength, as distinguished from the circumstances of this case, the inferior risk-bearing position of the aggrieved purchaser may militate in favor of continuing common-law avenues of relief.
If the nature of the transaction implicates genuine concerns for the purchaser’s contractual ability to protect itself, resort to the U.C.C. as the exclusive mode of recovery may not be appropriate. Although the Court holds today that privity does not preclude a suit against a remote supplier, one can foresee situations in which a defective product will cause economic harm to a purchaser who should not be denied access to strict products liability or negligence causes of action in light of the inadequacy of the U.C.C. relief.
This analysis, I would emphasize, is not inconsistent with the Court’s opinion, which focuses on the reasons in this case for applying the U.C.C., particularly, equal bargaining power and ability to allocate risks. Logically, if those reasons are not present in a given case, alternative modes of recovery, such as found in the law of strict products liability or negligence, should be available. These theories of law have developed over the years to provide just relief and adequate redress to innocent persons who have been victimized by the wrongful conduct of others. Consumers who are not in a position reasonably to protect themselves against economic loss attributable to a defective product should not be insulated from the ameliorative reach of the law simply because they are also commercial purchasers.
We have recognized in an appropriate context the propriety of recovery by a purchaser-consumer based on strict products liability for economic losses attributable to a defective product. Santor v. Karaghesian, 44 N.J. 52 (1965). The Court’s opinion in this case suggests an acceptable narrowing of the breadth of our holding in Santor. It does not, however, serve to displace *597that decision or to signal a different rule in cases in which the requirements of sound public policy and fairness call for its continued application.
For these reasons, I concur in the opinion of the Court.
HANDLER, J., concurring in the result.
For reversal — Chief Justice WILENTZ and Justices CLIFFORD, HANDLER, POLLOCK, O’HERN and GARIBALDI — 6.
For affirmance — None.