Court Opinion

ID: 8937366
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:38:00.652592+00
Date Added: 2024-06-11T17:09:39.389571
License: Public Domain

WEIS, Circuit Judge,
dissenting.
New Jersey was an early advocate of increased protection for the consumer in the products liability field. In the seminal case Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960), the state supreme court permitted recovery under an implied warranty theory for personal injuries and damage to an automobile that had crashed as a result of a defect. That case led ultimately to the adoption of § 402A of the Restatement (Second) of Torts.
The doctrine of strict liability in tort was carried to its extremes in Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965), allowing recovery for the inferior quality of a rug that the defendant had manufactured and sold through a distributor to the plaintiff. The defect had caused no personal injury or extraneous property damage, and the plaintiffs recovery was solely for loss of the product’s value.
Other courts did not follow New Jersey to this length; instead most turned to Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). There, the California Supreme Court held that the purchaser of a defective truck, who sought to recover from the manufacturer for loss of profits and the price of the truck, was required to seek his remedy in sales law rather than tort.
New Jersey maintained its expansive view of liability in product defect cases until it carefully examined the conflict between the Uniform Commercial Code and tort liability in Spring Motors Distrib., Inc. v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985). In a major policy statement, the court said, “[t]he considerations that give rise to strict liability do not obtain between commercial parties with comparable bargaining power.” Id. at 576, 489 A.2d at 670.
That modified approach pays heed to the comprehensive statutory scheme embodied in the Uniform Commercial Code, a legislative enactment that satisfies the needs of the world of commerce. The New Jersey court concluded that the Uniform Commercial Code “ ‘is generally regarded as the exclusive source for ascertaining when a seller is subject to liability for damages if *1101the claim is based on intangible economic loss not attributable to physical injury to person or harm to a tangible thing other than the defective product itself.’ ” Id. at 581, 489 A.2d at 673, quoting W. Prosser & W. Page Keeton, Handbook of the Law of Torts, § 95A at 680 (5th ed. 1984). To rephrase the proposition, only when the loss is attributable to bodily injury or damage to property other than the defective product itself, is the remedy in tort.
I have little doubt that, under New Jersey law, the plaintiff’s claim here is cognizable under the Commercial Code. The Code § 102(1) provides that the it “shall be liberally construed and applied to promote its underlying purposes and policies.” N.J. Stat.Ann. 12A:1-102 (West 1976). See also, Note, Contracts for Goods and Services and Article 2 of the Uniform Commercial Code, 9 Rutg.-Cam.L.J. L.J. 303 (1978).
In Newmark v. Gimbel’s, Inc., 54 N.J. 585, 258 A.2d 697 (1969), the plaintiff was injured by a permanent wave solution applied in a beauty parlor. The trial court dismissed the warranty count, characterizing the transaction as one for services and not for goods. The Supreme Court of New Jersey reversed, finding that the U.C.C. applied and that warranties were not limited to “transactions which technically meet [the] definition of a sale____ [T]here is no sound reason for restricting implied warranties of fitness to conventional sales of goods.” Id. at 594, 258 A.2d at 701.
In the case at hand, part of the transaction included the sale of engine parts. A defect in one of those components, the lower compressor disc, caused the harm, not the manner in which the services were performed. See Worrell v. Barnes, 87 Nev. 204, 484 P.2d 573 (1971); Hawkland, U.C.C. Series, § 2-102:04. The circumstances thus bring the claim within the Code’s broad language, “transactions in goods.” N.J.Stat.Ann. 12A:2-102 (West 1976).
The remaining inquiry is whether the damage to the defective product itself, here the turbine, was within the meaning of “economic loss” as applied in Spring Motors. Although the precise point was not presented in that case, as noted earlier, the New Jersey court did cite favorably from Prosser & Keaton, § 95(a) at 680. It is a fair restatement of that quote that economic loss includes “harm to ... the defective product itself.” 98 N.J. at 581, 489 A.2d at 673.
The distinction between injury to the defective product and that to other property is discussed at some length in a law review article cited in Spring Motors— Franklin, When Worlds Collide: Liability Theories and Disclaimers in Defective Product Cases, 19 StamL.Rev. 974 (1966). Discussing the language courts have used to describe damages in product liability cases, the author distinguishes harm to property extraneous to the defective article from injury to the product itself. Other commentators have similarly observed that distinction by using the term “physical damage” to refer to property other than the article purchased. The distinction is important in determining the boundary between tort and contract liability. See Note, Economic Loss in Products Liability Jurisprudence, 66 Colum.L.Rev. 917 (1966).
In Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280 (3d Cir.1980), we applied Illinois law in concluding that the cost of repair and eventual replacement of a defective roof in a commercial setting was recoverable under the Uniform Commercial Code — not in tort. We referred to an Illinois decision defining economic loss as “ ‘damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits without any claim of personal injury or damage to other property.’ ” 626 F.2d at 284, quoting Alfred N. Koplin & Co. v. Chrysler Corp., 149 Ill.App.3d 194, 199, 7 Ill.Dec. 113, 116, 364 N.E.2d 100, 103 (1977). In that situation, economic loss is most frequently measured by the cost of repairing the infirmity or by the decrease in the product’s value. There too it was important that a large company, which is in a position to bargain for terms that meet its needs, expectations and economic inter*1102est, could protect itself from unacceptable risks.
Discussing economic loss in a commercial setting, Spring Motors distinguished a trial court decision, Monsanto Co. v. Alden Leeds, Inc., 130 N.J.Super. 245, 326 A.2d 90 (Law Div.1974), saying that it involved “property damage and consequential economic loss.” 98 N.J. at 578, 489 A.2d at 672. In that case, defective chemicals had caused a fire that damaged the plaintiffs warehouse. By distinguishing Monsanto on that ground, the court in Spring Motors recognized the difference between harm to the defective product and injury to extraneous property.
Spring Motors also commented on the situation where potential claims for personal injuries might be present. Since the issue was not squarely presented, the court had no need to meet it. However, it seems inconsistent to limit a commercial plaintiff’s recovery for damage to a defective product to contract theories when no other injuries occur, but to allow a tort action when they do.
The New Jersey Supreme Court has adopted a fundamental policy that in a commercial setting, economic loss, including damage to the product itself, is a matter for negotiation and allocation of risk between the parties. The fortuity that personal injury or outside property damage might occur in addition to injury to the defective product does not require a different rule with respect to economic loss. To deviate from the basic rule would lead to speculation and inquiry unrelated to the negotiations between the commercial entities. That result would be contrary to the state’s policy of encouraging such agreements. In any event, the passing reference in Spring Motors to a case decided in Alaska, Kodiak Electric Ass’n. v. DeLaval Turbine, Inc., 694 P.2d 150 (Alaska 1984), is anything but indicative of the way the New Jersey court would decide that point.
I conclude that under New Jersey law the claim in this case for damage to the defective product is governed by contract, not tort. Accordingly, I dissent.