On appeal from the Superior Court of New Jersey, Law Division, Union County.
King and McElroy. The opinion of the court was delivered by King, J.A.D.
This issue is presented to us: May there be a recovery for economic loss, in addition to recovery for damages for personal injury and property loss, under the doctrine of strict liability in tort? We conclude that recovery of consequential economic damages under the doctrine of strict liability in tort is permitted in this jurisdiction, especially since the decision of the Supreme Court in H. Rosenblum, Inc., Etc. v. Adler, 93 N.J. 324, at 340 (1983).
This appeal is taken from a summary judgment in defendants' favor dismissing a three-count complaint. In the complaint filed on December 23, 1980 plaintiff alleged that it had purchased 14 trucks manufactured by defendant Ford Motor Company and which had transmissions manufactured by defendants Clark Equipment Company and Clark Transmissions, from defendant Turnpike Ford Truck Sales, Inc. "in or about November 1976." Plaintiff alleged that the trucks' transmissions had failed on many occasions and that defendants had been unable to cure the defects. Plaintiff claimed damages for (a) repair, towing and replacement-part expenses, (b) lost profits resulting from the termination of lease agreements for the trucks with its customers, and (c) a decrease in the market value of the trucks. The damages were alleged to have directly and proximately resulted
from defendants' breach of warranties, both written and implied, and from product defects.
In count two plaintiff alleged defendants had violated the federal Magnuson-Moss Act; plaintiff concedes on this appeal that it has no cause of action under that act.
In count three plaintiff alleged that the trucks had been defectively designed and manufactured while in the possession and control of the defendants and that they had been "negligent, grossly, wantonly and wilfully negligent in the design and manufacture" of the trucks. Alleging that defendants were strictly liable in tort, judgment was sought against each defendant for economic damages, costs, interest and counsel fees. Additionally, punitive and treble damages were claimed under count three.
Turnpike Ford admitted that it sold plaintiff the trucks but denied that it had given plaintiff any written or implied warranties. Among its defenses, Turnpike Ford claimed the four-year statute of limitations barred plaintiff's action and that the damages plaintiff sustained had resulted from conditions over which it had no control.
Ford admitted that it issued written warranties in connection with the manufacture and sale of the type of vehicle plaintiff described in its complaint but claimed that those warranties constituted the extent of Ford's obligation. Among its defenses, Ford alleged that plaintiff failed to state a claim, that it had satisfied all of its obligations to plaintiff under the warranties, and that the claims were barred by the four-year statute of limitations.
Defendant Clark denied the allegations or alleged it had insufficient information to respond. Among its separate defenses Clark asserted that plaintiff was barred from recovery "for lack of compliance with the terms of the express warranty," the action was time-barred, and plaintiff failed to give defendant an opportunity to cure.
The defendants' motions for summary judgment were granted on the ground of the four-year time bar of the Uniform Commercial Code (UCC) N.J.S.A. 12A:2-725. The judge viewed this as "a contract case" and not a case of strict liability in tort or for design negligence. He also dismissed as to Clark for "lack of privity."
Plaintiff, a New Jersey corporation from Elizabeth, sells and leases trucks, operating a fleet of 300 vehicles. The exact date of delivery of the 14 trucks purchased from Ford through Turnpike Ford Trucks was unknown, but plaintiff admits delivery in mid-November 1976. The trucks purchased contained Clark 390V transmissions "specified by the plaintiff because of [its] reliance upon Clark's advertising and brochures."
Plaintiff first experienced trouble with the transmissions in February 1977. The trucks' use was mixed, both city and highway. The majority of the failures were with the third and fourth gears on the countershaft. Plaintiff had leased the trucks to Economics Laboratory, Inc. Due to continual transmission failure, the lease was terminated in 1979 causing "lost profits." Damages for "decrease in market value" of the trucks and costs of repair were also sought.
In opposition to defendants' summary judgment motions plaintiff submitted the certifications of Glasofer, its president, and copies of correspondence between Clark and plaintiff. He described oral and written communications with Clark's representatives concerning the defective transmissions. Clark's representatives had continually assured Glasofer that plaintiff's complaint about the defective transmissions could be resolved amicably, and Clark had provided replacement parts. A December 19, 1977 letter from Glasofer to Clark stated that plaintiff had returned defective parts from a failed transmission to Clark for its analysis. Glasofer reported as of that date plaintiff had sustained two additional failures.
In a January 26, 1978 letter to Clark, Glasofer thanked Clark for its analysis on the transmission failures. He said
As described to me, the failures in these gear boxes was [sic] a result of improper angle degree in the way certain gears were cut. This resulted in additional strain on the actual gear and the mating gear and related shafts. This contributed to the failure of some of your transmissions as early as 24,000 miles.
Glasofer acknowledged that Clark had advised that it could not make direct warranty reimbursement to plaintiff but that plaintiff would need to come to an agreement with Ford.
In an April 27, 1978 letter to Clark, Glasofer advised that plaintiff was experiencing second and third failures with transmissions that had been rebuilt with replacement parts. Although Glasofer had threatened to take action to protect its interest in an April 4, 1978 letter to Clark, Glasofer's April 27 letter simply asked that Clark and Ford perform necessary tests to determine why the failures were continuing and what modifications were necessary to eliminate them.
Finally, in a letter dated July 11, 1978 Glasofer reported that although plaintiff had worked with people from Ford's and Clark's field staff, plaintiff had sustained an average of two failures every month. Glasofer asserted that unless he received a direct response to his complaints and compensation for the costs plaintiff had incurred as a result of the transmission failures, plaintiff would "take whatever action is necessary to hold you financially responsible."
Plaintiff contends that its strict liability and negligent design claims are not barred by the statute of limitations because the six-year statute, N.J.S.A. 2A:14-1, applies, rather than the four-year U.C.C. statute, N.J.S.A. 12A:2-725, and that its claim for consequential economic damages is supported by our Supreme Court's opinions in Heavner v. Uniroyal, Inc., 63 N.J. 130 (1973); Rosenau v. City of New Brunswick and Gamon Meter Co., 51 N.J. 130 (1968) and Santor v. A. & M. Karagheusian, Inc., 44 N.J. 52 (1965).
Clark disputes that plaintiff has a tort claim against it, arguing that the transaction is governed completely by the U.C.C. Further, it contends that plaintiff has no claim sounding
in tort because the claim does not involve an injury to a person or damage to property. Moreover, relief is unavailable since plaintiff is not an individual consumer, but a commercial entity. Clark asserts that other jurisdictions have rejected claims based on strict liability in tort or negligence where the plaintiff failed to allege personal injury or damage to property. It argues that to apply tort concepts to allow plaintiff's claim for consequential economic damages "would do no less than vitiate the effectiveness of the Uniform Commercial Code." Clark maintains that no published New Jersey opinion supports plaintiff's extension of the strict tort liability theory to these facts.
Ford argues that plaintiff failed to allege a proper cause of action based on strict liability in tort; that plaintiff merely seeks damages for breach of contract; that if it sufficiently alleged a cause of action, the facts do not warrant application of the strict tort liability doctrine, and plaintiff did not allege a conventional claim for personal injury or property damage. Ford also asserts that because the action is only for breach of contract and consequential damages, the only avenue of relief is under the U.C.C.
Plaintiff urges that New Jersey should recognize a cause of action by a commercial buyer for consequential economic damages under the strict liability in tort doctrine.
Initially, we reject Ford's argument that plaintiff failed to adequately allege a cause of action for strict liability in tort. Paragraph four of the complaint's third count specifically asserts that defendants were strictly liable in tort. To be adequate, a pleading must contain a statement of facts on which a claim is based, showing that the pleader is entitled to relief, and a demand for judgment for that relief. R. 4:5-2. Pleadings must fairly apprise the adverse party of the claims and issues to be raised at trial. Jardine Estates v. Koppel, 24 N.J. 536, 542 (1957). On an attack upon a complaint all
facts, reasonable inferences and implications are to be considered most strongly in favor of the pleader. Jersey City v. Hague, 18 N.J. 584, 587 (1955).
As Clark correctly points out, the sales article of the Uniform Commercial Code permits a buyer to recover as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages. N.J.S.A. 12A:2-712(2). Consequential damages resulting from a seller's breach include "any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise" as well as any injury to person or property proximately resulting from a breach of warranty. N.J.S.A. 12A:2-715(2). However, consequential damages may be limited or excluded unless such limitation or exclusion is unconscionable. N.J.S.A. 12A:2-719(3).
Here, plaintiff seeks to recover two types of economic loss: direct and consequential. A direct economic loss encompasses damage based on an insufficient product value, computed as the difference in value between the defective product and the product if properly made; i.e., the loss of the bargain. See "Economic Loss in Products Liability Jurisprudence," 66 Colum.L.Rev. 917, 918 (1966). Consequential economic loss includes all indirect losses, such as a loss of profits resulting from the buyer's inability to make use of the defective product. Ibid. See generally "Manufacturers' Liability to Remote Purchasers for 'Economic Loss' Damages -- Tort or Contract?," 114 U.Pa.L.Rev. 539 (1966).
New Jersey has long recognized the right to recover lost profits as consequential damages where plaintiff's claim is "based on sound fact and not mere opinion evidence. . . ." See Stanley Co. of America v. Hercules Powder Co., 16 N.J. 295, 314 (1954). See also Seaman v. U.S. Steel Corp., 166 N.J. Super. 467, 471 (App.Div.), certif. den. 81 N.J. 282 (1979). Although there is some authority to the contrary,
the predominant view among the jurisdictions is that the strict liability in tort doctrine is not applicable to claims involving purely commercial losses in the absence of any personal injuries or property damage claim. See generally Frumer & Friedman, Products Liability, § 16A[K] (1983); Annotation, "Products liability: strict liability in tort," 13 A.L.R. 3d 1057, § 8 at 1091-1092 (1967). The courts apparently take three approaches to the issue. One line of decisions rejects application of the strict tort liability doctrine to purely economic loss. See Morrow v. New Moon Homes, Inc., 548 P. 2d 279, 285-286 (Alaska Sup.Ct.1976); Hiigel v. General Motors Corp., 190 Colo. 57, 544 P. 2d 983, 989 (Sup.Ct.1975); Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 61 Ill.Dec. 746, 435 N.E. 2d 443, 448 (Sup.Ct.1982); Local Joint Exec. Bd. of Las Vegas v. Stern, 651 P. 2d 637, 638 (Nev.Sup.Ct.1982); Nobility Homes of Texas, Inc. v. Shivers, 557 S.W. 2d 77, 80 (Tex.Sup.Ct.1977). See also Purvis v. Consol. Energy Products, 674 F.2d 217 (4th Cir.1982) (South Carolina law; 2-1 decision) (reh. den. en banc). For a particularly good summary of the authorities see Judge Adams' opinion in Jones & Laughlin Steel Corp. v. Johns-Mansville Sales Corp., 626 F.2d 280, 285-290 (3rd Cir.1980) (Ill. law).
Others reject the claim where it stands alone, but imply that a cause of action may be recognized where it is made in conjunction with a claim for damages for personal injury or property damage. See Sioux City Community Sch. Dist. v. Int'l. Tel. & Tel. Corp., 461 F. Supp. 662, 664-665 (N.D.Ia.1978); States Steamship Co. v. Stone Manganese Marine, Ltd., 371 F. Supp. 500, 504-505 (D.N.J.1973) (New Jersey law); McDonough v. Whalen, 1 Mass.App. 573, 304 N.E. 2d 199, 201 (Mass.Ct.App.1973), modified 365 Mass. 506, 313 N.E. 2d 435 (Sup.Ct.1974); Tex. Processed Plastics, Inc. v. Gray Enterprises, Inc., 592 S.W. 2d 412, 415 (Tx.Ct.Civ.App.1979); Thermal Supply of Texas, Inc. v. Asel, 468 S.W. 2d 927, 929-930 (Tx.Ct.Civ.App.1971).
In the minority, a third position is taken by courts recognizing a cause of action for economic loss under a strict liability in tort theory without requiring that the claim be joined with one for
personal injury or property damage. See Mead Corp. v. Allendale Mut. Ins. Co., 465 F. Supp. 355, 364-366 (N.D.Ohio 1979); Iacono v. Anderson Concrete Corp., 42 Ohio St. 88, 326 N.E. 2d 267 (Sup.Ct.1975); Berg v. General Motors Corp., 87 Wash. 2d 584, 555 P. 2d 818, 823 (Sup.Ct.1976) (negligence claim); see also City ...