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Livingston Board of Education v. United States Gypsum Co.

Decided: July 18, 1991.

LIVINGSTON BOARD OF EDUCATION, PLAINTIFF-APPELLANT,
v.
UNITED STATES GYPSUM COMPANY, ELSASSER & MILLER, A.A. LAFOUNTAIN, INC., JOHN DOE A AND JOHN DOE B, DEFENDANTS-RESPONDENTS



On appeal from the Superior Court, Law Division, Essex County.

Judges King, Long and R.s. Cohen. The opinion of the court was delivered by Cohen, R.s., J.A.D.

Cohen

Plaintiff Livingston Board of Education says that it discovered in 1983 that ceilings in its Heritage School contained asbestos fibers. The Board had the Heritage School built in the mid-1960s. The architect, a predecessor of defendant Elsasser & Miller, specified the use of a ceiling product called Audicote, which was made by defendant United States Gypsum Company. It was installed by the general contractor, defendant A.A. LaFountain, or its subcontractor. After it was told in 1983 that Audicote contained asbestos, the Board contracted to have the ceilings removed. It then sued U.S. Gypsum, the architect, and the general contractor (and several John Does) for damages.

The Board's complaint contended that U.S. Gypsum was liable for its damages on the following bases: (1) strict tort liability for a defective product; (2) strict tort liability for failure to warn; (3) breach of express and implied warranty; (4) negligence; (5) intentional misrepresentation, and (6) negligent misrepresentation.

Some five years after the action was filed, U.S. Gypsum moved for summary judgment, arguing that all of the Board's claims were time-barred, and also that all of the Board's tort claims failed as a matter of law. The motion judge agreed that the tort claims had to be dismissed, but denied the motion addressed to the statute of limitations on the thesis that the UCC four-year statute of limitations, N.J.S.A. 12A:2-725(2),

applied, but that the Board was entitled to a hearing pursuant to Lopez v. Swyer, 62 N.J. 267 (1973). The Board appealed, and we are required to reverse both rulings.

The judge's letter opinion dismissed the tort claims in one paragraph:

As to the motion to dismiss Counts I, II, IV, V and VI of the Complaint same is granted. A commercial buyer such as plaintiff herein cannot recover damages for economic loss resulting from purchase of defective goods on a negligence theory. Spring Motors Distributors, Inc. vs. Ford Motor Co., 98 N.J. 555. Plaintiff's reliance on People Exp. Airlines, Inc. vs. Consolidated Rail, 100 N.J. 246 is misguided in that the relationship between the parties therein was not based upon a commercial transaction or purchase of goods.

In Spring Motors Distrib., Inc. v. Ford Motor Co., 98 N.J. 555 (1985), the Supreme Court ruled that a commercial buyer seeking damages for economic loss resulting from the purchase of defective goods may recover from an immediate seller and a remote supplier for breach of warranty under the UCC, but not in strict liability or negligence. Spring Motors was in the business of selling and leasing trucks, and operated a fleet of 300 vehicles. It bought 14 Ford trucks with transmissions of its own choice. The transaction was heavily papered with express warranties and limitations of warranties not expressed.

The transmissions malfunctioned, and Spring Motors eventually sued, seeking damages for its expenses, loss of profits and loss of value of the trucks, on negligence, strict liability, and breach of warranty theories. Since the suit was started more than four years after delivery of the trucks, the UCC statute of limitations barred it, unless Spring Motors had viable non-UCC claims for negligence and strict liability. The Court ruled that it did not have; it was a commercial buyer and its claimed damages were for economic loss.*fn1

The application of the principles of Spring Motors to public bodies who sue for the cost of public building asbestos removal has been an issue in a number of recent cases around the country. Our approach to the problem may be atypical, because we are bound by Santor v. A & M Karagheusian, Inc., 44 N.J. 52 (1965), which held, before adoption of the UCC in New Jersey, that a consumer who sued the manufacturer of defective carpeting had a cause of action for strict tort liability. The majority of states have rejected Santor in favor of a rule announced by Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965), that even a consumer cannot recover in strict liability for economic loss. We are nevertheless bound by Santor, which the 1985 Spring Motors opinion expressly declined to reconsider.

The boundary between strict tort liability and UCC remedies is an indistinct and troublesome one. Determining its location engages policy considerations involving risk bearing and spreading capacities, the relative bargaining power of the parties, and the unresponsiveness of commercial law doctrines to the needs of consumers who sustain physical injuries from defective goods made or distributed by remote parties. Also to be considered is judicial respect for the effort of the Legislature to adopt, in the UCC, a carefully conceived and comprehensive system of rights and remedies to govern commercial transactions. Such a system ought to be both predictable and flexible in permitting the parties to commercial transactions to choose rights, responsibilities and remedies. See Spring Motors, 98 N.J. at 570-577. As the Supreme Court said:

The demarcation of duties arising in tort and those arising in contract is often indistinct, but one difference appears in the interest protected under each set of principles. The purpose of a tort duty of care is to protect society's interest in freedom from harm, i.e., the duty arises from policy considerations formed without reference to any agreement between the parties. A contractual duty, by comparison, arises from society's interest in the performance of promises. Generally speaking, tort principles, such as negligence, are better suited for resolving claims ...


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