508 F.2d 603 (7th Cir. 1975), 73-1325, Gates Rubber Co. v. USM Corp.

Docket Nº:73-1325.
Citation:508 F.2d 603
Party Name:The GATES RUBBER COMPANY, a corporation, Plaintiff-Appellant, v. USM CORPORATION, a corporation, Defendant-Appellee.
Case Date:January 06, 1975
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 603

508 F.2d 603 (7th Cir. 1975)

The GATES RUBBER COMPANY, a corporation, Plaintiff-Appellant,

v.

USM CORPORATION, a corporation, Defendant-Appellee.

No. 73-1325.

United States Court of Appeals, Seventh Circuit

January 6, 1975

        Argued Feb. 20, 1974.

         Rehearing Denied Feb. 12, 1975.

Page 604

        Stephen H. Cohen, Minneapolis, Minn., for plaintiff-appellant.

        Robert C. Strodel, Peoria, Ill., Richard A. Bowman, Minneapolis, Minn., for defendant-appellee.

        Before CUMMINGS and STEVENS, Circuit Judges, and GRANT, Senior District Judge. [*]

        STEVENS, Circuit Judge.

        The principal question presented by this diversity case is whether to follow a line of Illinois appellate court decisions which are directly in point, or to treat three recent Illinois Supreme Court decisions as presaging a different result because they have eroded the basic rule on which the appellate court decisions rested.

Page 605

        Defendant pleads the Illinois five-year statute of limitations 1 as a bar to plaintiff's claim for damages resulting from the failure of a lead extrusion press installed in plaintiff's Galesburg plant in early 1964. The failure occurred on July 23, 1968, and this action, alleging negligence in the design, manufacture and installation of the press, was filed on March 16, 1971. The district court 2 entered summary judgment for defendant, holding that the claim was barred by limitations because (1) the cause of action accrued at the time of the alleged negligence, rather than at the time the claim was first discovered, and (2) plaintiff's affidavits and depositions contained no evidence of fraudulent concealment on the part of the defendant that would toll the running of the limitations period. The district court also held that the plaintiff's claim for consequential damages was precluded by a provision in the contract between the parties. Since the outcome of this diversity case is controlled by Illinois law, we preface our analysis of the legal questions with a statement of those facts which we believe the Illinois Supreme Court might consider important if confronted with the unresolved question raised by this appeal. 3

        I.

        In 1963 the parties entered into a contract providing for the construction, sale and delivery of a large press which plaintiff (Gates) intended to use in the manufacture of high pressure industrial rubber hose. The terms of sale were set forth in a written proposal dated October 20, 1962 (as modified by subsequent correspondence) submitted by defendant's predecessor in interest and orally accepted by Gates on March 28, 1963; the contract was formed when Farrel 4 began construction pursuant to Gates' oral acceptance.

        The express warranties in the contract expired 'one year after date of shipment.' The agreement expressly negated any implied warranties, and further provided that the seller should have no liability for any special, indirect or consequential damages. The agreement did not, however, contain any provision purporting to exculpate the seller from any liability for direct damage resulting from its negligence in the design, manufacture or installation of the press.

        Although there is no evidence of any discussion between the parties about the anticipated useful life of the press, each apparently expected it to function effectively for about 20 years. It failed some four years after the date of shipment; three years later, following negotiations between the parties and with insurance adjusters, this action was commenced.

        In its complaint, Gates alleged that the failure of the press caused direct damage to its property of $67,000 and consequential damages resulting from interruption of production of $650,000. No damages for personal injury were claimed. Two different theories of liability were alleged: in Count I plaintiff relied on a negligence theory; in Count II plaintiff added an allegation that the press was in a defective and unreasonably dangerous condition when it left USM's control and therefore sought recovery on a strict liability theory. Count II was later abandoned by plaintiff. 5

Page 606

        Before turning to the legal questions we note certain matters that are not in issue. First, as the case comes to us, it involves no claim for personal injuries and no claim that the press was an unreasonably dangerous item. Second, there is no claim that the seller breached the contract or that there is any provision in the contract which affords the seller a complete defense to the purchaser's negligence claim. Third, the dispute is between the immediate parties to the transaction; no rights of third parties are at stake. Finally, we have no occasion to identify the difference between a manufacturer's failure to use reasonable care in the performance of his contractual responsibilities and his possible breach of his contract. For the purposes of our decision we assume that the purchaser of a defective product, whose claim is not barred by limitations, may recover from his seller on a negligence theory even though there has been no breach of contract or warranty, express or implied. Our first problem is to determine when a purchaser's cause of action against a seller, alleging negligent design, manufacture, and installation, 'accrued' within the meaning of the relevant statute of limitations. 6 Does such an action accrue at the time of defendant's negligence, at the time of plaintiff's injury, or at the time when plaintiff discovers, or by the exercise of reasonable diligence should have discovered, his claim?

        The last alternative is often referred to as the 'discovery rule.' Plaintiff contends, in essence, that the discovery rule is, or should be, applicable to all negligence claims; defendant responds, in essence, that Illinois has adopted a double standard pursuant to which the discovery rule is applicable to personal injury claims, whereas a time of negligence rule is applicable to property damage claims.

        II.

        Defendant relies on six Illinois appellate court decisions which are undeniably in point. 7 In each of those cases the plaintiff first became aware of his injury more than five years after he acquired defective property from the defendant; in each the appellate court held that plaintiff's cause of action had accrued at the time of the defendant's alleged negligence and refused to adopt the so-called 'discovery rule.' If those cases correctly apply the law of Illinois, plaintiff's claim in this case is clearly barred.

        As plaintiff points out, however, the Illinois Supreme Court has applied the discovery rule in three recent cases: first, in Rozny v. Marnul,43 Ill.2d 54, 250 N.E.2d 656 (1969), a property owner's action against a surveyor who had placed an 'absolute guarantee for accuracy' on an incorrect plat of survey; second, in Williams v. Brown Manufacturing Co., 45 Ill.2d 418, 261 N.E.2d 305 (1970), a strict liability action for personal injuries resulting from the operation of a trencher which was allegedly in a defective and dangerous condition when it left defendant's control; and third, in Lipsey v. Michael Reese Hospital, 46 Ill.2d 32, 262 N.E.2d 450 (1970), a patient's action for modical malpractice. In none of these cases did the Supreme Court purport to adopt the discovery rule as a general definition of the word 'accrued' in the Limitations Act, or even a general rule to be applied in all negligence or in all personal injury cases.

Page 607

It did, however, refuse to accept arguments which the appellate courts found persuasive in the cases on which defendant relies. This, therefore, is not a situation in which we may simply rely on intermediate appellate court decisions because they are most analogous to the case before us. They provide us with data for ascertaining the relevant Illinois law, but may be disregarded if we are 'convinced by other persuasive data that the highest court of the state would decide otherwise.' West v. American Telephone and Telegraph Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139.

        The first of the appellate court decisions on which defendant relies is Simoniz Co. v. J. Emil Anderson & Sons, Inc., 81 Ill.App.2d 428, 225 N.E.2d 161 (1967). Plaintiff has convinced us that the Supreme Court would not have decided that case in defendant's favor on the basis of the reasons given by the appellate court. The case arose as a result of the collapse in 1962 of a warehouse roof constructed in 1953. The complaint contained seven counts, four charging breach of contract and three alleging negligence on the part of the general contractor, the structural steel subcontractor, and the steel supplier. The appellate court held that the negligence claims were barred because they accrued at the time of defendants' negligent acts; that the discovery rule had been rejected in earlier medical malpractice cases and, therefore, should also be rejected in this type of case; and that any redefinition of the word 'accrued' was a matter for the legislature and not the courts. Finally, the court expressed concern that a general acceptance of the discovery rule would, in effect, abrogate the entire statute of limitations and, at least in theory, permit actions to be filed as long as 50 or 100 years after the event in dispute.

        The appellate court was incorrect in stating that the cause of action accrued at the time of defendants' negligence. That might be true if defendants' negligence and the plaintiff's injury were simultaneous (as, of course, is often the case); but if there is negligence in the design or manufacture of a product, plaintiff obviously suffers no harm until he accepts delivery of the defective item. His cause of action either accrues at the time of his injury when, for...

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