REM Coal Co., Inc. v. Clark Equipment Co.

• Decision Date: 02 August 1989
• Citation: 386 Pa.Super. 401,563 A.2d 128
• Parties: , 9 UCC Rep.Serv.2d 916, Prod.Liab.Rep. (CCH) P 12,252 REM COAL COMPANY, INC. v. CLARK EQUIPMENT COMPANY, t/d/b/a Michigan Loaders, and Anderson Equipment Company, a Pennsylvania Corporation, Appellant, v. APEX, INC. and Bridgeville Industrial Supply, Appellee. 01661 PITTS. 1987
• Court: Pennsylvania Superior Court

Page 128

563 A.2d 128

386 Pa.Super. 401, 9 UCC Rep.Serv.2d 916,

Prod.Liab.Rep. (CCH) P 12,252

REM COAL COMPANY, INC. v. CLARK EQUIPMENT COMPANY, t/d/b/a Michigan Loaders, and Anderson Equipment Company, a Pennsylvania

Corporation, Appellant, v. APEX, INC. and Bridgeville Industrial Supply, Appellee.

01661 PITTS. 1987

Superior Court of Pennsylvania.

Argued Feb. 27, 1989.

Filed Aug. 2, 1989.

Arthur R. Gorr, Pittsburgh, for appellant.

Dennis A. Watson, Pittsburgh, for REM Coal, appellee.

Before CIRILLO, President Judge, and CAVANAUGH, BROSKY, McEWEN, OLSZEWSKI, BECK, TAMILIA, POPOVICH and JOHNSON, JJ.

BECK, Judge:

This case presents the question of whether purely economic losses are recoverable in a product liability action between commercial enterprises and sounding in negligence and/or strict liability. We hold that they are not.

The relevant facts are not in dispute. Appellee REM Coal Company owned a front-end loader used in its strip mining business. On February 25, 1982 the loader caught fire and was severely damaged. REM instituted this action against Clark Equipment Company, the manufacturer of the loader, and against Anderson Equipment Company, the seller of the loader. Appellant Anderson later joined Apex, Inc., the manufacturer of the fire suppression system on the loader, and Bridgeville Industrial Supply, the seller of the fire suppression system.

REM's complaint pleaded three theories: negligence, strict liability and breach of warranty. All parties concede that the complaint alleged only economic losses, i.e., the loss of the front-end loader itself. No personal injuries or damage to REM Coal's property other than the loader itself were alleged.

At the close of the pleadings, appellants Clark and Anderson moved for summary judgment. On November 17, 1987 the trial court granted summary judgment against REM on the breach of warranty claim, holding that it was barred by the statute of limitations, but denied summary judgment on the negligence and strict liability claims. ¹ The trial court then certified the denial of summary judgment on the tort claims for immediate appeal, stating that the denial involved a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order would materially advance the ultimate termination of the matter. Permission to appeal was granted. Pa.R.A.P. 1301 et seq.

Summary judgment is appropriate when two basic requirements are fulfilled. There must be no genuine issue as to any material fact and the moving party must be entitled to judgment as a matter of law. Pa.R.C.P. 1035(b); Washington Federal Savings & Loan Assn. v. Stein, 357 Pa.Super. 286, 515 A.2d 980 (1986). Instantly, we need only determine whether the appellants have fulfilled the second requirement. Since all parties concede the material facts, our inquiry is only whether appellants are entitled to judgment as a matter of law.

At issue is the appropriateness of permitting recovery in tort where a product malfunctions because of an alleged defect in the product, causing damage to the product itself and consequential damages in the nature of costs of repair or replacement or lost profits, but the malfunction causes no personal injury and no injury to any other property of the plaintiff. Obviously, the question is not whether a plaintiff in such a case is entitled to a recovery at all, but rather whether a cause of action in tort, as opposed to one sounding solely in contract, is an appropriate vehicle for obtaining such a recovery.

Beginning in 1965 with the decision of the California Supreme Court in Seely v. White Motor Co., 63 Cal.2d 9, 403 P.2d 145, 45 Cal.Rptr. 17 (1965), the national trend has increasingly classified cases of this nature as sounding purely in contract. See, e.g., Lloyd Wood Coal Co. v. Clark Equipment Co., 543 So.2d 671 (Ala.1989); Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn.1981). The basic rationale employed by courts that have followed this trend is that the goals of tort theories of recovery are not implicated in a product malfunction case involving only economic losses. A contract action, on the other hand, is perfectly suited to providing an adequate remedy for such losses and recognizes the parties' ability to structure their relative liabilities and expectations regarding the product's performance by setting the terms of their contractual bargain.

The public policy that spawned tort recovery in the product liability context was a desire to provide protection of the public from unsafe products beyond that provided by contract law. Tort product liability theories impose responsibility on the supplier of a defective product whenever it causes personal injury or damage to other property because this is deemed to be the best way to allocate the risk of unsafe products and to encourage safer manufacture and design. Where a product malfunctions in a manner that does not cause damage outside of the product itself, many courts have found that this public policy is not involved because contract theories such as breach of warranty are specifically aimed at and perfectly suited to providing complete redress in cases involving such economic losses. All of such losses are based upon and flow from the purchaser's loss of the benefit of his bargain and his disappointed expectations as to the product he purchased. Thus, the harm sought to be redressed is precisely that which a warranty action does redress. See Seely, supra; East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986).

This issue has had a lengthy history, not only in decisions of courts across the country, but also in the decisions of this court and of the federal courts sitting in Pennsylvania. We begin with the pertinent decisions by two panels of this court: Industrial Uniform Rental Co., Inc. v. International Harvester Co., 317 Pa.Super. 65, 463 A.2d 1085 (1983), and Johnson v. General Motors Corp., 349 Pa.Super. 147, 502 A.2d 1317 (1986), allo. denied, 514 Pa. 639, 523 A.2d 346 (1987). ² In Industrial Uniform the purchaser of certain trucks brought a Section 402A strict liability action against the manufacturer of the trucks. The damages alleged were the costs of repairing cracks in the frames of the trucks and the diminution of value in the trucks as a result of these structural deficiencies. The trial court had granted summary judgment for defendant on the ground that these damages were purely economic losses not appropriately recoverable in strict product liability.

On appeal, this court began with a review of the competing views on this issue. The seminal case representing the view that such damages were not recoverable was Seely, supra. The court quoted with approval from the Seely court's explanation of the distinction between tort and contract remedies:

The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the "luck" of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will. Even in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone ... The Restatement of Torts similarly limits strict liability to physical harm to person or property.

Industrial Uniform, 317 Pa.Super. at 71, 463 A.2d at 1088 (quoting Seely, 63 Cal.2d at 18, 403 P.2d at 151, 45 Cal.Rptr. at 23).

In contrast, the Industrial Uniform court noted the divergent view of the Supreme Court of New Jersey expressed in Santor v. A. & M. Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965), where the sole alleged damages were economic losses, i.e., a decrease in the value of defective carpeting purchased by plaintiff from the defendant manufacturer. In Santor, the court held that strict liability recovery was permissible even in a case involving purely economic loss because the manufacturer must bear all risks associated with placing defective products on the market, including the risk that the product itself does not perform up to the purchaser's expectations. Id.

Having set forth these basic and diverging views, the Industrial Uniform court then looked to the decision of the Court of Appeals for the Third Circuit in Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir.1981), in which the Third Circuit had predicted Pennsylvania law on this issue. In Pennsylvania Glass Sand, the Third Circuit opined that the Pennsylvania Supreme Court, if confronted with this issue, would adopt an intermediary position which generally banned recovery for economic loss in tort, but which allowed such recovery where the product posed a risk of injury to the person or other property of the plaintiff. The court proposed a case-by-case analysis focusing on the nature of the defect, the type of risk posed by the defect, and the manner in which the damages occurred. The rationale underlying this view was the Third Circuit's perception of a relevant distinction between pure economic loss, i.e. damages...