Anderson Elec. v. Ledbetter Erection Corp.

• Decision Date: 20 November 1986
• Docket Number: No. 62293,C-E,62293
• Citation: 104 Ill.Dec. 689,503 N.E.2d 246,115 Ill.2d 146
• Parties: , 104 Ill.Dec. 689 ANDERSON ELECTRIC, INC., Appellant, v. LEDBETTER ERECTION CORPORATION et al. (Walther, Inc., Appellee).
• Court: Illinois Supreme Court

Page 246

503 N.E.2d 246

115 Ill.2d 146, 104 Ill.Dec. 689

ANDERSON ELECTRIC, INC., Appellant, v. LEDBETTER ERECTION CORPORATION et al. (C-E Walther, Inc., Appellee).

No. 62293.

Supreme Court of Illinois.

Nov. 20, 1986.

Rehearing Denied Jan. 30, 1987.

Sorling, Northrup, Hanna, Cullen and Cochran, Ltd. (Stephen R. Kaufmann and Stephen A. Tagge, of counsel), Springfield, for appellant.

John E. Guy, Chairman, amicus curiae Committee Illinois Association of Defense Trial Counsel, Chicago; Victor J. Piekarski, of counsel.

Gary M. Peplow, David L. Requa, Heyl, Royster, Voelker & Allen, Springfield, for appellee.

Robert J. Glenn, Thomas A. Demetrio and David A. Novoselsky, amicus curiae Committee Illinois Trial Lawyers Ass'n, Chicago.

Justice WARD delivered the opinion of the court:

Anderson Electric, Inc. (Anderson), the plaintiff, filed a two-count complaint against Ledbetter Erection Corporation (Ledbetter) and C-E Walther, Inc. (Walther), in the circuit court of Sangamon County. The first count alleged breach of contract by Ledbetter; count II alleged negligence by Walther. The court granted Walther's motion to dismiss count II on the ground that it failed to state a cause of action in tort, and found under our Rule 304(a) that there was no just reason to delay appeal to the appellate court (87 Ill.2d R. 304(a)). That court affirmed the dismissal of count II (133 Ill.App.3d 844, 88 Ill.Dec. 863, 479 N.E.2d 476), and we allowed the plaintiff's petition for leave to appeal under our Rule 315 (103 Ill.2d R. 315).

The first count of the complaint was not disposed of and pends against Ledbetter in the circuit court.

Upon a motion to dismiss, of course, all facts properly pleaded in the complaint and those contained in exhibits made part of the complaint are to be taken as true for purposes of the motion. Soules v. General Motors Corp. (1980), 79 Ill.2d 282, 284, 37 Ill.Dec. 597, 402 N.E.2d 599.

Anderson alleged that it entered into a contract with Ledbetter to perform certain electrical work on precipitator units, manufactured by Walther, which were to be installed at a Commonwealth Edison facility near Kincaid, Illinois. The contract incorporated Walther's Precipitator Erection Manual (manual), which provided plans and specifications for the electrical work on the precipitator. A contract between Ledbetter and Walther provided that the electrical work was to be performed in accordance with the manual. Under the manual's terms Walther was to inspect specified portions of the project as they were installed; and upon discovering any deviations from the specifications, Walther was to promptly inform the contractor, Ledbetter, so that corrections could be made without delay. The contract between Ledbetter and Anderson also provided that Ledbetter was to inspect Anderson's work as it was performed. Anderson made no allegation in its complaint of a contractual relationship with Walther; in fact, it is agreed that there was none.

Anderson, in the second count, alleged that although its performance was in a "workmanlike manner and was accepted as performed," Walther improperly required much of the work to be redone, causing Anderson to incur additional costs of $288,802.44. Anderson alleged that Walther failed to perform a service, in that it undertook a duty, as its manual provided, to supervise and inspect the plaintiff's work during installation, and as it had negligently failed to perform that duty, Walther was liable to Anderson.

The trial court, in granting Walther's motion to dismiss Anderson's negligence count, relied on Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 91, 61 Ill.Dec. 746, 435 N.E.2d 443, in which this court held that solely economic losses, broadly speaking, are not recoverable in tort. The appellate court affirmed the trial court, and we granted Anderson's petition for leave to appeal.

In Moorman, the plaintiff purchaser sued the defendant manufacturer-seller of a grain-storage tank to recover repair costs and loss of use of the tank. The complaint alleged, inter alia, that the defendant negligently designed the tank. The trial court dismissed the negligence count, but the appellate court reversed. This court upheld the trial court, stating that there can be no recovery in tort solely for economic losses. The court said that "contract law, which protects expectation interests, provides the proper standard when a qualitative defect is involved." (Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 81, 61 Ill.Dec. 746, 435 N.E.2d 443.) It was stated that " '[e]conomic loss' has been defined 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 * * * ' [citation] * * *." Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 82, 61 Ill.Dec. 746, 435 N.E.2d 443.

Subsequently, in Redarowicz v. Ohlendorf (1982), 92 Ill.2d 171, 65 Ill.Dec. 411, 441 N.E.2d 324, the trial court's dismissal of a homeowner's negligence count against a builder for defective construction of his home that he had purchased from a third party was affirmed. The plaintiff there sought recovery for the costs of repair or replacement of the defective construction. Applying Moorman, this court held that the homeowner could not recover in negligence solely for economic losses resulting from the homeowner's disappointed commercial expectations. (Redarowicz v. Ohlendorf (1982), 92 Ill.2d 171, 177-78, 65 Ill.Dec. 411, 441 N.E.2d 324.) "To recover in negligence there must be a showing of harm above and beyond disappointed expectations. A buyer's desire to enjoy the benefit of his bargain is not an interest that tort law traditionally protects." (Redarowicz v. Ohlendorf (1982), 92 Ill.2d 171, 177, 65 Ill.Dec. 411, 441 N.E.2d 324.) See also Swaw v. Ortell (1984), 137 Ill.App.3d 60, 68-69, 92 Ill.Dec. 49, 484 N.E.2d 780 (where the appellate court, following Moorman and Redarowicz, affirmed the trial court's dismissal of negligence counts against three defendants on the basis that the losses sustained involved simply "a consumer's commercial expectation").

The Supreme Court, too, recently held that there cannot be recovery in tort for economic loss. In East River Steamship Corp. v. Transamerica Delaval, Inc. (1986), 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865, the court affirmed the district court's dismissal of a negligence count seeking recovery for repair costs and lost income. There Seatrain Shipbuilding Corp. (Shipbuilding), which had an order to build oil tankers, contracted with the respondent, Transamerica Delaval, Inc. (Transamerica), to design, manufacture, and supervise the installation of turbines--the main propulsion units of the tankers. When the tankers were constructed their owners chartered them to the petitioners. The charter was for 20 to 22 years and required the petitioners to assume ownership responsibilities, including the payment of all costs of repair.

The turbines malfunctioned, the petitioners claimed, and they brought suit against Transamerica alleging that it had strict liability for design defects in the turbines of the ships, and that, "as part of the manufacturing process," Transamerica negligently supervised the installation of a valve involving the turbines in one of the tankers. The district court granted Transamerica's motion for summary judgment. The Court of Appeals for the Third Circuit affirmed, stating that the damages the petitioners claimed resulted from its disappointed expectations of the quality of the product and were not recoverable in negligence or under strict liability. (East River Steamship v. Delaval Turbine, Inc. (3d Cir.1985), 752 F.2d 903, 909-10.) In affirming, the Supreme Court stated that when the damage sustained results from a qualitative defect of the product and no person is injured or other property damaged, "the resulting loss is purely economic" (East River Steamship v. Transamerica Delaval, Inc. (1986), 476 U.S. ----, ----, 106 S.Ct. 2295, 2302, 90 L.Ed.2d 865, 876) whether the damage was caused by gradual deterioration, internal breakage, or calamitous event. Any loss sustained "due to repair costs, decreased value, and lost profits is essentially the failure of the purchaser to receive the benefit of its bargain--traditionally the core concern of contract law." (East River Steamship Corp. v. Transamerica Delaval, Inc. (1986), 476 U.S. ----, ----, 106 S.Ct. 2295, 2302, 90 L.Ed.2d 865, 876.) The court continued:

"[A] manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself.

'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.' Seely v. White Motor Co. [1965] 63 Cal.2d , at 18, 403 P.2d , at 151 [45 Cal.Rptr. 17, 23]. When a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong.

* * * [W]hen a product injures itself, the commercial user stands to lose the value of the product, risks the displeasure of its customers who find that the product does not meet their needs, or, as in this case, experiences increased costs in performing a service." East River Steamship Corp. v. Transamerica Delaval, Inc. (1986), 476 U.S. ----, ----, 90 L.Ed.2d 865, 877, 106 S.Ct. 2295, 2302. The court observed that the only damage claimed was to the turbines operation; there was no injury or damage to persons or other property. Even assuming that Transamerica in fact did...