Bay State-Spray & Provincetown S.S., Inc. v. Caterpillar Tractor Co.

• Decision Date: 13 February 1989
• Docket Number: STATE-SPRAY
• Citation: 533 N.E.2d 1350,404 Mass. 103
• Parties: , 7 UCC Rep.Serv.2d 1415 BAY& PROVINCETOWN STEAMSHIP, INC. v. CATERPILLAR TRACTOR CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1350

533 N.E.2d 1350

404 Mass. 103, 7 UCC Rep.Serv.2d 1415

BAY STATE-SPRAY & PROVINCETOWN STEAMSHIP, INC. v. CATERPILLAR TRACTOR CO.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Nov. 9, 1988.

Decided Feb. 13, 1989.

Thomas E. McDonald (Donald J. Wood, Boston, with him), for defendant.

Gregory J. Wenger, Boston, for plaintiff.

Before HENNESSEY, C.J., and WILKINS, ABRAMS, NOLAN and O'CONNOR, JJ.

WILKINS, Justice.

In 1972 the plaintiff (Steamship), which operates a passenger ferry service between Boston and Provincetown, ordered the ship "Provincetown" built by a shipyard. The shipyard installed engines that had been manufactured by the defendant (Caterpillar). The ship began commercial operation in 1973. On August 17, 1980, while the ship was en route to Provincetown, its main starboard engine malfunctioned. As a result, the ship's operating schedule during the next month was disrupted. Steamship commenced this action in May, 1982, to recover damages for the cost of repair and for lost profits caused by the engine's malfunction. Damages of this type are generally characterized as economic loss. See Marcil v. John Deere Indus. Equip. Co., 9 Mass.App.Ct. 625, 630 n. 3, 403 N.E.2d 430 (1980); J.J. White and R.S. Summers, Uniform Commercial Code, § 11-4, at 405 (1980).

At trial Caterpillar contended, among other things, that Steamship's claim was either (a) a tort-based admiralty claim in which economic loss is not recoverable or (b) a contract-based State law warranty action barred by the statute of limitations stated in § 2-725 of the Uniform Commercial Code (G.L. c. 106 [1986 ed.] ). The judge denied Caterpillar's motion for a directed verdict and its motion for judgment notwithstanding the verdict, each of which was based in part on these theories. The jury returned a verdict for Steamship. We granted Caterpillar's application for direct appellate review.

After rejecting Caterpillar's argument that Steamship's claim is a tort claim in admiralty, we turn to the statute of limitations controversy. We must decide which of two statutes of limitations in the Uniform Commercial Code (either § 2-318 or § 2-725 of G.L. c. 106) applies in the circumstances. We conclude that the statute of limitations on which Caterpillar relies is the applicable one and that, therefore, Steamship's claim is barred. Our discussion will require an analysis of the unique Massachusetts treatment of G.L. c. 106, § 2-318, a provision in the sales section of the Uniform Commercial Code, which the Legislature has used to eliminate requirements of privity and to express new principles of strict liability for personal injuries and property damage caused by a seller's breach of warranty in the sale of a product.

1. Caterpillar argues that, to the extent that Steamship's claim is based in tort, it is governed by admiralty law, and that in admiralty economic loss, when it is the only loss, may not be recovered in a tort-based claim. Although Caterpillar is apparently correct in arguing that a plaintiff may not recover for economic loss in a tort-based products liability claim in admiralty (East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871, 106 S.Ct. 2295, 2302, 90 L.Ed.2d 865 [1986] ), Steamship's claim is not tort-based. It is a contract-based claim of breach of warranty and is outside admiralty jurisdiction. Id. at 872 n. 7, 106 S.Ct. at 2303 n. 7. ¹ Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d 925, 929 (5th Cir.1987), cert. denied 485 U.S. 1007, 108 S.Ct. 1472, 99 L.Ed.2d 701 (1988). That is Steamship's view of its own claim. It was also the trial judge's view, and we agree with it. Caterpillar itself does not argue that we must view Steamship's claim as tort-based but only that, if we were to do so, recovery could not be had in admiralty. The Uniform Commercial Code--Sales (G.L. c. 106, §§ 2-101 to 2-725 [1986 ed.] ) governs this case. The principal issue before us is, therefore, which of two arguably applicable statutes of limitation in art. 2 of the Massachusetts Uniform Commercial Code applies to the claim in this case.

2. The conflict between the statutes of limitation can easily be described. Section 2-318, which is set forth in the margin, ² provides a three-year statute of limitation measured from the date the injury and damage occurs. The parties agree that the injury and damage occurred on August 17, 1980, when the allegedly defective engine malfunctioned. Steamship commenced this action in May, 1982. On the other hand, § 2-725, which is set forth in relevant part in the margin, ³ provides a four-year statute of limitation measured (as applicable in this case) from the tender of delivery of the goods, without regard to knowledge of the breach of warranty. Delivery occurred no later than 1973, approximately nine years before this action was commenced.

Each of the two statutes of limitation literally applies here. As to § 2-318, this is an action against a manufacturer for breach of an implied warranty, brought by a subsequent purchaser who would have reasonably been expected to use the engine. It was commenced within three years after "the injury and damage occurred." Thus, as Steamship argues, the action was timely. As to § 2-725, this is an action for breach of a contract of sale. The breach of warranty occurred no later than when the ship was delivered to Steamship, and the cause of action accrued when the breach occurred "regardless of the aggrieved party's lack of knowledge of the breach" (§ 2-725). Thus, as Caterpillar argues, the action was not commenced within "four years after the cause of action accrued," and it may not be maintained. ⁴

We resolve this conflict by analyzing the nature of Steamship's claim and determining what the Legislature intended to achieve by amendments to § 2-318. In so doing, we give meaning to each of the seemingly conflicting statutes of limitation. We conclude that the statute of limitations of § 2-318 applies to tort-based warranty claims and that the statute of limitation of § 2-725 applies to contract-based warranty claims. As we shall explain, there are meaningful differences between the two kinds of claims, and the Legislature inserted the statute of limitation in § 2-318 intending it to apply only to tort-based warranty claims.

A claim like Steamship's of a breach of an implied warranty asserted to recover economic loss (the cost of repairs and lost profits) is contract-based, and, in this State when economic loss is the only damage claimed, recovery is not allowed in tort-based strict liability (see Restatement [Second] of Torts § 402A [1965] ) or in negligence. See New England Power Co. v. Riley Stoker Corp., 20 Mass.App.Ct. 25, 35, 477 N.E.2d 1054 (1985); Marcil v. John Deere Indus. Equip. Co., 9 Mass.App.Ct. 625, 629-631, 403 N.E.2d 430 (1980). ⁵ In this respect Massachusetts joins the majority view in this country which is also the view favored by commentators. See East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 868-869, 106 S.Ct. 2295, 2301-2302, 90 L.Ed.2d 865 (1986); Spring Motors Distribs., Inc. v. Ford Motor Co., 98 N.J. 555, 573-575, 581, 489 A.2d 660 (1985); W.L. Prosser & W.P. Keeton, Torts § 657, at 708 (1984). What makes the Massachusetts situation unique (and our commercial code not uniform in this respect) is the Legislature's imposition of the concept of strict liability in tort into § 2-318 of the Uniform Commercial Code. Most jurisdictions have kept the two bases of liability separate, leaving for judicial determination the question of where a particular claim for damages falls--in tort or under a Uniform Commercial Code warranty. See, e.g., Spring Motors Distribs., Inc v. Ford Motor Co., supra at 577-582, 489 A.2d 660.

Tort concepts were introduced into G.L. c. 106, § 2-318, through amendments adopted well after the enactment of the Uniform Commercial Code in 1957. ⁶ In 1971 the Legislature greatly relaxed privity requirements in warranty actions and expressly referred to damages for "negligence" (as well as breach of warranty) in an amended § 2-318. St.1971, c. 670. ⁷ In 1973 the Legislature inserted a statute of limitation in § 2-318 requiring an action to be commenced within two years after "the date the injury occurs" (emphasis supplied). St.1973, c. 750, § 1. The act stated that the amendment applied "to injuries which occur" (emphasis supplied) after the effective date of the amendment. St.1973, c. 750, § 2. The two-year limitation generally paralleled the tort statutes of limitation then in effect. See G.L. c. 260, § 2A, inserted by St.1948, c. 274, § 2; G.L. c. 260, § 4, as amended through St.1968, c. 94, § 1. This amendment to § 2-318 by its terms focused on tort-based claims for personal injuries. In 1974, the statute of limitation was extended to three years ("shall be commenced within three years next after the date the injury and damage occurs"). St.1973, c. 750. Section 2-318 was thus again made to parallel the tort statutes of limitation. G.L. c. 260, §§ 2A and 4, as amended by St.1973, c. 777, §§ 1 and 3. See Swartz v. General Motors Corp., 375 Mass. 628, 630, 378 N.E.2d 61 (1978). We observed in 1978 that these amendments, taken together, provided "a remedy as comprehensive as that [strict liability] provided by § 402A of the Restatement" (Second) of Torts (1965). Id. See Back v. Wickes Corp., 375 Mass. 633, 639-640, 378 N.E.2d 964 (1978). Although we declined to recognize a common law tort basis of strict liability based on the principles of § 402A (Swartz v. General Motors Corp., supra 375 Mass. at 631, 378 N.E.2d 61), we recognized "that the duty which [a] plaintiff sues to enforce in a 'warranty' action for personal injuries is one imposed by law as a matter of social policy," a tort concept. Back v. Wickes Corp., supra 375 Mass. at 640, 378 N.E.2d 964.

The Supreme Court's opinion in the East River case, which has already provided the clear answer to the...