Berg v. General Motors Corp.

• Decision Date: 28 October 1976
• Docket Number: No. 43881,43881
• Citation: 555 P.2d 818,87 Wn.2d 584
• Parties: , 1977 A.M.C. 58 Loren BERG, Petitioner, v. GENERAL MOTORS CORPORATION, Respondent, and Duncan Engine Company, Defendant.
• Court: Washington Supreme Court

Page 584

87 Wn.2d 584

555 P.2d 818, 1977 A.M.C. 58

Loren BERG, Petitioner, v. GENERAL MOTORS CORPORATION, Respondent, and Duncan Engine Company, Defendant.

No. 43881.

Supreme Court of Washington, En Banc.

Oct. 28, 1976.

Rehearing Denied Feb. 8, 1977.

Anthony Schwab, Seattle, for petitioner.

Perkins, Coie, Stone, Olsen & Williams, William A. Gould, Steven C. Marshall, Seattle, for respondent.

WRIGHT, Associate Justice.

This appeal involves the single issue of whether the law of negligence permits recovery by a purchaser of goods against a manufacturer for damages constituting solely economic loss as distinguished from damage to person or property.

Appellant is a commercial fisherman. In 1970 he purchased from Duncan Engine Company (Duncan) a new Detroit Diesel (made by General Motors Corporation, Detroit Diesel Division (General Motors)) for his new boat. The engine was listed as an 8V--53N and came fitted from the factory with what is called an MG--506 clutch. The clutch, according to the manufacturer, was not of sturdy enough design to withstand the stresses imposed by an 8V--53N engine, if such engine were engaged in commercial use.

While in Alaska on a fishing trip, appellant's engine broke down after approximately 600 hours of operation. The cause was traced to an error in factory assembly. The engine was rebuilt by Duncan without advance notice to respondent-General Motors. Respondent was eventually notified by Duncan of the engine rebuild, and paid the entire cost thereof.

Appellant resumed fishing. But on August 14, 1971, the rebuilt engine disintegrated with 40 hours of total running time on it. Duncan sent its mechanic with a new engine (model 8V--53N) and installed it in the vessel; the costs were paid by respondent. This second breakdown was caused by a failure of a cap screw that held down the cam roller. The cam roller came loose and punched a hole in the block. Whether that problem was caused by a faulty part (General Motor's responsibility) or faulty mechanic workmanship (Duncan's responsibility) is not known. The damaged parts were not saved although appellant demanded they be kept. Defendant asserted that it was customary to throw out the parts from both the first and second breakdown, even though they knew a claim was being asserted involving those parts.

A third failure in the drivetrain occurred when the clutch failed. The MG--506 clutch was rated for 160 horsepower engine use; the 8V--53N developed 283 horsepower. In a Detroit Diesel brochure appellant had received at Duncan, appellant was urged to rely on Duncan to make the selection of the appropriate engine:

For complete engine specifications for your particular application see your authorized Detroit Diesel representative.

Respondent made no effort to inform its dealers of the limitation of the MG--506 clutch for use with the 8V--53N engine.

The above-mentioned breakdowns occurred during the 1971 fishing season. Appellant filed suit against Duncan and Detroit Diesel for damages in part based on anticipated value of the fish catch that predictably could have been taken during the period that appellant's boat was laid up for repairs. The action against General Motors was based on two theories: (1) negligent manufacture, and (2) vicarious liability based upon agency for the negligence of Duncan and for breach of an implied warranty of fitness.

At the opening of the trial, defendant-Detroit Diesel moved for summary judgment for failure to state a cause of action. The superior court, considering only the liability issues and not the damages issue, allowed an offer of proof and then dismissed the case against the manufacturer, Detroit Diesel, on three bases: (1) There was no privity between the manufacturer and the retail consumer and no basis upon warranties for recovery because privity was required; (2) There was no agency in fact, apparent or in law, connecting the manufacturer and the retail dealer for the limited agency of sales and repairs made in connection with the sale; and (3) The negligence of the manufacturer directly in failing to inform its dealers of known facts (clutch use prohibitions) and in failing to use due care in repairing and/or manufacturing its product will not support a recovery of pecuniary losses in damages for lost fishing production and/or diminution in value of a fishing vessel.

Plaintiff Berg appealed the summary judgment. The Court of Appeals affirmed. Appellant thereafter petitioned this court for review, which was granted. The issue of agency, however, was eliminated. Berg's action against Duncan continued pending the outcome of this appeal. The issue for our determination will be whether the trial court erred in failing to recognize the cause of action for economic loss.

When products liability cases are based on negligence or strict liability, some jurisdictions have held that pecuniary loss alone is not recoverable. There are two oftencited rationales for this result. First, it is said the manufacturer cannot be regarded as having assumed responsibility for more than the safety of the product. Absent some special circumstance, (E.g., express warranty or innocent misrepresentation), the manufacturer does not assume responsibility for the commercial viability or economic performance of the item sold--at least to a remote purchaser or user. Between the immediate vendor and vendee, the limits of liability for poorly performing products is defined by the 'basis of the bargain.' This basis of the bargain can find expression only in actual representations or implied warranties between immediate sellers and buyers. 'Damages for inferior quality, per se, should better be left to suits between vendors and purchasers since they depend on the terms of the bargain between them.' Trans World Airlines, Inc. v. Curtiss-Wright Corp., 1 Misc.2d 477, 148 N.Y.S.2d 284 (1955). In Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), Justice Traynor established the pattern followed by many courts in suits where only lost profits were pled as damages and a theory other than warranty or misrepresentation was the remedy for recovery. Justice Traynor stated at page 18, 45 Cal.Rptr. at page 23, 403 P.2d at page 151:

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.

(Italics supplied.)

The second rationale for denying lostprofit damages in nonwarranty actions is the belief that a malfunctioning product, generating solely a loss of income, violates only a contractual expectation. Only toward the injured person, or owner of injury property, is there liability in tort. In Trans World Airlines, Inc. v. Curtiss-Wright, Corp., supra, it was held that latent defects in aircraft engines, which caused injury only to the engines themselves, were not actionable in negligence. The matter was stated thus in Trans World at pages 481--82, 148 N.Y.S.2d at page 290:

Until there is an accident, there can be no loss arising from breach of this duty, i.e., as a result of negligence (as distinguished from warranty). 'Though negligence may endanger the person or property of another, no actionable wrong is committed if the danger is averted.'

(Schmidt v. Merchants Desp. Transp. Co., 270 N.Y. 287, 300, 200 N.E. 824.)

The damage asserted by TWA is for replacement cost of allegedly inferior engines--a matter of qualitative inadequacy in a product purchased from Lockheed, a proper subject for a claim of breach of warranty, pure and simple. It is true that when the engines 'failed to operate', the planes became 'imminently dangerous'; but the danger was 'averted'. There was no accident. The malfunctioning of the engines had not yet turned into a misadventure.

T W A was not without remedy. Until an accident attributable to a defective engine happened, its only remedy was to hold Lockheed, the seller, for breach of warranty. It is only when the danger inherent in a defectively made article causes an accident that a cause of action against the manufacturer also arises.

If the ultimate user were allowed to sue the manufacturer in negligence merely because an article with latent defects turned out to be bad when used in 'regular service' without any accident occurring, there would be nothing left of the citadel of privity and not much scope for the law of warranty. There seems to me to be good reason for maintaining that, short of an accident, the citadel should be preserved. Manufacturers would be subject to indiscriminate lawsuits by persons having no contractual relations with them, persons who could thereby escape the limitations, if any, agreed upon in their contract of purchase. Damages for inferior quality, per se, should better be left to suits between vendors and purchasers since they depend on the tems of the bargain between them.

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