Davidson Lumber Sales, Inc. v. Bonneville Inv., Inc.

• Decision Date: 29 May 1990
• Docket Number: No. 870086,870086
• Citation: 794 P.2d 11
• Parties: 13 UCC Rep.Serv.2d 415, Prod.Liab.Rep. (CCH) P 12,496 DAVIDSON LUMBER SALES, INC., Plaintiff and Appellee, v. BONNEVILLE INVESTMENT, INC.; Estate of Leonard M. Sproul, by and through Elaine M. Sproul, as personal representative of the Estate; and John Does 1 through 50 inclusive, Defendants and Appellants.
• Court: Utah Supreme Court

Page 11

794 P.2d 11

13 UCC Rep.Serv.2d 415, Prod.Liab.Rep. (CCH) P 12,496

DAVIDSON LUMBER SALES, INC., Plaintiff and Appellee, v. BONNEVILLE INVESTMENT, INC.; Estate of Leonard M. Sproul by and through Elaine M. Sproul, as personal representative of the Estate; and John Does 1 through 50 inclusive Defendants and Appellants.

No. 870086.

Supreme Court of Utah.

May 29, 1990.

L. Rich Humphreys, M. Douglas Bayly, Salt Lake City, for plaintiff and appellee.

Roy G. Haslam, Paul D. Veasy, Salt Lake City, for defendants and appellants.

STEWART, Justice:

After settling a suit against it for the sale of a defective product, Davidson Lumber Sales, Inc., filed suit against Bonneville Investment, Inc., and the estate of Leonard M. Sproul, to recoup the damages that Davidson had paid to settle the first suit. In the instant case, Davidson alleged claims for negligence, breach of implied warranties, indemnity, and contribution against the defendants. The trial court denied the defendants' motion for summary judgment based on Utah Code Ann. § 70A-2-725. We granted the defendants' petition for an interlocutory appeal. We affirm the trial court, but on different grounds.

I. FACTS

Bonneville designed and constructed a laminated wood beam and, on April 29, 1976, sold it to Davidson Lumber. Approximately two months after the sale, Davidson sold the beam to Quality Construction. The beam was eventually installed by Abrams Construction Co. in a building in Las Vegas, Nevada. The owner of the building leased the building to Thrifty Corporation for the operation of a drugstore.

On October 20, 1978, the roof of the building collapsed, causing property damage in excess of $80,000 to Thrifty's drugstore and its contents. On May 21, 1979, Thrifty filed suit in California against several parties, including Davidson. Against Davidson, Thrifty's lawsuit alleged claims for relief based on strict liability in tort, breach of implied warranties of merchantability and fitness for a particular purpose, and negligence. The suit sought damages for the loss of inventory, fixtures, and equipment, for lost profits, and for the costs of repair, salvage, and cleanup. Thrifty did not seek damages for replacement of the beam, since the building belonged to the lessor.

On February 18, 1981, Davidson filed a cross-claim against Bonneville in the California action, but it was dismissed July 28, 1982, because of lack of personal jurisdiction over Bonneville. On August 4, 1982, Davidson sent a letter to Sproul as president of Bonneville, asking Bonneville to defend the California suit against Davidson, but Bonneville declined to defend. On November 16, 1983, Davidson settled Thrifty's claims for $45,000.

Prior to the settlement, on July 26, 1983, Davidson filed the instant action in Salt Lake County against Bonneville and Sproul. Davidson alleged claims against Bonneville for negligence in the construction and design of the wood beam, breach of the implied warranties of merchantability and fitness for a particular purpose, indemnity, and contribution. Davidson also alleged claims against the estate of Sproul and the other officers and directors of Bonneville for liquidating Bonneville Investment, Inc., without the payment of all known debts pursuant to Utah Code Ann. § 16-10-44 (1987). Davidson's suit against Bonneville and Sproul was filed more than seven years after Davidson purchased the beam from Bonneville.

Bonneville and Sproul moved for summary judgment on the ground that Davidson's claims were barred by the statutes of limitation in Utah Code Ann. § 78-12-23(2) and § 78-12-25(2) (1987). That motion was denied. Bonneville and Sproul again moved for summary judgment against Davidson on the ground that Davidson's claims were barred by the Uniform Commercial Code's ("U.C.C.") statute of limitations found in Utah Code Ann. § 70A-2-725 (1980). ¹ The trial court ruled that § 2-725, if constitutional, would bar the action under Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214 (Utah 1984), but that § 2-725 was unconstitutional under Berry v. Beech Aircraft Corp., 717 P.2d 670 (Utah 1985). The court therefore denied defendants' motion for summary judgment. We granted a petition for an interlocutory appeal.

Defendants contend that the four-year limitations period in § 2-725 controls this case under Perry and requires a reversal of the trial court's denial of their motion for summary judgment against Davidson. Davidson counters with two arguments. First, Davidson contends that § 2-725 was designed only to bar U.C.C. contract claims and not the types of claims asserted in this case. Second, Davidson argues that, even if it is wrong on the first point, Berry v. Beech Aircraft Corp., makes application of the statute of repose in § 2-725 unconstitutional in this case. ² Berry v. Beech Aircraft Corp., held that a products liability statute of repose was unconstitutional under the open courts provision of the Utah Constitution. Utah Const. art. I, § 11. We need not, however, reach the question of whether § 2-725 would be unconstitutional on the facts of this case under Berry v. Beech Aircraft Corp. unless and until we first decide that § 2-725 is applicable to this case.

II. THE SCOPE OF U.C.C. § 2-725

The first question is whether the trial court erred in holding that § 2-725 applies to Davidson's claims against Bonneville and Sproul. Since the issue is solely an issue of law, we do not defer to the trial court's rulings. Madsen v. Borthick, 769 P.2d 245, 247 (Utah 1988); Asay v. Watkins, 751 P.2d 1135, 1136 (Utah 1988).

A. Perry v. Pioneer Wholesale Supply Co.

At first blush, Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214 (Utah 1984), seems to require the conclusion that the four-year statute of repose in § 2-725 governs this case. That case held that § 2-725 applies to indemnity actions which grow out of an underlying U.C.C. contract or warranty action. Perry is, however, distinguishable. In Perry, the manufacturer sold defective doors to Pioneer, a wholesale supply company, who in turn sold them to Perry, a subcontractor. Perry installed the doors as part of its subcontract on a building project. The general contractor rejected the doors and covered by purchasing replacement doors. The general contractor then sued Perry, and Perry filed a third-party complaint against the wholesaler and the manufacturer for breach of warranty.

The general contractor's action against Perry was based on delivery of nonconforming goods and sought only a contract measure of damages based on the delivery of defective doors. This Court held that § 2-725 governed Perry's third-party complaint and that Perry had four years from the tender of delivery of defective goods to bring its action against the wholesaler and the manufacturer for breach of warranty. ³ Perry, 681 P.2d at 217. The Court stated that the "limitation period specified in the Uniform Commercial Code conflicts with the general limitations rule for indemnity actions.... By its terms, this provision [§ 2-725] appears to override the general rule regarding indemnity actions." Perry, 681 P.2d at 218.

In the present case, the trial court applied Perry and held that Davidson's indemnity claims were barred by § 2-725. The trial court then held that provision unconstitutional as applied.

Davidson's action against Bonneville and Sproul grew out of a prior lawsuit in which Thrifty Corporation sued Davidson. Thrifty, however, was not the purchaser of the beam; rather, it was the lessee of the premises where the beam was installed. Thrifty sued for the damages that the collapse of the beam caused to its personal property and its business. Thus, the damages it sought were not for breach of contract or breach of a U.C.C. warranty, but for the commission of a tort.

The issue in this case is whether § 2-725 applies only to actions for economic or breach of contract damages or whether it also applies to tort actions.

B. Application of § 2-725

The U.C.C. limitations period for breach of contract and warranty cases is four years from the date of the breach of contract or four years from the tender of delivery for a breach of warranty. § 2-725. That section provides in relevant part:

(1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.

(2) A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.

1. Negligence claims

Since § 2-725 applies only to "an action for breach of any contract for sale," it does not apply to tort actions and does not, therefore, apply to any of Davidson's claims for relief insofar as they are claims based on tort. In short, it does not apply to Davidson's claims against Bonneville and Sproul that are based on negligence. Since contribution in this context is also a tort concept, it is likewise not subject to § 2-725. See Utah Code Ann. § 78-27-40 (1987).

2. Warranty claims

Whether § 2-725 applies to a breach of warranty action should be decided by the nature of the action and not by the pleading labels chosen. Reese v. Qualtrough, 48 Utah 23, 33, 156 P. 955, 959 (1916). See Heavner v. Uniroyal, Inc., 63 N.J. 130, 145, 305 A.2d 412, 420 (1973); McCarthy v. Bristol Laboratories, 86 A.D.2d 279, 282, 449 N.Y.S.2d 280, 283 (App.Div.1982). See also Perry, 681 P.2d at 217. Whether Davidson's claims for breach of the implied warranties of merchantability and fitness for a particular purpose are actions for "breach of any contract of sale" within the...