FARM BUREAU MUTUAL v. Combustion Research Corp.

Decision Date15 May 2003
Docket NumberDocket No. 235932.,Docket No. 234189
Citation255 Mich. App. 715,662 N.W.2d 439
PartiesFARM BUREAU MUTUAL, Plaintiff-Appellant, and Midwest Diesel, Inc., Plaintiff, v. COMBUSTION RESEARCH CORPORATION, Defendant-Appellee, and Dee Cramer, Inc., Defendant. Midwest Diesel, Inc., Plaintiff-Appellant, and S & S Diesel, Inc., Plaintiff, v. Combustion Research Corporation, Defendant-Appellee, and Dee Cramer, Inc., Defendant.
CourtCourt of Appeal of Michigan — District of US

Patrick, Johnson & Mott, P.C. (by John C. Patrick, Jr., and Catherine L. Coash), Southfield, for Farm Bureau Mutual Insurance Company.

Gary M. Collins, Fenton, for Midwest Diesel, Inc.

Mulcahy, Casey & Mulcahy, P.C. (by Brian J. Casey), Southfield, for the defendant.

Before: COOPER, P.J., and MURPHY and KIRSTEN FRANK KELLY, JJ.

PER CURIAM.

In these consolidated appeals, plaintiffs appeal by right from the circuit court's judgments granting defendant Combustion Research Corporation summary disposition pursuant to MCR 2.116(C)(7).1 We reverse and remand.

These actions arise out of a fire at a business owned and operated by plaintiff Midwest Diesel, Inc. (Midwest). Plaintiffs alleged that the fire was started when a heater, manufactured by defendant, ignited a wall through which a portion of the heater referred to as a "fire tube" passed. Plaintiff Farm Bureau Mutual Insurance Company (Farm Bureau) was the insurer of Midwest and paid Midwest $406,995 as a result of the fire and pursuant to an insurance policy. Upon this payment, and pursuant to the terms of the insurance policy, Farm Bureau became subrogated, to the extent of its payment, to the rights of Midwest against defendant.

It is undisputed that defendant was the manufacturer of the radiant heater at issue, which it sold to Michigan Infrared Heating Company (MIHC). MIHC was owned by Gilbert Ham. The sale occurred on February 22, 1993. The unit was in turn sold to Midwest, and Ham provided installation of the heater. Ham stated that a portion of the heater was installed outside the building, requiring the fire tube to pass through a combustible wall. The record indicates that shortly after its installation, the heater began to malfunction by "shorting out." The record also reflects that Steven Spencer, president of Midwest, contacted Ham on a number of occasions in an effort to remedy the problem. Spencer noted that on December 1, 1994, he noticed smoldering inside the building and called defendant, who referred him to Dee Cramer, Inc. (Cramer), a heater-repair firm.

Kevin Kelly, a technician for Cramer, testified at his deposition that on December 2, 1994, he went to Midwest and found the installation of the heater to be what he considered atypical because the heater's fire tube passed through a combustible wall. According to Kelly, because of the irregularity of the installation, he called defendant and asked that a representative inspect the installation in order to determine its safety. Kelly's work invoice indicated that defendant's employee, Craig Thornton, visited Midwest that same day. Specifically, the Cramer invoice states that "customer had problems with installation" and that Kelly "called Craig Thornton from Combustion Research. He met me here to check system. We repaired ... and checked operation and installation." According to Kelly, on the basis of this inspection, Thornton approved the installation.

Thornton, however, denied telling Kelly that the installation was appropriate. Thornton explained that Kelly had only been concerned about "water getting on a burner," and denied being asked about the advisability of a fire tube passing through a combustible wall. Defendant denied that it installed, serviced, repaired, or inspected the heater. Defendant now concedes that Thornton did visit Midwest on the day in question, but alleges that Thornton did so only as a "public relations visit" and not to inspect the heater. Specifically, defendant argues that Thornton went to Midwest in an attempt to mollify the dispute that had occurred between Steven Spencer of Midwest and Gilbert Ham.

In December 2000, defendant filed motions for summary disposition pursuant to MCR 2.116(C)(7) and (10). According to defendant, plaintiffs' remaining claim arose from defendant's manufacture and sale of the heater, and there was "no question that [it] did not install, service or otherwise have anything to do with the placement of the heater." Accordingly, defendant argued that plaintiffs' actions arose solely out of the sale of goods and were therefore governed by the Uniform Commercial Code (UCC), M.C.L. § 440.1101 et seq., and Neibarger v. Universal Coops, Inc., 439 Mich. 512, 534, 486 N.W.2d 612 (1992). Consequently, defendant argued that the claim was barred by the UCC's four-year period of limitation, M.C.L. § 440.2725, and by the economic-loss doctrine.2

In response to the motions, plaintiffs insisted that the only claim they were pursuing against defendant was that defendant failed to properly inspect, discover, and disclose the hazardous installation of the heater during Thornton's visit on December 2, 1994, emphasizing that they were not claiming that there was a defect in the product itself. On this basis, plaintiffs insisted that their claim was one based in tort, and not contract; therefore, the UCC's statute of limitations was not applicable. Further, plaintiffs emphasized what they considered a conflict in the evidence regarding whether defendant inspected the heater and its installation, and that this conflict barred summary disposition.

The trial court granted defendant's motions on the ground that plaintiffs' cause of action was barred by the UCC's statute of limitations and the economic-loss doctrine.

On appeal, plaintiffs argue that the trial court erred in relying on the economic-loss doctrine and the UCC's four-year period of limitation in summarily disposing of their actions. We agree.

This Court reviews de novo a trial court's decision on a motion for summary disposition under MCR 2.116(C)(7). DiPonio Constr. Co., Inc. v. Rosati Masonry Co., Inc., 246 Mich.App. 43, 46, 631 N.W.2d 59 (2001). In determining whether a party is entitled to judgment as a matter of law pursuant to MCR 2.116(C)(7), a court must accept as true a plaintiff's well-pleaded factual allegations, affidavits, or other documentary evidence and construe them in the plaintiff's favor. Brennan v. Edward D. Jones & Co., 245 Mich.App. 156, 157, 626 N.W.2d 917 (2001). Where there are no factual disputes and reasonable minds cannot differ on the legal effect of the facts, the decision regarding whether a plaintiff's claim is barred by the statute of limitations is a question of law that this Court reviews de novo. Id.

The statute of limitations involving transactions for the sale of goods is set forth in M.C.L. § 440.2725, which states, in pertinent part:

(1) An action for breach of any contract for sale must be commenced within 4 years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than 1 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 warrant 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.

However, an injury caused by a service does not arise out of a "transaction in goods" and is not subject to the remedy provisions, including the statute of limitations, contained in the UCC. Higgins v. Lauritzen, 209 Mich.App. 266, 269, 530 N.W.2d 171 (1995).

Plaintiffs seek to avoid the time limits set forth in M.C.L. § 440.2725, and instead wish to rely on statutes of limitations applicable to general tort actions. The only issue presented and argued to us concerns whether the UCC's statute of limitations is applicable under the circumstances of these cases; therefore, we shall not address whether plaintiffs' cause of action is maintainable under statutes of limitations outside the UCC. Additionally, we shall not address whether the UCC's statute of limitations, if applicable, was properly found to bar these actions, where plaintiffs have not made that argument on appeal.

We are confronted with cases in which defendant did not sell the heater directly to Midwest and did not install the unit, nor are plaintiffs seeking to hold defendant liable for selling a defective product or for negligently installing the unit. Rather, plaintiffs seek to hold defendant liable for an alleged service call occurring approximately twenty-two months after the sale of the product based on a failure to recognize the allegedly improper installation completed by MIHC and failure to warn Midwest of the danger. We find that the ultimate issue for us to determine is whether the act by Thornton in visiting Midwest was sufficiently distinct from the sale of the heating unit and any contractual obligations related to the sale so as to remove the cases from the UCC, and we must simultaneously consider whether Thornton's actions could give rise to a separate claim predicated on tort law for failure to warn or disclose.

In Neibarger, supra at 520-521, 486 N.W.2d 612, our Supreme Court stated:

The economic loss doctrine, simply stated, provides that "`[w]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only "economic" losses.'" This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the
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