Livingston Bd. of Educ. v. U.S. Gypsum Co.

Decision Date18 July 1991
Citation592 A.2d 653,249 N.J.Super. 498
Parties, 68 Ed. Law Rep. 720, Prod.Liab.Rep. (CCH) P 12,951 LIVINGSTON BOARD OF EDUCATION, Plaintiff-Appellant, v. UNITED STATES GYPSUM COMPANY, Elsasser & Miller, A.A. LaFountain, Inc., John Doe A and John Doe B, Defendants-Respondents.
CourtNew Jersey Superior Court — Appellate Division

James S. Rothschild and Charles E. Reuther, for plaintiff-appellant (Riker, Danzig, Scherer, Hyland & Perretti, attorneys, James S. Rothschild of counsel, James S. Rothschild, Charles E. Reuther and Beatrix W. Shear on the brief).

Kell M. Damsgaard, Philadelphia, Pa., pro hac vice, for defendant-respondent U.S. Gypsum Co. (Robinson, St. John & Wayne, and Morgan, Lewis & Bockius, attorneys, Keven G. Blessing, Newark, and Kell M. Damsgaard on the brief, Philadelphia, Pa.).

Before Judges KING, LONG and R.S. COHEN.

The opinion of the court was delivered by

R.S. COHEN, J.A.D.

Plaintiff Livingston Board of Education says that it discovered in 1983 that ceilings in its Heritage School contained asbestos fibers. The Board had the Heritage School built in the mid-1960s. The architect, a predecessor of defendant Elsasser & Miller, specified the use of a ceiling product called Audicote, which was made by defendant United States Gypsum Company. It was installed by the general contractor, defendant A.A. LaFountain, or its subcontractor. After it was told in 1983 that Audicote contained asbestos, the Board contracted to have the ceilings removed. It then sued U.S. Gypsum, the architect, and the general contractor (and several John Does) for damages.

The Board's complaint contended that U.S. Gypsum was liable for its damages on the following bases: (1) strict tort liability for a defective product; (2) strict tort liability for failure to warn; (3) breach of express and implied warranty; (4) negligence; (5) intentional misrepresentation, and (6) negligent misrepresentation.

Some five years after the action was filed, U.S. Gypsum moved for summary judgment, arguing that all of the Board's claims were time-barred, and also that all of the Board's tort claims failed as a matter of law. The motion judge agreed that the tort claims had to be dismissed, but denied the motion addressed to the statute of limitations on the thesis that the UCC four-year statute of limitations, N.J.S.A. 12A:2-725(2) applied, but that the Board was entitled to a hearing pursuant to Lopez v. Swyer, 62 N.J. 267, 300 A.2d 563 (1973). The Board appealed, and we are required to reverse both rulings.

The judge's letter opinion dismissed the tort claims in one paragraph:

As to the motion to dismiss Counts I, II, IV, V and VI of the Complaint same is granted. A commercial buyer such as plaintiff herein cannot recover damages for economic loss resulting from purchase of defective goods on a negligence theory. Spring Motors Distributors, Inc. vs. Ford Motor Co., 98 N.J. 555 [489 A.2d 660 (1985) ]. Plaintiff's reliance on People Exp. Airlines, Inc. vs. Consolidated Rail, 100 N.J. 246 [495 A.2d 107 (1985) ] is misguided in that the relationship between the parties therein was not based upon a commercial transaction or purchase of goods.

In Spring Motors Distrib., Inc. v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985), the Supreme Court ruled that a commercial buyer seeking damages for economic loss resulting from the purchase of defective goods may recover from an immediate seller and a remote supplier for breach of warranty under the UCC, but not in strict liability or negligence. Spring Motors was in the business of selling and leasing trucks, and operated a fleet of 300 vehicles. It bought 14 Ford trucks with transmissions of its own choice. The transaction was heavily papered with express warranties and limitations of warranties not expressed.

The transmissions malfunctioned, and Spring Motors eventually sued, seeking damages for its expenses, loss of profits and loss of value of the trucks, on negligence, strict liability, and breach of warranty theories. Since the suit was started more than four years after delivery of the trucks, the UCC statute of limitations barred it, unless Spring Motors had viable non-UCC claims for negligence and strict liability. The Court ruled that it did not have; it was a commercial buyer and its claimed damages were for economic loss. 1

The application of the principles of Spring Motors to public bodies who sue for the cost of public building asbestos removal has been an issue in a number of recent cases around the country. Our approach to the problem may be atypical, because we are bound by Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965), which held, before adoption of the UCC in New Jersey, that a consumer who sued the manufacturer of defective carpeting had a cause of action for strict tort liability. The majority of states have rejected Santor in favor of a rule announced by Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), that even a consumer cannot recover in strict liability for economic loss. We are nevertheless bound by Santor, which the 1985 Spring Motors opinion expressly declined to reconsider.

The boundary between strict tort liability and UCC remedies is an indistinct and troublesome one. Determining its location engages policy considerations involving risk bearing and spreading capacities, the relative bargaining power of the parties, and the unresponsiveness of commercial law doctrines to the needs of consumers who sustain physical injuries from defective goods made or distributed by remote parties. Also to be considered is judicial respect for the effort of the Legislature to adopt, in the UCC, a carefully conceived and comprehensive system of rights and remedies to govern commercial transactions. Such a system ought to be both predictable and flexible in permitting the parties to commercial transactions to choose rights, responsibilities and remedies. See Spring Motors, 98 N.J. at 570-577, 489 A.2d 660. As the Supreme Court said:

The demarcation of duties arising in tort and those arising in contract is often indistinct, but one difference appears in the interest protected under each set of principles. The purpose of a tort duty of care is to protect society's interest in freedom from harm, i.e., the duty arises from policy considerations formed without reference to any agreement between the parties. A contractual duty, by comparison, arises from society's interest in the performance of promises. Generally speaking, tort principles, such as negligence, are better suited for resolving claims involving unanticipated physical injury, particularly those arising out of an accident. Contract principles, on the other hand, are generally more appropriate for determining claims for consequential damage that the parties have, or could have, addressed in their agreement. [Id. at 579-580, 489 A.2d 660 (citation omitted) ].

It is not immediately satisfying to say that decisions in the subject area are fact-sensitive, but it is accurate to say so. An examination of the parties, the transaction, and the claimed losses is necessary before the buyer or the transaction can be labeled commercial, or the losses can be labeled economic. The constellation of facts involved here is particularly difficult because the Board is neither a business nor a homeowner, its use of Audicote was neither in the furtherance of its own money-making schemes or in a personal setting, and its risk-bearing capacity is dependent on the taxpayers. Furthermore, the Board's damages are neither loss of the benefit of the bargain nor lost profits, the typical losses labeled by Spring Motors as economic. Id. at 566, 489 A.2d 660. On the other hand, the Board's damages do not involve actual personal injury or physical damage to other property, the typical sources of damages recovered through imposition of tort liability. But they do involve expenses incurred by the Board in an effort to reduce the danger of severe personal injury to those in the school building resulting from exposure to airborne asbestos fibers, and the damage to the building consequent on the removal process.

New Jersey authorities subsequent to Spring Motors give little guidance. In Perth Amboy Iron Works, Inc. v. American Home Assurance Co., 226 N.J.Super. 200, 543 A.2d 1020 (App.Div.1988), aff'd o.b., 118 N.J. 249, 571 A.2d 294 (1990), and Unifoil Corp. v. CNA Ins. Co., 218 N.J.Super. 461, 528 A.2d 47 (App.Div.1987), we dealt with warranty and other claims for economic loss, but did not reject strict tort liability in cases like the present one. At best, those cases dealt with situations in which plaintiffs alleged that defective goods did not perform their intended function and thus deprived plaintiffs of the benefit of their bargains. Here, Audicote performed its intended function admirably. The problem was that it created a danger to life and health which the parties did not contemplate or bargain over. Like Perth Amboy and Unifoil are: In re Merritt Logan, Inc., 901 F.2d 349, 361-363 (3d Cir.1990) (defective refrigeration system causing damage to food stocks); Henry Heide, Inc. v. WRH Products Co., 766 F.2d 105, 107-109 (3d Cir.1985) (defective plastic trays causing economic loss to candy manufacturer); Damin Aviation Corp. v. Sikorsky Aircraft, 705 F.Supp. 170, 175-177 (S.D.N.Y.) (New Jersey law; action in tort for lost profits resulting from defective helicopter's crash dismissed), aff'd, 880 F.2d 1318 (2d Cir.1989); Unifoil Corp. v. Cheque Printers & Encoders Ltd., 622 F.Supp. 268, 269-270 (D.N.J.1985) (defective "foilboard" rendered lottery tickets unusable); cf. Werner & Pfleiderer Corp. v. Gary Chem. Corp., 697...

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