Neibarger v. Universal Cooperatives, Inc.

• Decision Date: 01 October 1991
• Docket Number: 89140,Nos. 5,Docket Nos. 88206,ALFA-LAVA,6,INC,s. 5
• Citation: 486 N.W.2d 612,439 Mich. 512
• Parties: , 18 UCC Rep.Serv.2d 729, Prod.Liab.Rep.(CCH)P. 13,215 Darwin E. NEIBARGER and wife, Patricia L. Neibarger, Plaintiffs-Appellants, v. UNIVERSAL COOPERATIVES, INC., a foreign corporation, and Charles Brinker, individually and d/b/a Brinker Refrigeration Service, Defendants-Appellees. Charles F. HOUGHTON and Jeanette Houghton, Plaintiffs-Appellants, v., a foreign corporation, and Howard's Dairy System, Inc., a Michigan corporation, Defendants-Appellees. Calendar,
• Court: Michigan Supreme Court

Page 612

486 N.W.2d 612

439 Mich. 512, 18 UCC Rep.Serv.2d 729,

Prod.Liab.Rep.(CCH)P. 13,215

Darwin E. NEIBARGER and wife, Patricia L. Neibarger, Plaintiffs-Appellants, v. UNIVERSAL COOPERATIVES, INC., a foreign corporation, and Charles Brinker, individually and d/b/a Brinker

Refrigeration Service, Defendants-Appellees.

Charles F. HOUGHTON and Jeanette Houghton, Plaintiffs-Appellants, v. ALFA-LAVAL, INC., a foreign corporation, and Howard's Dairy

System, Inc., a Michigan corporation, Defendants-Appellees.

Docket Nos. 88206, 89140.

Calendar Nos. 5, 6, Oct. Term, 1991.

Supreme Court of Michigan.

Argued Oct. 8, 1991.

Decided May 20, 1992.

Paul L. Greer, [439 Mich. 515] Reber, Greer, Schuiteman, Stariha & Greer, P.C., Fremont, for plaintiffs-appellants.

Foster, Swift, Collins & Smith, P.C. by David H. Aldrich, Michael S. Wellman, Lansing, for defendant-appellee Universal Cooperatives, Inc.

Simpson Moran by Philip J. Goodman, Steven G. Silverman, Birmingham, amicus curiae, for County of Wayne.

Petersmarck, Callahan, Bauer & Maxwell, P.C. by Richard W. West, Detroit, for defendant-appellee Howard's Dairy System, Inc.

Cholette, Perkins & Buchanan, Robert J. Riley, Grand Rapids, for defendant-appellee Alfa-Laval's Brief on Appeal.

OPINION

ROBERT P. GRIFFIN, Justice.

We granted leave to consider the applicability in these consolidated cases of the "economic loss doctrine," which bars tort recovery and limits remedies to those available under the Uniform Commercial Code ¹ where a claim for damages arises out of the commercial sale of goods and losses incurred are purely economic. If plaintiffs in these cases are limited by the doctrine to a warranty action governed by the UCC and its four-year statute of limitations, which recognizes no discovery rule, their claims are time-barred.

The courts below so held. Upon review we agree and affirm the decisions of the Court of Appeals.

I

The facts and procedural background of these cases are very similar. Indeed, both were brought in the Mecosta Circuit Court ² and were considered by the same circuit judge. ³ With supplementation to be provided in the course of our analysis, we borrow from the concise statement of facts set forth in each case by the Court of Appeals.

Neibarger v Universal Cooperatives, Inc

"Plaintiffs, owners and operators of a dairy farm, contracted with defendant Charles Brinker to install a milking system. According to plaintiffs, the milking system was designed by defendants Universal Cooperatives, Inc., and Brinker, and was installed by Brinker to begin milking operations on September 1, 1979.

"Plaintiffs allege that, after the milking system had been in operation for a period of time, their cattle became ill and died or had to be sold for beef because of their nonproductivity and unsuitability as milking animals, suffered a loss of milk production, had severe instances of mastitis, and experienced a loss of a portion of their udders. Consequently, plaintiffs claim, they were prevented from reaching their herd potential.

"Plaintiffs alleged that it was not until fall of 1986 that they discovered that the entire vacuum system on the milking equipment had been improperly designed and installed. Plaintiffs brought suit against defendants on April 13, 1987, and proceeded against them on three theories: breach of express warranty, breach of implied warranty, and negligence." 181 Mich.App. 794, 796, 450 N.W.2d 88 (1989).

After some discovery, defendants filed motions for summary disposition, arguing that because plaintiffs' claim arose from the commercial sale of goods and they sought only economic damages, their exclusive remedy was a breach of warranty action under Article 2 of the UCC. ⁴ Further, defendants contended that such an action was barred in this case by the code's four-year limitation period, which begins running "when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach." M.C.L. Sec. 440.2725(2); M.S.A. Sec. 19.2725(2).

Plaintiffs, on the other hand, preferred the three-year statute of limitations for product liability actions set forth in the Revised Judicature Act, M.C.L. Sec. 600.5805(9); M.S.A. Sec. 27A.5805(9), arguing that it would not begin to run until the cause of the action was discovered, or reasonably should have been discovered. ⁵ Concluding that the UCC controlled and that its limitation period had expired before the complaint was filed, the trial court granted summary disposition for defendants. Plaintiffs appealed, and the Court of Appeals affirmed. After finding that the transaction involved was "a sale of goods with services incidentally involved," and the damages sought "consisted solely of economic loss," the Court concluded that "plaintiffs' remedies fall within the UCC, with its attendant four-year period of limitation, which began to run at the time of delivery." Id. at 802, 450 N.W.2d 88.

Houghton v Alfa-Laval, Inc

"Plaintiffs, owners and operators of a dairy farm, purchased a milking machine system in July, 1976, from defendant Alfa-Laval, Inc. It was installed according to Alfa-Laval's design and instructions by its agent, defendant Howard's Dairy System, Inc.

"Plaintiffs represent that they purchased the system in the hopes of increasing milk production. Milk production, however, did not increase despite numerous service calls from Howard's and advice and inspections from several milk production agencies and nutritionists. The cattle in plaintiffs' herd began to experience severe instances of mastitis, losses of a quarter of their udders and decreased milk production. Some of the herd became so sick that they died or were sold off for beef due to nonproductivity. Another problem plaintiffs discovered following the installation of the new system was an unacceptably high cell and bacteria count in the milk. Plaintiffs also claim that, due to faulty wiring, stray voltage would enter the system and injure the cattle and that there were problems with the system's cooling and vacuum systems.

"Plaintiffs allege that it was not until some time in 1984 that they were able to pinpoint their problems as stemming from the improper installation of the machine's washing system. Plaintiffs thereupon filed suit against defendants alleging negligence in design, installation and maintenance of the system and breach of express and implied warranties." 184 Mich.App. 731, 733, 459 N.W.2d 42 (1990).

As in Neibarger, and for similar reasons, the trial court granted defendants' motion for summary disposition. The Court of Appeals affirmed, concluding that plaintiffs' remedies "laid exclusively within the UCC and were subject to the four-year limitation period which began running upon delivery of the milking system in 1976." Id. at 734, 459 N.W.2d 42.

We granted leave to appeal in both cases to consider the applicability of the economic loss doctrine as well as the proper limitation period. 437 Mich. 928, 467 N.W.2d 309 (1991).

II

Michigan adopted the Uniform Commercial Code with the passage of 1962 P.A. 174, effective January 1, 1964. ⁶ The stated purposes of the code are "(a) to simplify, clarify and modernize the law governing commercial transactions; (b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; [and] (c) to make uniform the law among the various jurisdictions." ⁷

To achieve these goals, Article 2 of the code governs the relationship between the parties involved in "transactions in goods." ⁸ Under Article 2, a sale of goods is accompanied by the implied warranties of merchantability ⁹ and fitness ¹⁰ and an express warranty may be created by negotiation or by the conduct of the seller. ¹¹ Thus, under the code, the purchaser of defective goods may recover the benefit of the bargain (the difference between the value of the goods as delivered and the value the goods would have had they complied with the warranty) ¹² as well as incidental and consequential damages in a proper case. ¹³ An action to recover for breach of warranty under the UCC must be commenced within four years of tender of delivery of the goods, regardless of the time of discovery of the breach. ¹⁴

Since the plaintiffs' claims in each of these cases arose out of sale of goods governed by the UCC, we must determine whether the consequences of its strict limitation period may be avoided by pleading claims sounding in tort. Where, as here, the claims arise from a commercial transaction in goods and the plaintiff suffers only economic loss, our answer is "no"--such claims are barred by the economic loss doctrine. This position is consistent with a considerable body of law that has developed in this state as well as a majority of other jurisdictions. ¹⁵

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.' " ¹⁶ 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 sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts. ¹⁷

This distinction stems from the separate and sometimes conflicting purposes of tort and contract law, as explained by the Supreme Court of New Jersey in Spring Motors Distributors, Inc. v. Ford Motor Co., 98 N.J. 555, 579-580, 489 A.2d 660 (1985):

"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...