Nobility Homes of Texas, Inc. v. Shivers, 7808

Citation539 S.W.2d 190,20 UCCRep.Serv. 15
Decision Date15 July 1976
Docket NumberNo. 7808,7808
Parties20 UCC Rep.Serv. 15 NOBILITY HOMES OF TEXAS, INC., Appellant, v. John W. SHIVERS et al., Appellees.
CourtCourt of Appeals of Texas. Court of Civil Appeals of Texas

Charles W. Boyd, Conroe, for appellant.

J. Robert Liles, Conroe, for appellees.

DIES, Chief Justice.

Defendant below appeals from an adverse judgment rendered after a trial to the court, and we will designate the parties as they appeared in the trial court. Plaintiffs purchased a mobile home from one Marvin Hurley d/b/a Lakeview Mobile Homes, an independent dealer in Baytown, who has since gone out of business and cannot be located. Hurley had previously purchased this unit from the defendant, the manufacturer thereof. Hurley was not an agent for the defendant.

Plaintiffs alleged, and the trial court found, that the mobile home was defectively constructed; that at the time Hurley delivered it to plaintiffs, it was not free from defects in workmanship and material; that it was not fit for the purposes for which it was sold (i.e., a place of habitation); and that the difference in the reasonable market value thereof at the time of the purchase and the original contract price was $8,750. Judgment was rendered for plaintiffs for such amount from which this appeal has been perfected. We affirm.

By defendant's first point of error, it asserts that it could not be liable for any damages to plaintiffs because there was no privity of contract between them, and plaintiffs are only seeking economic loss.

The question of whether there must be privity of contract between parties before one may recover for purely economic damages to a product and its resulting diminution in value has not been firmly answered in this State. Comment 'Implied Warranties and 'Economic Loss" 24 Baylor L.Rev. 370 (1972). The current weight of authority in this jurisdiction, as stated by the dissent, seems to be that such privity is required. See, e.g., Foremost Mobile Homes Mfg. Corp. v. Steele, 506 S.W.2d 646 (Tex.Civ.App.--Fort Worth 1974, no writ); Thermal Supply of Texas, Inc. v. Asel, 468 S.W.2d 927 (Tex.Civ.App.--Austin 1971, no writ); and Cloer v. General Motors Corporation, 395 F.Supp. 1070 (E.D.Tex.1975). The Supreme Court of Texas has not yet ruled directly on this issue.

The position of the intermediate courts in Texas does not represent the trend of the cases in other jurisdictions, nor does it reflect the wiser and more progressive approach as it appears to this writer. The generally recognized landmark case for support of the principle that privity is not required in pure economic loss cases is Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965). There, Santor brought suit against the manufacturer of a carpet which he had purchased from one of its distributors. The only contract was between Santor and the distributor, which had subsequently gone out of business. Santor sought recovery only for the loss of value of the carpeting.

After a thorough discussion of the positions of the various states and the concomitant rationale of the divergent views, the New Jersey Supreme Court held that privity was not necessary to maintain an action by a consumer against the manufacturer for redress of an economic loss. The Court restated the holdings which do not require privity for recovery in instances of personal injury and said:

'But we see no just cause for recognition of the existence of an implied warranty of merchantability and a right to recovery for breach thereof regardless of lack of privity of the claimant in the one case (as in personal injury) and the exclusion of recovery in the other simply because loss of value of the article sold is the only damage resulting from the breach.

'From the standpoint of principle, we perceive no sound reason why the implication of reasonable fitness should be attached to the transaction and be actionable against the manufacturer where the defectively-made product has caused personal injury, and not actionable when inadequate manufacture has put a worthless article in the hands of an innocent purchaser who has paid the required price for it. In such situations considerations of justice require a court to interest itself in originating causes and to apply the principle of implied warranty on that basis, rather than to test its application by whether personal injury or simply loss of bargain resulted from the breach of the warranty. True, the rule of implied warranty had its gestative stirrings because of the greater appeal of the personal injury claim. But, once in existence, the field of operation of the remedy should not be fenced in by such a factor.' Santor v. A and M Karagheusian, Inc., supra at 309.

The court accepted these logical principles of equity and incorporated with them the substantive law of strict liability in tort. It again refused to accept the personal injury/economic loss dichotomy and held that only through tort liability would the burden of the injury be placed where it should be--on the maker of the product. This is because, though the breach arose initially from the sales contract, it was a "tortious wrong suable by a noncontracting party". Santor, supra at 312 (quoting from Goldberg v. Kollsman Instrument Corporation, 12 N.Y.2d 432, 240 N.Y.S.2d 592, 191 N.E.2d 81, 82 (1863)).

This position has been adopted in other jurisdictions: Randy Knitwear, Inc. v. American Cyanamid Company, 11 N.Y.2d 5, 226 N.Y.S.2d 363, 181 N.E.2d 399 (1962); State Farm Mut. Auto. Ins. Co. v. Anderson-Weber, Inc., 252 Iowa 1289, 110 N.W.2d 449 (1961); Cova v. Harley Davidson Motor Company, 26 Mich.App. 602, 182 N.W.2d 800 (1970); Lynne Carol Fashions, Inc. v. Cranston Print Works Co., 453 F.2d 1177 (3d Cir. 1972); Kassab v. Central Soya, 432 Pa. 217, 246 A.2d 848 (1968); Dealers Transport Co. v. Battery Distributing Co., 402 S.W.2d 441 (Ky.1965); Hiigel v. General Motors Corporation, 544 P.2d 983 (Colo.1975); Air Products & Chem., Inc. v. Fairbanks Morse, Inc., 58 Wis.2d 193, 206 N.W.2d 414 (1973) (applying Pennsylvania law); Iacono v. Anderson Concrete Corp., 42 Ohio St.2d 88, 326 N.E.2d 267 (1975). See also Baughman v. Quality Mobile Homes, Inc., 289 So.2d 376 (La.App.1973); Coleman v. Hertz Corp., 534 P.2d 940 (Okl.Ct.App.1975); Hawkins Construction Co. v. Matthews Co., Inc., 190 Neb. 546, 209 N.W.2d 643 (1973). And see generally Prosser, 'The Assault Upon the Citadel (Strict Liability to the Consumer)' 69 Yale L.J. 1099 (1960); Annot. 16 A.L.R.3d 683 (1967); and Blum v. Richardson-Merrell, Inc., 268 F.Supp. 906 (D.Md.1965) which criticizes the harshness of the rule requiring privity.

In determining that privity is not a requirement in order for a consumer to seek damages against a manufacturer for economic loss, the cases have predicated recovery upon basically three theories: 1

1. establishing exceptions to the general rule, such as the creation of a fictional privity based upon express and/or implied warranties. See, e.g., Elanco Products Company v. Akin-Tunnell, 474 S.W.2d 789 (Tex.Civ.App.--Amarillo 1971, no writ); Ford Motor Company v. Lemieux Lumber Company, 418 S.W.2d 909 (Tex.Civ.App.--Beaumont 1967, no writ).

2. making flat statements that no privity is required, apparently in the posture of an extension of McKisson v. Sales Affiliates, Inc., 416 S.W.2d 787 (Tex.1967) (which itself involved personal injuries).

3. considerations of public policy--sometimes on the basis of strict liability, see, e.g., Santor v. A and M Karagheusian, Inc., supra, and Hiigel v. General Motors Corporation, supra (544 P.2d 983); but also on the basis of an intermingling with real property concepts in concluding that a warranty is said to run with the product. See 24 Baylor L.Rev., supra at 381.

In applying the doctrine of strict liability, recent courts have done so on the basis of the Restatement of Torts, § 402A. Hiigel v. General Motors Corporation, supra at 989. This particular approach has been criticized by some writers as completely disregarding the law of sales. Prosser, 'The Fall of the Citadel,' 50 Minn.L.Rev. 791 (1969). One eminent Texas authority has expressed the opinion that the question should be concerned with sales law and the application of the Uniform Commercial Code. Keeton, 'Torts,' 23 Sw.L.J. 1 (1969).

In this context it is to be noted that the writers of the Texas version of the Uniform Commercial Code declined to adopt any of the alternatives which were put forth by the Code. The legislature thus enacted the following provision as to whether privity was needed within the context of the discussion before us:

'This chapter does not provide whether anyone other than a buyer may take advantage of an express or implied warranty of quality made to the buyer or whether the buyer or anyone entitled to take advantage of a warranty made to the buyer may sue a third party other than the immediate seller for deficiencies in the quality of the goods. These matters are left to the courts for their determination.' Tex.Bus. & Comm.Code Ann. § 2.318 (1968).

The effect of this neutral legislative position has been interpreted differently by the Texas courts. One school of thought is that § 2.318 demonstrates an intention that the issue be decided according to traditional common law rules incorporating privity. Eli Lilly and Company v. Casey, 472 S.W.2d 598, 600 (Tex.Civ.App.--Eastland 1971, writ dism'd). The other view is that the recovery in such cases is to be based upon considerations of sales law separate and apart from the law of torts. Monsanto Company v. Thrasher, 463 S.W.2d 25, 27 (Tex.Civ.App.--Amarillo 1970, no writ). We decline to accept either rationale, and adopt the view that the legislature is of the opinion which it enunciated--its unambiguous expression of neutrality. We proceed from this position.

It is our opinion that the interests of equity and justice will best be served by accepting the view that privity in cases now under...

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